Manatt on Health Reform: Weekly Highlights - March 2016 #4

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Rhode Island's Medicaid reforms will save the State $75 million this year; HHS finds that Medicaid expansion improves behavioral healthcare; and California's Marketplace may exclude poor performing hospitals from its QHP networks in the future.

STATE MEDICAID EXPANSION & REFORM UPDATES:

Arkansas: Governor Introduces Medicaid Expansion and Managed Care Bills

Governor Asa Hutchinson (R) introduced draft legislation to renew the State's Medicaid expansion beyond its December 2016 expiration date. The Governor's plan, called "Arkansas Works," proposes mandatory premium assistance for beneficiaries with access to cost-effective employer-sponsored insurance, a work referral program, and premiums for beneficiaries with incomes above 100% of FPL. At the same time, the Governor and legislators introduced competing bills regarding managing high-risk Medicaid populations. Governor Hutchinson introduced a bill to transition certain high-risk populations and services from the State's traditional Medicaid program to full-risk managed care while legislators introduced a managed fee-for-service initiative, in which a third party vendor manages administrative tasks such as independent assessments, prior authorization, and outcome measurement. Lawmakers will consider the Medicaid expansion and managed care proposals at a special legislative session set to begin April 6.

Alabama: Governor Vetoes Budget Citing Inadequate Medicaid Funding

Governor Robert Bentley (R) vetoed the State Legislature's General Fund budget, saying that its insufficient Medicaid funding puts existing services at risk and makes the State's recently approved Medicaid reform efforts unsustainable. The Medicaid agency received $85 million less than the $785 million that was requested. Legislative leaders said they expect to override the veto, while Governor Bentley has said he may call a special session to address Medicaid funding. Last year, it took the Governor and the Legislature six months and two special sessions to agree on a budget that ultimately kept Medicaid funding level after earlier proposals to cut agency funding by $156 million.

Idaho: Legislature Votes Down Proposal to Extend Medicaid to "Gap" Population

The House voted on the last day of the legislative session to reject the Senate's proposal to extend Medicaid coverage to the estimated 78,000 uninsured Idahoans in the coverage gap, those who earn too much to qualify for Medicaid but too little to qualify for federal tax subsidies on the Marketplace. The proposal would have required the Department of Health and Welfare to seek a federal waiver to implement a managed care program for the "gap" population. As a partial expansion, the proposal would not have been eligible for the enhanced federal funding. Despite Democratic pleas, Governor C.L. "Butch" Otter (R) said he will not hold a special session to address the issue, nor will he use executive authority to intervene. He will, however, support the bipartisan legislative committee that is slated to study the issue over the summer. The Republican House Speaker says the goal is to develop a proposal to provide health insurance to individuals in the coverage gap prior to the 2017 legislative session.

New Mexico: Wide-Ranging Cost-Cutting Measures for Medicaid Under Consideration

The State's Medicaid Advisory Committee has been tasked with developing recommendations for implementing cuts to the Department of Human Services' budget, which was signed into law by the Governor in an attempt to close a nearly $417 million shortfall. The budget requires reductions in provider reimbursement rates and Medicaid managed care administration costs, as well as establishing cost sharing for Medicaid beneficiaries, including co-payments for certain services and monthly premiums. The bill also "assumes the department may be required to consider" changes to the amount, duration, and scope of Medicaid benefits and enhancements to eligibility verifications. While the Human Services Department Secretary indicated that implementing the scope of these cuts will be an "insurmountable" task, he recently outlined progress made by the Medicaid Advisory Committee's working groups on the program changes. The committees will produce recommendations on provider cuts as early as April 2016, and is targeting January 2017 for changes to benefits, co-payments, and eligibility verifications, and a waiver request if needed.

Rhode Island: State Projects $75 Million in Medicaid Savings This Year

Medicaid reforms enacted based on recommendations made by Governor Gina Raimondo's (D) Working Group to Reinvent Medicaid are projected to save the State $75 million in Medicaid spending this year and nearly $120 million in fiscal year 2017, according to a progress report released by the State Medicaid agency. The report notes that while Medicaid enrollment is projected to grow by more than 2.5% between 2015 and 2017, per member per month costs have declined by 4.4%, which the State largely attributes to "payment reforms that reward providers for better coordination and better outcomes." The report was released in conjunction with a new Reinventing Medicaid proposal for fiscal year 2017 that seeks to expand on existing reform initiatives. Specifically, the new proposal aims to reduce managed care administrative expenses, better integrate long-term care for seniors, increase commercial insurance contributions to a fund that covers services for children with special needs, and prepare the State to launch a new phase of the State's health infrastructure project.

FEDERAL MEDICAID EXPANSION NEWS:

Medicaid Expansion Improves Access to Behavioral Healthcare

Medicaid expansion is associated with a reduction in unmet behavioral health needs among low-income adults, according to a new report from HHS's Office of the Assistant Secretary for Planning and Evaluation. One study cited in the report found that low-income individuals with a serious mental illness were 30% more likely to access mental health treatment if they were enrolled in Medicaid. As of 2014, 28% of low-income uninsured individuals living in non-expansion states had either a mental illness or a substance use disorder and "many" of those individuals would gain more affordable coverage if their state opted to expand Medicaid. The report also found that states that expand Medicaid may significantly improve their behavioral health programs—including increased availability of services—without incurring new costs, and that treating behavioral health conditions can reduce statewide disability rates, increase employment productivity, and decrease criminal justice costs.

Medicaid Expansion Increases State Savings and Revenue, Report Finds

Data from 11 Medicaid expansion states and D.C. confirm that states continue to realize savings and revenue gains as a result of expanding Medicaid, according to an updated report from the Robert Wood Johnson Foundation State Network and Manatt Health. Findings indicate any state that expands Medicaid should expect to: achieve savings related to previously eligible Medicaid beneficiaries becoming newly eligible for the adult group under expansion; reduce state spending on programs for the uninsured; and bring in additional revenue from existing insurer or provider taxes. Key examples of new state data include:

  • Pennsylvania estimated savings of $108 million in state fiscal year (SFY) 2015, as beneficiaries of a state-funded medical assistance program transitioned to the expansion group.
  • In SFY 2015, Arkansas decreased their spending on pregnant women by 50% (saving $15.2 million), and projects $24.4 million in savings for SFY 2016.

FEDERAL HEALTH REFORM ACTIVITY:

Growth in Healthcare Spending Increased Moderately as Newly Insured Obtained Care, Report Finds

Growth in healthcare spending per capita increased 4.3% in 2014, the year ACA coverage provisions took effect, which was a "moderate" pace compared to the historically low growth rate between 2000 and 2013, according to a new report from HHS's Office of the Assistant Secretary for Planning and Evaluation. Despite the national increase in the cost growth rate, payer-specific cost growth remained low in 2014: 2.4% for Medicare, 2.9% for private insurance, and a 3.6% decline for Medicaid. The report's authors explain that the difference between the growth in national versus payer-specific spending indicates that previously uninsured and underinsured individuals gained coverage and access to care, leading to an increase in expenditures. The authors also allocate much of the growth in per person spending to the growth of high-cost specialty prescription drugs, which accounted for 56% of per enrollee spending growth in Medicare and 47% of per enrollee spending growth in private insurance. The report's authors note that without the ACA's coverage provisions and the introduction of high-cost specialty drugs, the growth in healthcare spending would have likely remained at 2000-2013 levels.

CMS Considers Significant Changes to Improve Risk Adjustment Program

CMS released a white paper outlining several potentially significant changes to the methodology used to determine payment amounts under the ACA's risk adjustment program beginning in 2018. Proposed changes include: incorporating prescription drug data into the model; accounting for partial year enrollees by creating separate models; and using the individual and small group market claims data already collected for model calibration instead of the commercial data set of principally employer-sponsored coverage. Recognizing the possibility of cost outliers, even within a diagnosis, CMS is also considering building into the program a type of reinsurance arrangement called "high risk enrollee pooling," where costs above a certain threshold would not be used to calibrate risk adjustment transfers.

CBO Projects Increased Federal Health Spending Driven by Higher-than-Expected Medicaid Enrollment

New projections from the Congressional Budget Office (CBO) estimate that federal health insurance subsidies for people under age 65—provided through a variety of federal programs and tax preferences—will cost the federal government $660 billion in 2016, and is expected to reach $1.1 trillion in 2026. Just over 40% of the cost in 2016 will be for Medicaid and CHIP. Approximately 17% of the federal subsidies (or $110 billion) are attributed to changes under the ACA. These costs are expected to increase to $1.4 trillion over the next ten years, a $136 billion increase from March 2015 estimates driven by significantly higher-than-anticipated Medicaid enrollment. However, CBO's most recent estimate of the cost of changes under the ACA between 2016 and 2019 (the final years of the original 10-year projection) is 25% lower than was estimated when the law was signed in 2010. This is due to lower-than-expected Marketplace enrollment and slower healthcare cost growth. The CBO's most recent estimates of costs due to changes under the ACA will be the last the agency intends to provide, saying that isolating coverage costs specific to the ACA is becoming "more difficult and less meaningful." CBO will continue to estimate the cost of legislative changes to the ACA as requested and will provide projections of coverage levels and related subsidies, penalties, and taxes under current law.

STATE & FEDERAL MARKETPLACE NEWS:

California: Marketplace Proposes to Exclude Poor Performing Hospitals

Covered California, the State-based Marketplace, has proposed excluding hospitals from its qualified health plan (QHP) issuers' networks if an issuer identifies it as performing poorly or having excessively high costs. The first-of-its-kind proposal is intended to improve cost-effectiveness and the quality of care provided in the State's hospitals. Issuers would begin identifying "outliers" in 2018 and the State would begin cutting those hospitals from networks by 2019. The Covered California board will vote on the proposal next month.

Kentucky: CMS Targets June for Decision on Transition to HealthCare.gov

CMS has notified Kentucky that it will decide by June 1 whether the State will be allowed to use HealthCare.gov for 2017 Marketplace enrollment. As captured by Rachana Pradhan of POLITICO Pro, until CMS makes a final decision, Kentucky must prepare to implement a contingency plan to assure residents can enroll in coverage without disruption when open enrollment begins on November 1. CMS's announcement is in response to Governor Matt Bevin's (R) plans to dismantle kynect, Kentucky's State-based Marketplace, and transition to HealthCare.gov by the end of the year.

Minnesota: House Bill Would Allow BHP as Option on State-Based Marketplace

Legislators in the House have introduced a bill to allow MinnesotaCare, the State-run basic health program for low-income individuals, to be sold on MNSure, the State-based Marketplace, as a "public option" for those with incomes above 200% of FPL (the program's current income limits). Enrollees with incomes up to 400% of FPL would be eligible to receive tax credits towards plan costs. Under the proposal, the State would calculate statewide premiums, which the bill's authors hope would provide more affordable pricing and benefits, particularly in rural areas. The authors also note that adding a State-run plan to MNSure could encourage private insurers to improve benefit packages or lower premiums.If the bill passes, the State Department of Human Services would be required to request a Section 1332 State Innovation Waiver from the federal government for authority to implement the proposal.

GAO Finds Security Vulnerabilities on HealthCare.gov

The Government Accountability Office (GAO) reviewed security issues related to the HealthCare.gov data services hub and CMS oversight of State-based Marketplaces (SBMs) and found that there were 316 security related incidents between October 2013 and March 2015, though no systems or sensitive data, including personally identifiable information, were compromised. GAO also found "weaknesses in technical control" of the data services hub including insufficiently restricted administrator privileges, inconsistent application of security patches, and insecure configuration of an administrative network. In its review of SBMs, GAO found "significant weaknesses" in the controls of the three SBMs selected for review, including insufficient firewalls and encryption. GAO recommended that CMS define procedures for overseeing the security of SBMs and require continuous monitoring of SBMs' security controls. HHS concurred with the recommendations.

CMS Delays Online Marketplace Eligibility Appeals for an Additional Year

Marketplaces will be allowed to continue processing eligibility appeals using a paper-based process through December 31, 2016, according to guidance released by CMS. The year-long extension, the third CMS has provided since the August 2013 final rule, offers Marketplaces additional time to become fully compliant with regulations for internet-based appeal requests while maintaining appellants' due process rights through the paper-based process. State Medicaid and CHIP agencies will not be required to electronically transfer records and HealthCare.gov will also continue to utilize the paper-based eligibility appeals process through the end of the year. The guidance applies to individual market eligibility appeals, employer appeals, and SHOP employer and employee appeals.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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