Reform Update: States expanding Medicaid may be surprised by actual costs

States expanding their Medicaid programs under the healthcare reform law to adults earning up to 138% of the federal poverty level may be surprised by their actual costs for the new enrollees, particularly when it comes to mental health services, according to a new study published in the Medicare & Medicaid Research Review.

Researchers from Harvard University and the Urban Institute interviewed high-ranking Medicaid officials in six states that have expanded Medicaid since 2010, including California, Connecticut, Minnesota, New Jersey, Washington and the District of Columbia. These were voluntary, early state expansions allowed by the Patient Protection and Affordable Care Act for adults with income up to that level.

The goal of the study was to prepare states planning to expand their Medicaid programs in January for some of the challenges they may run into, said Benjamin Sommers, lead author and an assistant professor at the Harvard School of Public Health.

A key finding was that enrollment and costs proved difficult to predict, with the initial estimates “often diverging significantly from the actual outcome,” according to the study. For instance, Connecticut ended up with 84,000 new Medicaid beneficiaries in the first year of expansion, nearly twice as many as expected. The resulting budget pressure on the state led legislators to consider cutting back the expansion, though those plans were vetoed by the CMS.

In Washington, D.C., many of the people eligible for expanded Medicaid previously were in a public insurance program called DC Healthcare Alliance. Once the District began transferring beneficiaries from that program into Medicaid, it realized it hadn't accurately estimated the costs of prescription drugs for enrollees who were HIV positive. Under the Healthcare Alliance, these drugs cost less because they were purchased at the Defense Department's discounted rates. When these patients shifted to Medicaid, the price of the drugs increased to standard Medicaid rates.

“It led to some unexpected budget pressures,” said Linda Elam, Medicaid director at the District of Columbia's Department of Health Care Finance. As a result, the District had to carve out HIV drugs from its Medicaid program and offer that benefit separately to make the drugs more affordable.

In light of these experiences, states that are expanding their Medicaid program starting in January should be cautious in relying on early enrollment and cost projections, the report said. In the end, states should be prepared for a range of potential outcomes.

Another finding was that new Medicaid enrollees had greater-than-expected use of behavioral health services, including substance abuse treatment. That could mean major improvements in mental healthcare for a population that has traditionally had difficulty obtaining needed services, according to the study. Another implication is that states likely will need to improve the availability and quality of mental health services, requiring both additional provider capacity and better care coordination for patients with complex behavioral health needs.

To better coordinate care for this population, Minnesota launched Hennepin Health, an accountable care organization that will serve up to 10,000 low-income adults in 2013. The organization brings together physical, mental and dental health providers along with social support services, including transportation and housing. That's a better arrangement for people suffering from mental illness, said Scott Leitz, an assistant commissioner at the Minnesota Department of Human Services.

“It integrates mental and chemical health with physical health,” he said. “It's a tight network of county-run facilities, and the upfront capitation payment to the county allows them to be flexible in investing in services upstream to hopefully keep folks from using services downstream.”

MaryAnne Lindeblad, Washington state's Medicaid director, said Minnesota's approach in serving beneficiaries with mental health and substance abuse issues hopefully will be adopted by other states. “I can give you lots of examples about how fragmented delivery systems make it more difficult to reach the people who need care the most,” she said.

Washington state has received federal approval to launch a capitated managed-care model integrating benefits and services for low-income, disabled people who are dually eligible for Medicaid and Medicare.

This is the second dual-eligibles program approved by the CMS for Washington. The first one is a fee-for service model. It began enrolling patients in July.

The difference between the two models is that under a capitation system, healthcare plans and providers will be paid a fixed monthly amount for each enrolled beneficiary. This new program will serve only the state's most populous counties, King and Snohomish. Enrollment in this program begins next summer.

Washington's fee-for-service model, known as HealthPathWashington, serves the rest of the state and makes payments based on claims. Last year, Washington became the first state in the nation to receive approval for a duals initiative that was a fee-for-service model.

Both programs are part of the CMS' Financial Alignment Initiative, a three-year demonstration mandated by the Patient Protection and Affordable Care Act to integrate Medicaid and Medicare benefits for the nation's 9.1 million dual-eligible beneficiaries. Dual eligibles tend to be sicker than other Medicare and Medicaid beneficiaries, with half having three or more chronic conditions.

Under the HealthPathWashington, eligible beneficiaries are automatically enrolled in a health home network but retain the choice of whether to receive health home services.

Combined, 152,230 people in the state are eligible for either for the capitated or fee for service programs. As of the end of October, HealthPathWashington had enrolled 8,000 people, according to Alice Lind, manager of the grants and program development section for the state's Medicaid program.

Since Oct. 1, Medicaid enrollment has reached 444,135 in 13 states that are running their own insurance exchanges, according to a Modern Healthcare tally of state enrollment totals.

This figure does not include Massachusetts and Washington, D.C., which haven't separated out private plan enrollment from Medicaid enrollment on their exchanges.

Many states have reported that Medicaid enrollment is outpacing enrollment in private plans on the state- and federally run exchanges. Eligibility for Medicaid is easier to determine, there are no premiums to pay, and there are far few plan choices.

States served by the federally run exchange, HealthCare.gov, have yet to receive completed Medicaid applications from the CMS, making a count impossible for those 36 states. HHS has said it hopes to begin transmitting the forms by Dec. 9, barring future technical glitches.

South Carolina will host training sessions next month for hospitals that want to make decisions about Medicaid presumptive eligibility for their patients.

Presumptive eligibility is a state policy option available in the Patient Protection and Affordable Care Act that allows hospitals and other qualified entities to make on-the-spot, temporary Medicaid eligibility decisions based on an assessment of the patient's income and assets. The provision takes effect Jan. 1. The goal is to ensure immediate access to needed medical services for uninsured, low-income people.

As part of temporary enrollment, hospitals are supposed to encourage the person to complete an application to confirm eligibility and ensure they will be able to keep Medicaid coverage after the initial presumptive period ends.

The South Carolina Department of Health and Human Services wants participating hospitals to attend training Dec. 9-12.

Just over a month before presumptive eligibility is to begin, the department has expressed disappointment that they have yet to receive any formal applications from hospitals to perform presumptive eligibility, said Barney Osborne, vice president for finance and reimbursement at the South Carolina Hospital Association.

Osborne said the lack of applications is not because hospitals are not interested. In fact, there has been strong participation in weekly educational phone calls between hospitals and the state, he said. Registration is also high for subsequent scheduled training sessions. But hospitals want to make sure they are fully educated about this provision before they register.

He said the policy will have a smaller financial impact on hospitals in South Carolina than in states that are expanding their Medicaid programs to adults with incomes up to 138% of the federal poverty level. Republican-led South Carolina so far has not gone ahead with Medicaid expansion.

Follow Virgil Dickson on Twitter: @MHvdickson