State Revenues, Medicaid & National Health Reform: Issues for Texans and State

Government

Texas IEFApril 10, 2010

Anne Dunkelberg, Assoc. Director, dunkelberg@cppp.org

Center for Public Policy Priorities900 Lydia Street - Austin, Texas 78702

Phone (512) 320-0222 (X102) – www.cppp.org

www.texasvoiceforhealthreform.org

The following provisions take effect 6 months after enactment:

• No lifetime caps (All plans). (Restrictions placed on annual limits in new plans.)

• Prohibits pre-existing condition exclusions for children (New plans) (expected to extend to no denials of coverage as well).

• Requires insurers to devote 80-85% of premiums to medical benefits or provide rebates to consumers. (All state-regulated plans)

• Bans co-pays or other out-of-pocket expenses for preventive care (New plans)

• Prohibits rescission—retroactive cancellation of coverage because you used it—except in cases of fraud. (All)

• Dependent coverage allowed on parent’s plan until 26th* birthday (even if married). (All)

• HHS Secretary and states establish process for annual review of rate increases. (New state-regulated plans)

• No employer policies that favor higher-wage employees (New plans)• New independent review process for appeals. (New plans)

First-Year Reform

Benefits

These provisions take effect within the first year:

• New nationwide interim high-risk pool coverage for uninsured individuals with pre-existing conditions (RFP 90 days after enactment).

• New interim re-insurance for early retirees: (55-64); also 90 days from enactment.

• Grants available to states to establish on Office of Health Insurance Consumer Assistance or Health Insurance Ombudsman.

• Begins $11 billion new funds for Community Health Centers.

• New funding for training primary care docs, nurses, other professionals.

• Small employer tax credits available

First-Year Reform Benefits, cont’d

New preventive benefits: comprehensive annual check-up and other prevention benefits with no out-of-pocket costs. (January 2011)

Closing the Rx “Doughnut Hole”: Shrinks Doughnut Hole by $250 in 2010 (rebate), 50% discount on brand-name drugs in the remaining gap; closes doughnut hole entirely by 2020.

Extends Solvency of Medicare Trust Fund by 10 years: Not by cutting current Medicare benefits or budgets, but “bending the curve”― slowing growth in Medicare spending from 2010 to 2019.

Better Access to Community-Based Services and Supports: Medicare today does not cover community-based services to help seniors remain in their homes. Creates voluntary insurance program (CLASS) to provide community-based assistance services and support. Starts 2011; 5 years to vest.

Making Medicare Stronger

The following provisions take effect 6 months after enactment:

• No lifetime caps (All plans). (Restrictions placed on annual limits in new plans.)

• Prohibits pre-existing condition exclusions for children (New plans) (expected to extend to no denials of coverage as well).

• Requires insurers to devote 80-85% of premiums to medical benefits or provide rebates to consumers. (All state-regulated plans)

• Bans co-pays or other out-of-pocket expenses for preventive care (New plans)

• Prohibits rescission—retroactive cancellation of coverage because you used it—except in cases of fraud. (All)

• Dependent coverage allowed on parent’s plan until 26th* birthday (even if married). (All)

• HHS Secretary and states establish process for annual review of rate increases. (New state-regulated plans)

• No employer policies that favor higher-wage employees (New plans)• New independent review process for appeals. (New plans)

First-Year Reform

Benefits

These provisions take effect within the first year:

• New nationwide interim high-risk pool coverage for uninsured individuals with pre-existing conditions (RFP 90 days after enactment).

• New interim re-insurance for early retirees: (55-64); also 90 days from enactment.

• Grants available to states to establish on Office of Health Insurance Consumer Assistance or Health Insurance Ombudsman.

• Begins $11 billion new funds for Community Health Centers.

• New funding for training primary care docs, nurses, other professionals.

• Small employer tax credits available

First-Year Reform Benefits, cont’d

New preventive benefits: comprehensive annual check-up and other prevention benefits with no out-of-pocket costs. (January 2011)

Closing the Rx “Doughnut Hole”: Shrinks Doughnut Hole by $250 in 2010 (rebate), 50% discount on brand-name drugs in the remaining gap; closes doughnut hole entirely by 2020.

Extends Solvency of Medicare Trust Fund by 10 years: Not by cutting current Medicare benefits or budgets, but “bending the curve”― slowing growth in Medicare spending from 2010 to 2019.

Better Access to Community-Based Services and Supports: Medicare today does not cover community-based services to help seniors remain in their homes. Creates voluntary insurance program (CLASS) to provide community-based assistance services and support. Starts 2011; 5 years to vest.

Making Medicare Stronger

Sweeping reforms that guarantee access to good coverage at a fair price take effect in 2014:

Private Health Insurance Reforms– Bans pre-existing condition exclusions for everyone (All, incl.

grandfathered, ERISA).– No one can be denied coverage or charged more because of health status.

Wellness penalty loophole?– Insurers must offer coverage to everyone and renew all policies in the

individual and small employer market. – Premiums for individuals and small businesses cannot be based on

gender, number of people in group, occupation, etc. – Premiums for individuals and small businesses can vary based on age (3:1

limit), tobacco use (1.5:1 limit), geographic area, and family composition.– Coverage for individuals and small businesses must include “essential

benefits.”– No annual limits (incl. Grandfathered).

Good Coverage at a Fair Price

Sweeping reforms that guarantee access to good coverage at a fair price take effect in 2014:

New Health Insurance Exchanges• Competitive markets for health insurance with clear and comparable information

on coverage options (like Travelocity, but for insurance).• State-based, with federal fallback (Feds decide whether states are on track as of 1/1/2013)

• All members of Congress and their staff would get coverage in Exchange.• Open to:

– Individuals: U.S. citizens or legal immigrants and are not incarcerated– Small businesses with <100 employees, 2014-2016. States may open up to firms

with >100 employees in 2017.

• Office of Personnel Management multi-state plan in Exchange. • Premium credits available only in Exchange.• Plan in Exchange must meet standards, and each plan will have a rating

indicating relative value.• Coverage offered in four benefit tiers.

Good Coverage at a Fair Price

More on Exchanges in CPPP’s Health Reform Side-by-Side Analysis.

• Medicaid for very low-income adults: cover all U.S. citizen adults up to 133% of the federal poverty level (< $14,404 for one person; $29,327 for a family of 4). Texas does not cover most parents or adults without children today, no matter how poor.

• CHIP Program Preserved: CHIP program extended to 2019, and CHIP block grant funded through end of FY 2015.

– In 2014, all kids up to 133% FPL in Medicaid; above that in CHIP (brings some 6-18 yr-old kids into Medicaid)*

• MOE:

– States serving adults above 133% FPL may not reduce their income limits until 2014 when Exchange opens

– States may not change CHILDREN’S income levels for Medicaid or CHIP through 2019.

– Entire Medicaid funding at risk.

• Sliding-scale premium assistance: Uninsured above Medicaid limit and < 400% FPL ($43,320 for a single person, $88,200 for family of 4) can buy insurance through Exchange, protected from having to spend more than a set % of income on premium (ranging from 2% to 9.5%); also out-of-pocket help, caps.

Affordable Coverage

• Out-of-pocket subsidies: – lower out-of-pocket costs (co-payments, co-insurance and deductibles)

for families up to 250% FPL (< $27,075 for one person, and $55,125 for a family of 4) covered through Exchange.

• Out-of-pocket caps for ALL persons with high medical expenses: – New individual and group coverage, including new self-insured plans,

must include annual out-of-pocket caps $5,950 individual, $11,900 family, setting upper limit for families 400% FPL.

– Based on fed HSA law caps, $5,950 indiv./$11,900 family in 2010 and updated annually.

– For individuals/families <400% FPL, OOPC is set as a fraction of the HSA cap.

• Families 133-400% FPL still have 17-20% of income/yr. at risk

Affordable Coverage, Continued

Premium Help: Max % of Family Income for Premiums in Exchange

Income for a Family of Four

Max % Income for

Premiums

From: To:

$22,000

(100% FPL)

$29,000

(133% FPL)2.0-3.0%

$29,000 $33,000

(150% FPL)3.0-4.0%

$33,000 $44,000

(200% FPL)4.0-6.3%

$44,000 $55,000

(250% FPL)6.3-8.1%

$55,000 $66,000

(300% FPL)8.1-9.5%

$66,000 $77,000

(350% FPL)9.5%

$77,000 $88,000

(400% FPL)9.5%

• Out-of-pocket subsidies: – lower out-of-pocket costs (co-payments, co-insurance and deductibles)

for families up to 250% FPL (< $27,075 for one person, and $55,125 for a family of 4) covered through Exchange.

• Out-of-pocket caps for ALL persons with high medical expenses: – New individual and group coverage, including new self-insured plans,

must include annual out-of-pocket caps $5,950 individual, $11,900 family, setting upper limit for families 400% FPL.

– Based on fed HSA law caps, $5,950 indiv./$11,900 family in 2010 and updated annually.

– For individuals/families <400% FPL, OOPC is set as a fraction of the HSA cap.

• Families 133-400% FPL still have 17-20% of income/yr. at risk

Affordable Coverage, Continued

Out-of-Pocket Costs: Share of Health Costs Covered

under Exchange Plans

Income for a Family of Four

Avg. Share of

Costs Covered

Out of Pocket MAX as %

of income (not incl.

premiums)From:

To:

$29,000$33,000

(150% FPL)94%

1/3 of HSA: $1,983/indiv.

$3,967/family$33,000

$44,000

(200% FPL)85%

$44,000$55,000

(250% FPL)73% ½ of HSA:

$2,975/indiv.

$5,950/family$55,000$66,000

(300% FPL)70%

$66,000 $77,000

(350% FPL)70% 2/3 of HSA:

$3,987/indiv.

$7,973/family$77,000 $88,000

(400% FPL)70%

Texas Uninsured by Income Today… 6.1 million uninsured in 2008

300-400% FPL$66,200-$88,200

200-250% FPL$44,100-$55,100

250-300% FPL$55,100-$66,200

150-200% FPL$33,100-$44,100

>400% FPL>$88,200 <100% FPL

<$22,100/yr for family of four

100-150% FPL$22,100-$33,100

682K

622K

751K1.06

Million

1.611 Million

484K

Annual income limits given for a family of four, 2009 federal poverty level U.S. Census, CPS

898K

Who Gains Coverage in Texas

300-400% FPL

>400% FPL<100% FPL

200-250% FPL

150-200% FPL

250-300% FPL

100-150% FPL

682K

622K

1.6 Million

1.611 Million

751K

484K

898K

• CBO: 92% of under 65, or 95% of < 65 excluding undocumented covered in 2019.

• Using latest Texas uninsured data, this would mean the number of uninsured would be reduced by 4.3 to 4.6 million (from 6.1 million)

•Of course, population AND uninsured will increase between now and 2014-2019.

In Exchange • About 2.5 million 133-400% FPL qualify for help w/premiums, out-of-pocket (citizens & legal residents)

• Another 680,000 >400% FPL qualify for full-cost coverage thru Exchange.

UNKNOWN: How quickly, what % of eligible persons enroll. CBO and HHSC assumptions VERY far apart.

Medicaid, based on current Texas uninsured:• ~1 million uninsured US citizen adults would qualify for expansion to 133% FPL (adults)

•~500K already-eligible kids (100-200K more CHIP)

•HHSC numbers to date only provide average increase over the 2014-2023 period (no near-term estimates yet)

6.1 millionUninsured 2008

Who Remains Uninsured?

• CBO assumes small percentage opt not to be covered (no penalty for lowest income and penalties are much lower than cost of coverage)

• The lower the premium subsidies, the larger the share of low- & moderate-income Texans who may stay uninsured.

• Undocumented: – no Medicaid/CHIP, – no premium subsidy, possibly cannot buy @ full cost from

exchange– Best estimates say 40% of undocumented in US TODAY have

private coverage

• Legal Permanent Residents: – continued exclusion from Texas Medicaid, – Can purchase from exchange and qualify for subsidy

• Medicaid expansion—up to 133% FPL; “Static” Illustration based on current US Census data and Texas Medicaid costs: 

• Reconciliation:– in 2008, ~1.0 million uninsured Texas adults aged 19-64 who (a) are U.S. citizens and (b)

have incomes below 133% FPL.  – At 2009 cost of ~ $305 per adult/mo., covering 1.0 million more adults = about $3.7 billion in

new health care spending.  – Under bill, Feds pay 100% of costs for 3 years: 2014, 2015, 2016. In 2017 the Texas would

pay 5%, in 2018 Texas would pay 6%; in 2019 7%, and in 2020 and thereafter, Texas would pay 10%.

• Using the static illustration, covering 1 million adults at an all-funds cost of $3.7 billion in 2020: feds 90% $3.33 Billion; state $370 million (10% share)

• Feds pay 100% of Medicaid primary care provider rate increase in 2013 and 2014, but not thereafter. Unless Congress changes this, additional costs to state Medicaid budget– or rates get reduced again.

Fiscal Benefit/Cost of Health Reform to State

• “Welcome Mat” effect– Based on other states’ experiences, over time more currently-eligible Texas children will enroll

in Medicaid.

– (Because Texas has very limited eligibility for adults today, there will be very little welcome mat effect for adults.)

– State will be responsible for standard Medicaid share of just under 40% for welcome mat enrollment by already-eligible uninsured Texas children, adding another significant cost to the state budget.

– To illustrate, covering 400,000 more kids could cost about $1 billion for a year, and the state would pay $400 million of that.

– These costs start affecting budget 2014, though will take time to ramp up.

• Economic multiplier of 3.25 per Dr. Ray Perryman, other economists. (↑State

tax revenues + ↓Local taxes avoided) nearly = GR costs

• Texas economy will also benefit from federal premium assistance and out-of-pocket cost help to families from 133-400% FPL, which will not require any state budget contribution at all. (Estimates expected soon)

Fiscal Benefit/Cost of Medicaid, Exchange Coverage to State

Illustration: How Adult Expansion Could Change Texas Medicaid Budget

Fed Share Expansion

Adults$3.33 Billion

State Share Expansion

Adults$370 million

Fed Share 2008

$10.8 Billion

State Share 2008

$7.0 Billion

State Share Welcome Mat

Kids: $400 million

Fed Share Welcome Mat

Kids : $600 million

Baseline = Texas Medicaid Services Spending, 2008 (Texas HHSC)

Likely 2+ years to enroll this many additional

Note: this does NOT model increased admin costs.

If Covered 1.0 million new adults; 400K kids, @ Current costs and demographics

More Effects State Budget

• Admin costs for state of expanded enrollment presumably @ 50%; financing of Exchange interface costs unclear but may also be 25% to 50% state

• Some providers’ increased costs of doing business passed through in Medicaid rates.

• Medicaid expansion, while not “free” for Texas, will yield substantial economic benefits, but require new sources of revenue to fund state share. 

• Even HHSC preliminary cost estimate thru 2023 shows 6:1 ratio of federal dollars to state costs.

• Medicaid cost share --even if offset 6-to-1 with federal funds--must be funded in state budget to some degree as soon as 2014, and in context of a severe structural deficit in our state tax system and current leadership unfavorable to increasing revenue capacity.

New State Roles; Eligibility and Enrollment Issues

• Capacity of state eligibility system?– Must accommodate both expansion & increased participation– Smooth interface with HIE system– HIE may pay state to do income eligibility for subsidies– Medicaid MUST offer online, in person, telephone and mail application

options. – “No Wrong Door” coordination between Exchange and Medicaid

required, including joint application and enrollment website that functions for Medicaid, Exchange, and CHIP.

• Administration of Health Insurance Exchange– State or NFP must operate 1/2014; if not on track by 1/2013 feds will do

it; grant $$ available

– Likely includes major enrollment/subsidy eligibility function

– HIEs are to be $$ self-sustaining after first year

• Much Greater Role for TDI in Regulation

Medicaid DSH• Given Texas’ relatively large share of both uninsured U.S. citizens and

undocumented residents (the latter ineligible for Medicaid, CHIP, or premium subsidies), Texas is likely continue to have one of the highest uninsured rates relative to other states.

• Reduce national Medicaid DSH allotments by $0.4 billion in 2014; $0.6 billion in 2015; and $1.8 billion in 2017, $5 billion in 2018; $5.6 billion in 2019; $4 billion in 2020.

• Worst case: If cuts are allocated in proportion to a state’s share of the total federal DSH funding, then Texas’ share would be reduced by $35 million in 2014, $52 million in 2015, $156 million in 2016, $434 million in 2017; $487 million in 2018; and $348 million in 2019.

• Because DSH cuts are targeted to states with the lowest uninsured rates, Texas should expect smaller cuts than this.

• DSH revenue today is small relative to hospitals’ uncompensated care burden; substantial gains in coverage—e.g., covering a million adults in Medicaid--would increase patient revenues for most hospitals by a much larger amount than the capped DSH pot.

• UPL????

Medicaid in 2012-2013 TX Budget• NO health reform expansion costs, but admin costs at TDI & HHSC

• Revenue shortfall numbers make it obvious: without more revenue, there WILL be deep cuts.

• In 2003, Provider Rates were the largest category of cut. After partial restorations, the total projected reduction in Medicaid and CHIP rates was about $599 million.

• Federal law Medicaid and CHIP maintenance of effort requirements mean provider rates are the largest program area that states can cut. Health reform MOEs: no eligibility cuts for Medicaid adults until Exchange opens in 2014; no cuts for children in Medicaid and CHIP through 2019.

• “Optional” adult benefits may also be cut

– 2003 Lawmakers rejected certain cuts: cutting off community care and nursing home care; eliminating Rx coverage for aged, disabled, and adult clients

– They DID eliminate services of LPCs, SWs, psychologists, LMFTs, podiatrists, and chiropractors; and adult eyeglasses and hearing aids. (Restored in 2005)

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Uninsured Texans by Age Group, 200865+

0-18

19-64Rate: 32% of

19-64 are Uninsured

Rate: 20% of 0-18 are uninsured

~2/3 are below

200% FPL57% are below

200% FPL

Source: U.S. Census

Income Caps for Texas Medicaid and CHIP, 2009

0%

50%

100%

150%

200%

250%

PregnantWomen

Newborns Age 1-5 Age 6-18 TANFparent of

2, noincome

WorkingParent of

2

SSI (agedor

disabled)

LongTermCare

CHIP

Mandatory Optional

$24,352/yr

$33,874/yr $33,874/yr

185% 185%

133%

$18,310

100%$2,256 $3,696

12.3% 20.2%74%

$7,884

222%

$24,264$36,620

200%

Income Limit as Percentage of Federal Poverty IncomeAnnual Income is for a family of 3,

except Individual Incomes shown for SSI and Long Term Care

Texas Medicaid: Who it Helps

Children, 2,131,511

Disabled, 359,937

Elderly, 375,375

Poor Parents, 91,838

TANF Parent, 35,158

Maternity, 96,036

January 2010, HHSC data.

Total enrolled 1/1/2010: 3.2 million

U.S.-born citizen

68%

Naturalized U.S. Citizen

6%

Not a U.S. Citizen

26%

Uninsured by Citizenship Status, 2007-08 Average

Most Uninsured Texans are U.S. Citizens(6.1 million Uninsured in 2008)

Source: CPS Annual Social & Econ. Supplementwww.census.gov/hhes/www/hlthins/hlthins.html

4.1 million352,000

1.6 million (~40%

legal immigrants)

Employer-sponsored insurance is the foundation for coverage today. Employer responsibility provisions encourage employers to maintain existing coverage.

• Strictly speaking, the law does not require employers to offer coverage.

• But does require larger employers to contribute financially if their employees get subsidized coverage in the Exchange.

• Penalties are a fraction of the cost of coverage.

• Small employers (50 or fewer full-time workers) have no obligation to provide coverage, and are exempt from penalties if they choose not to offer coverage and their workers get help in the Exchange.

Employer Responsibility

Penalties for firms with more than 50 full-time workers:

Employer Responsibility

Penalty Situation Assessment

If NO coverage offered and at least 1 employee get

subsidized coverage in the Exchange.

Annual assessment of $2,000 per full-time worker, excluding the first 30 workers from the penalty

calculation.

$2,000 penalty is ≈23% of employer’s cost for family coverage*

If coverage is offered, but at least 1 worker gets subsidized

coverage in the Exchange (allowed if worker’s premium share exceeds 9.8% of family

income).

The lesser of $3,000 per subsidized employee OR $2,000 for each full-time employee.

*On average, Texas employers today pay 68% of the cost of family coverage, or $8,840 of a $13,000 family premium.

• Only one-in-three small businesses in Texas offers health insurance today.

• Texas small employers cite cost as the primary reason they cannot provide coverage.

• The Senate health reform bill provides tax credits to small businesses to help them afford coverage.

– Eligibility: Small firms with 25 or fewer employees, average annual wages under $50,000, and employer covers 50% of the premium cost.

– Phase I, 2010-2013: Max credit of 35% of employer’s cost for businesses, and 25% for nonprofits.

– Phase II, 2014 and on: Max credit of 50% of employer’s cost for coverage through the Exchange, and 35% credit for nonprofits. Available for two years.

– Max credit is available to small employers with 10 or fewer employees and average wages under $25,000, with phase out as size and wages increase.

Tax Credits for Small Businesses

• Options and peace of mind– Small firms that want to sponsor health benefits will

have a guaranteed source of stable, quality coverage, that is priced like coverage for large firms.

– Small firms that prefer not to sponsor a heath plan will not be penalized for that choice AND will know that their workers are guaranteed access to the same good coverage through the Exchange.

• Ends “job lock”– Increases pool of employees available to small

businesses.– Frees entrepreneurs to start their own small

businesses.

Other Benefits for Small Businesses