Medicaid is at the heart of the nation’s health reform.

The program is slated to cover roughly half of the 32 million U.S. residents expected to obtain health insurance under the overhaul. However, CMS officials are not content to wait until Medicaid eligibility significantly expands in 2014 and are trying to boost program enrollment now.

A number of new reports highlight the current challenges facing Medicaid. Soaring enrollment figures and limited state funds raise worries about the program’s long-term prognosis. Moreover, many states are leaning on federal matching dollars obtained through Medicaid as an all-purpose crutch to balance their budgets. As a result, the program has needed high-profile funding infusions to help states overcome projected revenue shortfalls and prevent broad layoffs and cuts.

Program at Center of State Funding Challenges

An annual Kaiser Family Foundation survey released last week paints a concerning picture. Driven by mounting unemployment and a resulting loss of health benefits, total Medicaid enrollment rose to a record-high 48.5 million U.S. residents by the end of 2009. Program spending grew by 8.8%, which exceeded projections by nearly 25%.

The enrollment spike couldn’t have come at a worse time for states, which struggled to manage their spending in light of historic declines in revenues. Every state but Arkansas and North Dakota made cuts to some element of its Medicaid program last year. About 80% of programs scaled back or eliminated some provider payments, while two-fifths of programs dropped benefits for services like dental care and imaging.

According to Vernon Smith, a principal with Health Management Associates who co-authored the study, it could’ve been worse. Without federal stimulus funds that propped up Medicaid programs, “we would have seen cuts on a scale that we’ve never seen before,” Smith said.

Health Reform Forcing Evolution

The mounting demand for Medicaid and pending changes under reform underscore the program’s ongoing shift.

As originally conceived, Medicaid was structured as a counterweight to Medicare — an opt-in safety net that allows states considerable flexibility to determinate funding, residents’ eligibility and other measures. Today, state Medicaid programs significantly vary in benefits and reimbursement. There’s also a range in programs’ level of federal support, which is based on state residents’ average income. Medi-Cal, California’s Medicaid program, has historically received a low federal medical assistance percentage — just 50% in 2010, while Mississippi’s was nearly 75% — pushing the state to curb care provider payments.

Health reform will force more uniformity and evolution. For example, some programs now only cover state residents with annual incomes falling below the federal poverty level, while more-generous states offer benefits to residents with significantly higher annual incomes. Beginning in 2014, the overhaul further standardizes Medicaid by raising the national eligibility floor to 133% of the FPL. Moreover, the process of determining Medicaid eligibility — which will be incorporated into the state insurance exchanges created under the overhaul — is spurring information technology modernization. The law calls for a system that allows applicants to check eligibility for Medicaid, subsidies or purchasing insurance via the exchanges in “one fell swoop.” As a result, state Medicaid directors will have to combine their programs with those of other states and insurers, a move that will pose a challenge for programs that already are underfunded and dependent on old technology.

More Challenges Await

Nearly 16% of U.S. residents are now covered by Medicaid, and another 5% are slated to gain coverage through the program within four years. While HMA’s Smith says that Medicaid “may very well be able to absorb” the ongoing enrollment increases, the program’s expanding scope has presented some new challenges.

For example, legislative interventions in Medicaid have historically been less frequent and contentious than the near-annual fights over Medicare, but its growing cost and link with the health overhaul has made Medicaid more of a political target. Some congressional Republicans this week — as part of an effort to repeal the health reform — questioned state leaders on how much it will cost to expand Medicaid coverage and meet new program requirements under the overhaul.

Spending on Medicaid also appears to increasingly conflict with other public priorities. According to Peter Orszag, who served as director of the White House Office of Management and Budget until August, states’ spending on Medicaid is crowding out their contributions to higher education. The Oklahoma Hospital Association is opposing a ballot measure to boost education spending because it will likely cause a cut in state Medicaid funds.

Meanwhile, questions about Medicaid’s long-term financing linger. HMA’s Smith notes that “there seems to be no end in sight to the fiscal pressure” on the program. While there will be ongoing federal financial support for Medicaid to expand, many observers fear that relying on these continued infusions will be ultimately unsustainable given the nation’s rising deficit.

As potential solutions, some stakeholders have floated models like converting Medicaid funds into block grants. Others suggest using the federal medical assistance percentage as a tool to force states to repay emergency federal Medicaid infusions — specifically, raising FMAP during times of economic hardship and lowering the federal contribution when states are prosperous.

Here’s a look at what else is making news in health reform.

Health Reform Rollout

• HHS has missed seven deadlines mandated by the federal health reform law since the overhaul was enacted in March, according to the Congressional Research Service. The CRS memorandum was requested by Republican Sens. Tom Coburn (Okla.), John Cornyn (Texas) and Orrin Hatch (Utah). Many of the deadlines missed by HHS Secretary Kathleen Sebelius concerned relatively obscure provisions or were overdue by only a few days. Numerous states did not have their high-risk insurance pools in place until two months past the deadline. The national pool was established July 1 (Pecquet, “Healthwatch,” The Hill, 10/4).
• On Monday, HHS announced that nearly 3,000 employers and unions have qualified to receive federal subsidies to help cover the medical costs of early retirees through the Early Retiree Reinsurance Program created under the health reform law. According to HHS, about 1,000 more companies have been accepted into the program since August, when the program first began accepting companies. Payment distribution is scheduled to begin this fall (Reichard, CQ HealthBeat, 10/4).
• Also on Monday, Sebelius said a successful overhaul of the U.S. health care system will require key players in the system and policymakers to work together to develop and adopt a cost-effective delivery structure that ensure better quality outcomes reports. Sebelius was speaking at the HHS-sponsored National Summit on Health Care Quality and Value in Washington, D.C. Sebelius said the overhaul cannot depend on insurance industry reforms and improved consumer benefits alone (Kliff, Politico, 10/5).
• Last week, HHS announced that its HealthCare.gov website now includes data to help visitors compare premiums and benefits to better choose a health insurance plan. Some of the new data include premium estimates, maximum out-of-pocket costs and coverage denial rates (Young, USA Today, 10/1). Jay Angoff, director of HHS’ Office of Consumer Information and Insurance Oversight, said site visitors will be able to compare details on more than 6,200 plans offered by more than 300 companies. Angoff added that the site will be updated periodically with more plans (Reichard, CQ HealthBeat, 9/30).
• The Government Accountability Office recently announced the members of the Health Care Workforce Commission, a first-ever group dedicated to help Congress determine the nation’s health workforce needs. HCWC’s 15 members will be led by Peter Buerhaus, director of nursing research at Vanderbilt University Medical Center and former professor at the Harvard School of Public Health. Sheldon Retchin, CEO of the Virginia Commonwealth University Health System, will be HCWC’s vice chair (Reichard, CQ HealthBeat, 10/1).
• Last week, CMS Administrator Donald Berwick announced that Richard Gilfillan — a former CEO of the Geisinger Health Plan under Pennsylvania’s Geisinger Health System — has been selected chief of CMS‘s new Center for Medicare and Medicaid Innovation. Gilfillan led the health plan from 2005 through 2009. In a memo about Gilfillan’s appointment, Berwick noted that Gilfillan has experience developing accountable care organizations, patient-centered medical homes and bundled payment systems (Reichard, CQ HealthBeat, 9/27).
• First lady Michelle Obama has asked nurses to “help spread the word” about the benefits of the federal health reform law to patients (Parnes, Politico, 9/29). Obama, during a conference call with more than 1,000 U.S. nurses, said patients sometimes feel more comfortable talking with nurses because doctors can be a “bit more intimidating” (Bunis, CQ HealthBeat, 9/28). She added that the Obama administration “really need[s] help to pass along” the information to patients (Politico, 9/29).
• Last week, HHS announced that it will provide $68 million in grants from the federal health reform law to increase support for elderly and disabled U.S. residents. The grants include funds for counseling, in-home care programs, Medicare outreach and care transition services. HHS’ Administration on Aging and CMS will administer the grants, which primarily will go to states and community-based organizations (Pecquet, “Healthwatch,” The Hill, 9/27).
• Also last week, Sebelius announced $320 million in new grants to support and expand America’s primary care work force as part of the federal health reform law. Sebelius said the grants will help curb the cost of chronic disease by investing more in primary care, strengthening the role of wellness and prevention in our health care system and helping more Americans train to become health care professionals. The grants include $67 million for Health Profession Opportunity Grants to provide health training for low-income individuals (CQ HealthBeat, 9/28).

Businesses in the News

• Principal Financial Group has announced that it intends to stop selling health insurance. The company currently provides health plans to around 840,000 small-business employees (Abelson, New York Times, 9/30). UnitedHealth Group will take over the coverage. Larry Zimpleman, asset manager and CEO of Principal, said that although the business is “performing well financially,” it has grown smaller over recent years and is no longer cost-efficient (Becker, Wall Street Journal, 9/30). Despite several news reports linking Principal’s decision with the federal health reform law, Iowa Health Insurance Commissioner Susan Voss said that Principal’s decision is not directly related to changes resulting from the overhaul (Kliff/Haberkorn, “Pulse,” Politico, 10/1).
• 3M has announced that it will cease offering group health insurance plans to retirees who are not old enough to qualify for Medicare by 2015, partly because of the federal health reform law. A company memo outlining the changes stated that the overhaul has made it difficult for companies like 3M to provide a competitive retiree benefits plan. As a result, many individual insurance plans likely would cost less than what workers would pay for 3M’s retiree coverage, according to the memo (Adamy, Wall Street Journal, 10/3).
• Last week, Sebelius and officials from McDonald‘s separately denied a report published in the Wall Street Journal suggesting the fast-food chain would drop its health coverage plans for thousands of its employees because of provisions in the federal health reform law (DoBias, CongressDaily, 9/30). The article reported that McDonald’s officials had warned federal regulators that they would drop the company’s health insurance plan unless they received a waiver for medical-loss ratio requirements under the overhaul (Adamy, Wall Street Journal, 10/1). Sebelius called the article “flat-out wrong,” adding that the paper should have been “more accurate” in its reporting (Reichard, CQ HealthBeat, 9/30).

Eye on November Elections

• If Republicans take control of the House after the midterm elections, they will have to decide between several strategies aimed at dismantling the federal health reform law. GOP lawmakers likely will not have enough votes to repeal the reform law outright, which would require overriding a veto from President Obama. Instead, they probably will target unpopular provisions, such as the individual insurance mandate, an increase of 1099 tax-reporting requirements, requirements on employers to offer health coverage, state expansions of Medicaid and the establishment of the new Independent Payment Advisory Board, which is intended to help curb Medicare spending (Haberkorn, Politico, 10/4).
• Voters in three more states — Arizona, Colorado and Oklahoma — next month will go to the polls to decide on measures that would allow the states to opt out of the individual coverage mandate under the federal health reform law. The states are following the lead of Missouri, which already held a vote rejecting the individual mandate. A proposal for a similar ballot measure in Florida was struck down by the state’s Supreme Court, ruling that its language was flawed (Richardson, Washington Times, 10/3).

Preparing for the Overhaul

• Although the National Association of Insurance Commissioners last week released a draft proposal of the final medical-loss ratio rules that would determine spending parameters for health insurers under the federal health reform law, several major aspects of the document still are under discussion, according to Brian Webb, NAIC’s manager for health policy and legislation. Webb said that NAIC “recognize[s] that there is no way to get this 100% right” and noted that a test run will be conducted in 2011 before the rebate system begins in 2012 (Pecquet, “Healthwatch,” The Hill, 9/28).
• Partisan differences about the federal health reform law and the potential for leadership turnover are creating significant uncertainties for state officials and Medicaid directors ahead of the program’s expansion in 2014. A recent study by the Kaiser Family Foundation‘s Commission on Medicaid and the Uninsured found that a primary challenge for state officials will be establishing the eligibility process for Medicaid among new state insurance exchanges mandated by the overhaul (Haberkorn, Politico, 10/5).
• Last week, the Association of American Medical Colleges announced that the nation’s physician shortage could worsen as more uninsured U.S. residents gain coverage as a result of the federal health care reform law. The group previously forecast a shortage of 39,600 physicians by 2015 as members of the baby boomer generation begin qualifying for Medicare coverage. However, AAMC now says the nation will have a shortfall of 62,900 physicians by 2015 because of the expected rise in patient demand resulting from the overhaul (Wang, “Health Blog,” Wall Street Journal, 9/30).

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