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Exhibit 1

Future Directions for Medicaid:

Implications of The Deficit Reduction Act
of 2005 and 1115 Waivers

Presented by
Robin Rudowitz
Principal Policy Analyst
Kaiser Commission on Medicaid
and the Uninsured

September 2006
Exhibit 2

Medicaid’s Roles

Health Insurance Coverage Assistance to Long-Term Care

Medicare Beneficiaries Assistance
25 million children &
14 million adults in low-income 7 million aged and disabled— 1 million nursing home
families; 6 million persons 18% of Medicare beneficiaries residents; 43% of long-term
with disabilities care services


Support for Health Care State Capacity for

System and Safety-net Health Coverage
17% of national health spending 43.5% of federal funds to states

Return to
Exhibit 3

Medicaid’s Role for Selected Populations

Percent with Medicaid Coverage:

Poor 39%

Near Poor 23%


All Children 26%

Low-Income Children 51%

Low-Income Adults 20%

Births (Pregnant Women) 37%

Aged & Disabled

Medicare Beneficiaries 18%

People with Severe Disabilities 20%

People Living with HIV/AIDS 44%

Nursing Home Residents 60%

Note: “Poor” is defined as living below the federal poverty level, which was $19,307 for a family of four in 2004.
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Exhibit 4

Medicaid Enrollees and Expenditures

by Enrollment Group, 2003

Elderly 11%
Disabled 14% 28%

26 % Disabled

49% Adults 12%

Children 18%

Enrollees Expenditures on benefits

Total = 55 million Total = $234 billion

Source: Urban Institute and Kaiser Commission on Medicaid and the Uninsured estimates based on
2003 MSIS data. Return to
Exhibit 5

Why is Medicaid at the Center of

National Policy and Budget Debates?

Pressures in the general Number of Uninsured Children

health care system: and Adults, 2000–2004

• Rising health costs 50 45.5 M

43.3 M
39.6 M
40 9
• More uninsured 9.3

In Millions
• Aging population
20 36.5

2000 2002 2004
Adults Children

Note: Sums may not equal totals due to rounding.

Source: KCMU and Urban Institute estimates based on the March Current Population Surveys, 2001–2005. Return to
Exhibit 6

State Budgetary Pressures and Responses

States Implementing Medicaid

• Slow recovery from Cost Containment, 2005
economic downturn
Long-Term Care 10
• Medicaid spending
outpacing revenue growth Disease Management 26

• Focus on reducing and Increasing

predicting rate of spending
Reducing Benefits 7

• State response: Reducing/Restricting

– Cost containment Eligibility
– 1115 Waivers Reducing/Freezing 50
Provider Payments

Controlling Drug 43

Source: KCMU survey of Medicaid officials in 50 states and DC conducted by Health Management
Associates, September and December 2003, October 2004 and October 2005. Return to
Exhibit 7

Federal Budget Pressures and Responses

• Rising federal deficit

Federal Deficit Projections, 2006–2016
• Pressure to cut deficit and
extend tax cuts

• Interest in reducing federal $0

Billions of Dollars
spending on Medicaid

• Federal Action: -$200

– Deficit Reduction Act
– President’s FY 2007 -$300
proposals -$400
– Secretary’s Medicaid
Commission -$500
2006 2008 2010 2012 2014 2016

CBO Baseline CBO Adjusted Baseline

Note: Adjusted baseline accounts for the impact of the Deficit Reduction Act, extension of tax cuts, AMT
reform and war costs
Source: CBO, Baseline Budget Outlook, January 2006. Return to
Exhibit 8

5- and 10-Year Savings Estimates

from the Deficit Reduction Act
2006-2010 2006-2015

$38.8 Billion

$99.3 Billion

Source: CBO, January 27, 2006 Return to

Exhibit 9

Distribution of Medicaid Spending Reductions

in the Deficit Reduction Act
2006-2010 2006-2015


Drug Payment

Long-Term Care

Benefits and Cost


5-Year Savings = $11.5 Billion 10-Year Savings = $43.2 Billion

Note: “Other” provisions in the conference report include targeted case management,
third-party recovery, provider taxes, and requiring evidence of citizenship
Source: CBO, January 27, 2006 Return to
Exhibit 10

DRA Requires Proof of

Citizenship for Medicaid
• Prior to the DRA
– 47 states allowed applicants to self-declare citizenship status

• DRA requires all Medicaid enrollees to document proof of citizenship

starting July 1, 2006
– Most immigrants still ineligible for Medicaid
– Undocumented immigrants still only eligible for emergency Medicaid services

• HHS rules provide a “documentation hierarchy” where individuals

must use passport or birth certificate before non-government
documents and affidavits

• HHS rules also

– Exempt dual eligibles and SSI recipients; foster children not exempted
– Allow states to conduct upfront data matches to obtain birth certificates
– Allow current beneficiaries a “reasonable opportunity” to obtain documents but
delays enrollment for new applicants without documentation

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Exhibit 11

Cost Sharing Provisions in the DRA

• Prior to DRA: states could charge nominal cost sharing to
certain Medicaid beneficiaries but not premiums. Cost
sharing had to be uniform across the state.

• DRA cost sharing and premiums changes:

– States may impose higher or new cost sharing and premiums
– Maintains cost sharing exemption for
• mandatory children (infants with incomes up to 185% FPL,
children up to age 6 up to 133% FPL, and older children
under 100% FPL), and
• pregnant women
– States can make cost sharing “enforceable”
– Allows variation in benefits and cost sharing across groups
and geographic areas

• CBO estimates that 80% of the savings would be

attributable to decreased utilization

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Exhibit 12

Medicaid Benefits
“Mandatory” Items and Services “Optional” Items and Services

• Physician services • Prescription drugs

• Laboratory and x-ray services • Clinic services
• Inpatient hospital services • Dental services, dentures
• Outpatient hospital services • Physical therapy and rehab services
• Early and periodic screening, • Prosthetic devices, eyeglasses
diagnostic, and treatment
• Primary care case management
(EPSDT) services for
individuals under 21 • Intermediate care facilities for the mentally
retarded (ICF/MR) services
• Family planning
• Inpatient psychiatric care for individuals
• Rural and federally-qualified
under 21
health center (FQHC) services
• Home health care services
• Nurse midwife services
• Personal care services
• Nursing facility (NF) services
for individuals 21 or over • Hospice services

Return to
Exhibit 13

Benefit Provisions in the DRA

• Allows states to use “benchmark” plans for certain groups
– FEHBP – Blue Cross/Blue Shield PPO
– Largest commercial HMO in state
– Any state employees plan
– Secretary-approved

• Maintains current benefits for individuals with disabilities or

long term care needs (can enroll voluntarily)

• Maintains EPSDT coverage as wrap-around for children

• Allows variation across groups and geographic areas

• Does not apply to expansion populations

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Exhibit 14

Other Medicaid Provisions in the DRA

(10-Year Estimates)
• Savings Provisions in the DRA
– Prescription drug payment reform – pricing and rebates ($12.6B)
– Reforms to asset transfer laws ($6.4B)
– Restrictions on Provider Taxes ($2.9B)
– Targeted Case Management Changes ($2.1B)
– Third Party Recovery ($1.7B)

• Spending Provisions in the DRA

– Katrina-related Assistance ($2.1B)
– Home and Community-Based Services ($2.6B)
– Family Opportunity Act ($6.4B)
– Cash and Counseling ($360M)
– TMA and Abstinence Education ($762M)
– Medicaid Program Integrity ($528M)
– Health Opportunity Accounts ($261M)

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Exhibit 15

West Virginia One of the First States

to Use New Options in the DRA
• Creates Basic and Enhanced benefit plans for children
and parents

• Parents must sign a “member agreement”

to access “Enhanced” benefits for themselves and their
children, including mental health services, diabetes care,
and drugs beyond a four-drug limit

• State must continue to provide EPSDT benefit to children

• HMOs and providers will report patient status with regard

to the member agreement to the state

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Exhibit 16

Kentucky’s New Medicaid Program Under the DRA

• Creates 4 Targeted Benefits Plans
– Global Choices (default)
– Family Choices (most kids)
– Optimum Choices (Mentally Retarded/Developmentally Disabled)
– Comprehensive Choices (Nursing Home Care)

• New cost sharing requirements and service limits. For example:

– limited to 4 prescription drugs per month
– $50 co-pays for inpatient hospital services
– $3–$6 for physician visits
– $1 for generic drugs, $2 for preferred drugs and a 5% coinsurance
for non-preferred drugs
– Out-of-pocket costs for service capped at $225/year and another
$225 annual cap for prescription drugs

• Emphasis on disease management, Get Healthy Benefit

Accounts, and premium assistance

• Expanded access to community-based long-term care services

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Exhibit 17

Key Periods of Medicaid 1115 Waiver Activity

Waiver Activity
1965–1990 Limited waiver activity

Mandatory managed care and coverage expansions

Oregon Health Plan & TennCare

SCHIP waivers
HIFA waiver initiative released
As fiscal pressures grew, most waivers focused on

Broad restructuring
Tiered benefits
Changes in special financing arrangements

Return to
Exhibit 18

What Medicaid Changes

Still Require 1115 Waivers?

• Changes that still require waivers

– Providing Medicaid coverage to childless adults
– Benefit limits, premiums, and cost sharing increases
beyond DRA limits
– Limiting benefits for new eligibility groups
– Eliminating EPSDT requirements
– Enrollment caps

• Waivers must meet federal budget neutrality requirements,

no budget neutrality for state plan amendments (SPAs)

Return to
Exhibit 19

Florida Used an 1115 Waiver

for Medicaid Changes
• State will allot risk-adjusted premiums for beneficiaries as
payment to plans

• Beneficiaries choose among managed care plans or “opt-out”

to employer sponsored insurance

• New authority for plans to set benefits for adults

• New overall annual maximum benefit limit for adults

• No benefit limit for children, continuation of EPSDT

• Individuals can earn “Enhanced Benefits” by engaging

in healthy activities

• Low-Income Pool of $1 billion for safety-net providers

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Exhibit 20

New Directions in Medicaid

• Emphasis on personal actions and responsibility
– Behavior modification through incentives
– “Consumer choice” of managed care plans
– Long-Term Care Consumer Direction
– Increased premiums and/or cost sharing

• “Tailored” benefits
– Variation in benefit packages across groups or geographic areas

• Increased role of private marketplace

– Increased control to plans to determine benefit packages
– Emphasis on premium assistance
– Public/private long-term care partnerships

• Restricting spending/increasing spending predictability

– Defined contribution approaches
– Aggregate cap on federal funding

Return to
Exhibit 21

Issues to Consider
• Health insurance is critical for assuring access to needed
preventive, specialty, and hospital care and protecting families
from high medical costs.

• Low-income adults have few insurance options in the absence

of public coverage

• Medicaid is the nation’s health care safety net

– Beneficiaries are poor with limited resources
– Many have chronic conditions with multiple health needs
– Beneficiaries with disabilities require both acute and long-term care

• Limits on Medicaid result in more uninsured and increased

unmet health needs

• Medicaid still provides an important base and mechanism

for states to expand coverage

Return to
Exhibit 22

Related Resources on
Medicaid and the DRA
• Medicaid at a Glance
• Deficit Reduction Act of 2005: Implications for Medicaid
• State Medicaid Fact Sheets (WV, KY, VT, FL, MA)
• State-Specific Section 1115 Waiver Fact Sheets
• The New Medicaid and CHIP Waiver Initiatives
• New Developments in Medicaid Coverage: Who Bears Risk and Responsibility?
• New Requirements for Citizenship Documentation in Medicaid
• Medicaid Long-Term Services Reforms in the Deficit Reduction Act

• The Nuts and Bolds of Making Medicaid Policy Changes: An Overview and a Loo

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