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Medicaid’s cost

The Illinois health care system is under examination
as budget woes loom

by Ashley Griffin

The thought of this spring’s legislative session going into summer overtime was greeted by groans from members of the General Assembly. During his budget address in February, Gov. Pat Quinn told lawmakers they can’t go home until they pass comprehensive Medicaid reform. Now, they face the daunting task of cutting $2.7 billion in Medicaid spending growth from the Fiscal Year 2013 budget.

The figure $2.7 billion is the amount of Medicaid bills that Quinn says would carry over into FY 2014 if lawmakers do not act. Last year, lawmakers decided not to cut rates paid to health care providers for treating patients and instead kicked almost $2 billion in bills from FY 2011 into FY 2012.

“Medicaid spending must be restructured to keep the system alive and well,” Quinn said in his budget speech. “This is not something you can blithely delay for another year.”

But with reforms slow to get off the ground and a menu of possible cuts slowly beginning to surface, lawmakers are now forced to somehow tame the Medicaid beast before it reaches $21 billion in unpaid bills by 2017, according to a recent projection by the Civic Federation.

And it won’t be easy. Lawmakers’ options are limited. They are looking at possible options to reduce the number of patients: They could take people off the rolls through stricter verification rules and changes to eligibility, offer fewer services, cut rates to doctors or all of the above. The potential cuts will hit constituents hard during a recession and anger health care providers who are often big campaign donors and who may opt to pull out of the Medicaid program altogether.

“Boiling it down in more simple terms … who are the people that are eligible? How much of it will they get? How often will they get it? And what will be the rate of reimbursement paid to the providers of the service? That’s the whole spectrum of the health care system, and it’s all under examination,” House Speaker Michael Madigan told public television’s Illinois Lawmakers. The political fallout from those options looms large during an election year.

Medicaid is a health care program for the poor that offers a variety of services. It is funded by both the state and federal governments. With the 2009 federal stimulus package, the federal government picked up 62 cents of every dollar Illinois spent on Medicaid costs, but that program expired last June, and now the split is again 50-50.

Since 2000, Medicaid enrollment has nearly doubled — 1.4 million to 2.7 million. The nationwide recession has left Illinois with one of the highest unemployment rates in the country. The combination of growing health care costs and a record number of enrollees pushed lawmakers last year to craft and pass Medicaid legislation. That bill was deemed a “landmark achievement” by Quinn and aimed to tighten up Medicaid eligibility and crack down on Medicaid fraud. When he signed the bill, Quinn said the reforms would reduce the state’s Medicaid costs by as much as $774 million over the next five years.

But some are skeptical that it will produce the level of savings that supporters claimed. “I think it’s a punitive way to approach the problem. There is some research that shows people don’t [game] the system as much as is implied by some. Some of the legislators claimed 20 percent of people are income-ineligible because we haven’t verified their income. I think that is a very high number and not likely,” says Robert Kaestner, a professor at the University of Illinois Chicago who is affiliated with the University of Illinois’ Institute of Government and Public Affairs.

And last year’s changes have hit significant roadblocks.

The reform adds an HMO-styled managed-care pilot program to the system, and it will require about half of all Medicaid patients to enroll in a managed care program by 2015. It also required the state to pay bills sooner and limited the income eligibility for future enrollees into Illinois’ health care program, All Kids, to 300 percent of the federal poverty level.

The plan called for a six-county managed care pilot program to treat some members of the most expensive Medicaid population: those with chronic health problems. Supporters say it could save $200 million over five years by having the state pay insurers a set rate per year for each patient. But the program was not well-received by some of the state’s top hospitals.

Several health care providers chose not to participate in the managed care pilot program. According to an August 2011 article in the Chicago Tribune, Northwestern Memorial Hospital, Rush University Medical Center and the University of Chicago Medical Center were some of the hospitals that opted out of the program. Loyola University Health System said in a statement that it wasn't participating for now because “our expenses for Medicaid exceed our reimbursement.”

And even the reforms that were characterized by some as “low-hanging fruit,” such as electronic verification that would check Medicaid patients’ addresses by using records provided by the secretary of state’s driver services office, were not immediately approved by the federal government. Federal officials originally said the new changes Illinois made to its Medicaid program would make it more difficult for applicants to obtain health insurance and could violate the Maintenance of Effort (MOE) requirements set out in the Affordable Care Act, a federal law passed in 2010 that aimed to provide health coverage for all Americans.

With the reforms on hold for almost a year pending federal approval, some Republican leaders in the Statehouse say that despite Quinn’s tough talk on Medicaid cuts, his administration is not being aggressive enough in pursuing the changes.

“Last year, lawmakers passed bipartisan Medicaid reform that placed a moratorium on the creation or expansion of Medicaid programs and established what I’m sure most people in this state would consider common-sense eligibility verification measures,” said Sen. Dale Righter in a prepared statement. Righter, a Republican from Mattoon, worked on Medicaid reform last year. He also said he was “dumbfounded” that the Quinn administration was dragging its feet on putting the changes in place.

After waiting for the federal government to grant the waivers needed to implement the changes, the Illinois Department of Healthcare and Family Services decided to push ahead with the reforms in February.

Julie Hamos, director of DHFS, said in a letter to Cindy Mann, director of the federal centers for Medicare and Medicaid services, that in a recent survey sent to those who were mailed monthly medical cards, nearly 6 percent were returned as undeliverable with out-of-state addresses.

“This is unacceptably high. These changes in Illinois law were found to be necessary to protect the integrity of the programs. They were not enacted as a means to reduce enrollment but rather to assure all applicants and recipients are treated equitably and comply with existing eligibility requirements,” Hamos said in the letter. “I must reiterate that we are moving forward to implement new procedures that are essential to the integrity of our programs.”

“I don’t think CMS [the Centers for Medicare and Medicaid Services], the federal central management system, is happy with us for doing that [moving on without permission]. I am pleased that the director made the call to do that and the governor,” says Sen. Heather Steans, a Democrat from Chicago, who was one of the sponsors of the Medicaid reform bill that passed last year.

The state started with electronic verification in March, after Mann signed off on using records to verify that applicants are residents.
However, the federal government is still considering whether Illinois can ask applicants to more regularly provide proof of income.

“I think other states have been more innovative than we have,” says Kent Redfield, an emeritus professor at the University of Illinois Springfield. He says Illinois needs to find a way to control Medicaid costs, but he says the soaring cost of health care has to be addressed at the federal level.

“We have to get a handle on access,” he says. However, Redfield adds: “We can organize and we can manage, but until we can figure out how to get a handle on cost increases … we can do things on the margin, but we can’t fix it by ourselves.”

Redfield says the recent reforms and the ones being pitched this session could slow down the growth of the program, but they won’t solve the problem. “That really doesn’t fix the escalation in cost,” he says. “You get fewer people getting services more efficiently, but if the cost of those services continues to escalate, you are really just slowing down the inevitable.”

Redfield says Illinois and other states are caught in the limbo of what will happen to the federal Affordable Care Act, which is facing a challenge in the U.S. Supreme Court. “We can’t solve this by ourselves until the courts make a decision on the health care reform stuff.”

But Kaestner says most states are struggling to craft some type of Medicaid reform. “It’s already a cheap program. Medicaid is a very low-cost-per-person program. That makes it hard to save money on something that is already low-cost.”

But Illinois is not the only state having problems implementing its Medicaid reform. Many states have been turning to so-called managed care programs to cut costs.

According to a recent story from “South Carolina is planning to require nearly all of its Medicaid beneficiaries to enroll in a managed care plan starting in April. Washington State is planning to increase its share of Medicaid recipients in managed care from 60 percent to 85 percent by 2014. Texas and Virginia also are weighing sizable expansions of Medicaid managed care. States have been using managed care to cut Medicaid costs for two decades. Up to now, however, the vast majority of plans covered only children and pregnant women — a large, but relatively healthy and inexpensive segment of the more than 60 million people covered by Medicaid.”

Steans says, “Illinois is very behind how most other states deal with the Medicaid program in terms of having folks in managed care programs.”

But she says that isn’t all bad. “We’ve seen that happen very effectively now in other states and have been able to learn a lot from the other states’ lessons and how to manage. In a way we are fortunate. We are late to the table. In a way, it gives us an opportunity to learn from everyone else’s mistakes and do a good job with it.”

Quinn has proposed expanding managed care as a way to cut costs. He has also presented lawmakers with a list of services that are not required by the federal government to consider for cuts. For example, lawmakers could vote to reduce or eliminate optional services such as adult eyeglasses. The current Medicaid system has no limit on the number of eyeglasses someone could receive. Additional services that might be eliminated include visits to chiropractors and surgery to treat obesity.

Other options Quinn has presented include rate reductions for all providers, further reducing the eligibility for the current All Kids program to 200 percent of the federal poverty level, which means a family of four that makes $46,100 would be eligible.

Health care providers balk at the idea of cutting rates, which they say are already low, and not everyone agrees that cutting some Medicaid services is the answer to helping solve the Medicaid crisis.

“The Illinois Medicaid program spends about $15 billion [per year], and making a 14 percent cut, when you look at it from that perspective of the hospital community, we are very deeply concerned on access to care for people throughout the state,” says John Bomher, senior vice president for health policy at the Illinois Hospital Association.

“Clearly, that sort of reduction is going to force hospitals and other providers to reduce services they provide — in some instances, cut hours to save money and discontinue other services.”

Instead of rate cuts, the hospital association supports reforms that would place patients with a primary care doctor, who would focus on wellness and prevention. Such a plan could cut costs by keeping patients out of emergency rooms and potentially stave off serious health problems.

Jim Duffett, executive director of the Campaign for Better Health Care, says cutting services could hurt low-income families. His organization is working to come up with other alternatives, such as increased taxes on products like soda and cigarettes that can lead to health problems.

Duffett says cutting Medicaid services would touch all residents, not just Medicaid patients. He says that with the loss of coverage, more people use trips to the emergency room as their primary source for health care, which could affect the overall cost of health care in the state. “As these cuts are happening and all other people in Illinois who have private insurance will feel the effects, you squeeze the balloon at one side and then you have the balloon expanding at many corners on the other side.”

Illinois Issues, April 2012


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BlueBullet.gif “I think it’s a punitive way to approach the problem. There is some research that shows people don’t [game] the system as much as is implied by some. Some of the legislators claimed 20 percent of people are income-ineligible because we haven’t verified their income. I think that is a very high number and not likely.”
—Professor Robert Kaestner, University of Illinois

Michael Madigan
House Speaker Michael Madigan, a Chicago Democrat, spoke about Medicaid on public television’s Illinois Lawmakers: “Boiling it down in more simple terms … who are the people that are eligible? How much of it will they get? How often will they get it? And what will be the rate of reimbursement paid to the providers of the service? That’s the whole spectrum of the health care system, and it’s all under examination.”

Dale Righter
State Sen. Dale Righter, a Republican from Mattoon, worked on the Medicaid reform bill last year, and he was “dumbfounded” that the Quinn administration has been dragging its feet on putting Medicaid changes in place.