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Key Provisions In Medicaid Budget Reconciliation Legislation Impacting Beneficiaries With Mental Illness

Updated November 22, 2005

Congressional leaders and the Bush Administration hope to reach final agreement on the legislation – known as budget "reconciliation" – by Thanksgiving.  The reconciliation package touches not only Medicaid, but also a broad range of domestic programs including farm subsidies, student loans, food stamps and child support enforcement.  While the Senate measure achieves $35 billion in net 5-year savings, the House companion bill includes deeper cuts to reach a $53.9 billion overall savings target.

On November 3, the Senate voted 52-47 in favor of a $35 million deficit reduction package that includes changes to the Medicaid program designed to achieve a net $10 billion in savings over the next 5 years. 

House & Senate Bills Differ Substantially on Medicaid Reforms

The separate House and Senate bills differ substantially over the proposed changes to Medicaid.  The House bill closely follows recommendations put forward by the National Governors Association (NGA) granting states unprecedented flexibility to impose higher cost sharing and premiums on beneficiaries and design benefit packages below current Medicaid standards.  By contrast, the Senate-passed bill achieves most of its savings through cuts in payments to Medicare managed care plans and higher rebates paid to states by generic and brand name drug makers.

Both House and Senate Bills Reject Harmful Changes to Targeted Case Management and Rehabilitation Services

Of enormous concern to NAMI in recent months has been a proposal that would have significantly curbed the ability of states to integrate evidence-based programs such as assertive community treatment (ACT) into their Medicaid programs through the existing options of Targeted Case Management (TCM) and Rehabilitation.  Earlier this year the Bush Administration proposed changes to the definitions of both TCM and Rehabilitation under Medicaid, changes that would make it difficult for states to qualify intensive case management and ACT programs managed by public mental health agencies and CMHCs for Medicaid funding.

Both the House and Senate bills largely exclude these recommendations for redefining TCM and the Rehabilitation option.  The apparent rejection of this proposal is a major victory for Medicaid recipients with mental illness.  NAMI is extremely grateful to Finance Committee member Senator Gordon Smith (R-OR) and others for their leadership in pushing to ensure that these proposals were rejected.

The House and Senate bills do include nearly identical provisions clarifying the scope of case management services and codifying existing guidance to state Medicaid programs.  This guidance relates to the distinction between direct clinical services and case management (assessment, care plan development, referral, monitoring and follow-up).  NAMI is carefully monitoring this TCM provision to ensure that adequate guidance is provided to CMS (the federal agency that administers Medicaid) to ensure that additional administrative limits are not imposed on intensive case management and ACT programs.  On November 3, the Senate rejected (46-52) an amendment offered by Senator Jack Reed (D-RI) that would have deleted the TCM provision from the legislation.    

House Bill Includes Buyer Amendment Protecting Access to Medications

During its deliberations, the House Energy & Commerce Committee approved an amendment (by a 31-20 vote) authored by Representative Steve Buyer (R-IN) directing states to invest in disease management programs and evidence-based practice for prescribing of psychiatric medications.  More importantly, the Buyer Amendment would limit the ability of state Medicaid programs to impose restrictive policies such as prior authorization on anti-psychotics and anti-depressants. 

NAMI strongly supports the Buyer Amendment.  NAMI is deeply grateful not only to Representative Buyer, but also members of the Energy & Commerce Committee that supported his amendment especially:  Representatives Mary Bono (California), Mike Burgess (Texas), Vito Fosella (New York), Tim Murphy (Pennsylvania), Sue Myrick (North Carolina), Mike Rogers (Michigan), John Sullivan (Oklahoma) and Heather Wilson (New Mexico).   

New Waiver Proposal to Examine Access to Acute Care and the IMD Exclusion Approved

The Senate bill includes a proposal from Senator Olympia Snowe (R-ME) to create a new demonstration program allowing states greater flexibility to avoid current restrictions on Medicaid funding for acute inpatient psychiatric care.  This amendment would allow for waiver of the so-called Institutions for Mental Disease (IMD) exclusion for acute psychiatric care.  NAMI supports the Snowe Amendment.  This important waiver program would allow states the ability to waive the restrictions of IMD and invest Medicaid funds in acute inpatient care.  The demonstration will measure the efficacy of acute inpatient care in improving outcomes and reducing reliance on other high cost services such as emergency room care.

House Bill Includes State Option for Higher Co-Payments for Certain Medicaid Beneficiaries

The House budget reconciliation package contains a series of proposals developed by the National Governors Association (NGA) to allow states the ability to require Medicaid recipients to pay higher co-payments and insurance premiums.  Imposing higher co-payments and premiums would be at the option of states.  The Congressional Budget Office (CBO) estimates that higher cost sharing will save the federal government $2.6 billion over 5 years.  Most of these savings would accrue through diminished demand for services, as opposed to increased revenue.  In other words, the main impact of higher cost sharing will be recipients not seeking care they would otherwise receive in the absence of higher co-payments.    

If a state elects to undertake higher cost sharing and premiums, there would a number of mandatory requirements.  Higher premiums (premiums imposed for enrollment in Medicaid health plans) could not be imposed on beneficiaries at or below 100% of federal poverty (this would protect most disabled SSI recipients who well below the federal poverty level).  Further, states would not be allowed to increase cost sharing or premiums above 5% of an individual's income. 

The option for higher beneficiary cost sharing would contain the following exceptions (i.e. populations and services for which a state could not impose cost sharing):

  • Children in mandatory eligibility categories (including children eligible for SSI),
  • Children in foster care,
  • Most institutionalized individuals (i.e. recipients in nursing homes, ICF-MRs, long-term psychiatric hospitals),
  • Terminally ill beneficiaries in hospice care,  and
  • Preventive services for children

In addition, the House bill specifically authorizes states to undertake two important cost sharing options:  higher cost sharing requirements for "non-preferred" drugs and non-emergency services delivered in emergency rooms.  NAMI is concerned about both of these proposals.  In the case of "non-preferred" drugs, this proposal would encourage states to place higher cost sharing requirements on most of the newer anti-psychotic medications, by listing the older medications as "preferred."  In the case of emergency room care, higher cost sharing for "non-emergency" care could be applied against recipients with mental illness who present in emergency rooms experiencing suicidal ideation, without having made an attempt.  Further, in many communities the only route into a hospital's acute psychiatric unit is through an emergency room – regardless of whether an individual is experiencing a medical emergency.

NAMI is extremely concerned about the impact of these state options for higher cost sharing and premiums on Medicaid recipients with severe mental illness.  While the current proposal does create mandatory exceptions for certain populations, it does NOT exclude adult SSI recipients with mental illness.  Further, by singling out medications and emergency room care, the House bill allows states to place further barriers to critical care for the most vulnerable Medicaid beneficiaries with mental illness.

House Bill Permits States to Offer Alternative Benefit Packages

The House bill contains authorization for states to offer a flexible benefit structure that is less than the current structure of mandatory and optional services that states must provide to all eligible populations (both mandatory and optional eligibility categories).  This alternative package could exclude many of services currently offered under Medicaid including intensive case management and screening and early intervention for children (known as EPSDT).  CBO estimates that this proposal will save $2 billion over 5 years. 

The alternative package would have to meet certain standards and be at least equivalent to other health plans in the market place such as the largest HMO in the state or the plan offered to state employees.  Further, states would NOT be allowed to offer this alternative scaled back plan to specific categories of Medicaid beneficiaries including:

  • Children in mandatory categories (including children on SSI),
  • Pregnant women,
  • Individuals dually eligible for Medicare and Medicaid,
  • Terminally ill in hospice care,
  • Most institutionalized individuals (i.e. recipients in nursing homes, ICF-MRs, long-term psychiatric hospitals),
  • Individuals who qualify for long-term care (as defined by the state), and
  • Individuals deemed "medically frail" or "special needs."

It is unclear from the House bill whether or not this final category includes mandatory and/or optional beneficiaries with severe mental illnesses as an exclusionary category.  The legislation anticipates providing states with flexibility to define who is either "medically frail" or "special needs."  NAMI is most concerned that this alternative package could actually be applied to mandatory SSI beneficiaries with severe mental illness.

Changes to Pricing of Pharmaceuticals

Both the House and Senate bills include reforms of the complicated processes used in the Medicaid program for pricing of prescription drug medications.  This involves changes to the way in which brand name and generic drug makers are required to pay supplemental rebates to state Medicaid programs in order to have their products available on formularies.  Both bills also change the way that pharmacies are reimbursed for filling prescriptions.  In general, the Senate bill imposes significantly larger increases in supplemental rebates than the House bill, delivering $6.3 billion in 5 year savings, as opposed to $1.24 billion in the House.  NAMI remains concerned that proliferation of higher supplemental rebates will lead to more restrictions placed on access to medications in state Medicaid programs.  This occurs as states increasingly restrict access to medications (via prior authorization requirements, "fail first" mandates, etc.) marketed by companies not willing to pay the highest level rebates. 

Changes to Medicare

The House bill includes no changes to the Medicare program – and as a result, achieves its entire required budget savings through Medicaid.  By contrast, the Senate bill draws substantial savings through 5 year reductions to payments that have been promised to managed care plans in the Medicare program (known as Medicare Advantage plans).  Eliminating these risk-adjusted payments and stabilization funds were intended to induce plans into the Medicare and offer expanded benefits.  These reductions render nearly $12 billion in budget savings over 5 years and make possible a number of program enhancements in both Medicare and Medicaid (including avoiding a scheduled reduction in reimbursement rates to physicians). 

Miscellaneous Provisions

  • The final Senate bill includes an amendment offered by Senator Jeff Bingaman (D-NM) creating "hold harmless" for 30 states whose federal Medicaid match rate would have been reduced later this year,
  • Both bills include short-term fiscal relief and supplemental assistance for state Medicaid programs in the Gulf region that have been devastated by Hurricanes Katrina and Rita (through 100% federal matching funds for Louisiana, Mississippi and parts of Alabama through June 2006),
  • The Senate bill includes the Family Opportunity Act (FOA), legislation allowing states set up Medicaid buy-in programs for families of children with severe disabilities including mental illness,
  • Limits on the ability of states to use of "Intergovernmental Transfers" of funding between cities and counties and taxes on Medicaid managed plans in order to draw down additional federal Medicaid matching funds, and
  • Reform of current rules limiting the ability of upper and middle income families to transfer assets when entering a nursing home or long-term care facility.  The House bill goes much further than the Senate bill, increasing the so-called "look back period" from 3 to 5 years and barring an individual from receiving long-term care under Medicaid if their equity interest in their home exceeds $500,000 (saving $580 million).