The state Medicaid crisis: benefits and eligibility on the block - State Policy Watch - a discussion of how state Medicaid programs should respond to their financial crises

Healthcare Financial Management, May, 2003

The recent downturn in the nation's economy has created a crisis for state Medicaid programs. Governors and state legislatures have had to decide how to provide Medicaid coverage with substantially declining revenue. Should they cut back eligibility levels, raise copayments, or place other cost-sharing burdens on Medicaid beneficiaries? Or should they eliminate services from the Medicaid benefit package?

2002 Response

In the states' most common course of action, by far, was to adjust prescription drug benefits and pharmaceutical assistance programs. The two most popular measures were establishing or expanding prior authorization rules and creating preferred drug lists (PDLs). Other measures states adopted included requiring generic drug substitution, restricting brand-name drugs that could be dispensed, increasing cost- sharing requirements for recipients, and establishing supplemental drug-rebate programs.

To a lesser extent in states limited optional Medicaid services as a source of cost savings. The optional service most commonly targeted was dental services, with seven states limiting such services for adults. Other optional services that were reduced by some states were mental health, chiropractic, vision, podiatry, personal care, naturopath, and/or transportation services. States also reduced payment rates for pharmacists, nursing facilities, hospitals, physicians, dentists, and numerous other providers.

A few state legislatures attempted to lower Medicaid costs by restricting eligibility, even going so far as to prevent entire groups of people from enrolling in the program. For the most part, however, states used legislation and federal waivers to continue to expand Medicaid eligibility, especially for low-income women diagnosed with breast or cervical cancer and for disabled individuals who want to remain in the workforce.

2003 Response

In 2003, states face the same budget difficulties, if not worse, as last year. In fact, the National Conference of State Legislature's 2003 State Healthcare Priorities survey showed that most states would struggle with budget problems in the 2003 legislative session. And while states will again look to benefit levels and payment rates to find cost savings, some states maybe more willing to reduce Medicaid eligibility levels and remove people from the Medicaid rolls. Indeed, according to the 2003 survey, many legislators indicated their state would look for cost savings through changes in Medicaid eligibility.

Specifically, 22 states likely will reduce or freeze eligibility levels: of those states, 18 would do so for adults, 16 for the elderly, 13 for children, 11 for the disabled population, and 8 for pregnant women. As one state legislator stated, "All Medicaid programs will be up for review. The focus will likely be the budget and solving our problems. Benefit enhancement and new program funding will take a back seat."

Recent Actions

As of March 31, eight states--Arkansas, Colorado, Connecticut, New Mexico, North Dakota, Pennsylvania, Virginia, and Wyoming--have enacted legislation affecting eligibility.

In particular actions limiting eligibility, Colorado has revoked Medicaid eligibility to legal immigrants, and Connecticut has eliminated medical assistance for all parents and caretaker relatives with incomes exceeding ioo percent of the federal poverty level (FPL).

A few states have expanded eligibility for medical assistance, however. New Mexico, Virginia, and Wyoming expanded medical assistance for prescription drugs to seniors. Arkansas is allowing qualifying college students to receive medical coverage under the ARKids First program, and Virginia is directing its Department of Medical Assistance Services to seek a Section 1115 waiver to establish a Medicaid buy-in program for the working disabled.

Outside of eligibility levels, state legislators are again targeting Medicaid benefit levels for cost savings, especially pharmaceutical benefits. Thus far, only Connecticut, New Mexico, Virginia, and Wyoming have enacted legislation affecting prescription drugs.

* Connecticut lowered the fee it pays to pharmacies for dispensing prescriptions to Medicaid recipients from $3.85 to $3.60.

* New Mexico directed its Human Services Department to create a Medicaid waiver program to provide prescription drugs to seniors and the disabled.

* Virginia created the Healthy Lives Prescription Fund to develop and implement programs that will enhance current prescription-drug programs for its citizens who are uninsured or cannot pay for prescription drugs.

* Wyoming directed its Department of Health to apply for a Section 1115 waiver to allow individuals with income or assets above the limits generally established in the state plan to receive services under a pharmacy plus program. The state also enacted a law to establish a preferred drug list.

Currently, no state has reduced provider payment rates in 20003. However, Wyoming directed its Department of Health to enter into intergovernmental transfer arrangements with qualifying facilities to increase payments to public hospitals.