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Details On Medicaid Budget Reconciliation Package

The House Senate Conference Agreement On S 1932

Updated January 26, 2006

$13 Billion in Reductions for Medicare and Medicaid

S 1932 includes changes across a broad array of domestic programs, and falls heavily on health care entitlement programs.  It is projected to reduce over all spending by just under $40 billion and spending within Medicare and Medicaid by $13 billion over the next five years.  Of most concern to NAMI are changes that would allow states to impose higher cost sharing requirements on Medicaid beneficiaries -- even mandatory beneficiaries eligible for SSI (Supplemental Security Income).  These changes follow provisions in the House-passed bill that were recommended by the National Governors Association (NGA).  These changes are projected to reduce Medicaid spending by $1.9 billion over 5 years, and $10.1 billion over 10 years. 

It is important to note that these savings result largely from reduced demand for services, rather than the actual increased co-payments paid by beneficiaries.  In other words, most of the budget savings that occur from higher cost sharing come as a result of beneficiaries not seeking services (or being deterred from seeking treatment) -- a major concern for NAMI in the case of "non-preferred" prescription drugs.   

Increased Cost Sharing Places Medicaid Beneficiaries At Risk

The final agreement on S 1932 creates certain rules and protections that state Medicaid programs must provide for when developing higher cost sharing requirements.   They also distinguish between higher premiums paid by low-income beneficiaries, and specific services under Medicaid such as "non-preferred" drugs and non-emergency services delivered in emergency rooms.  The legislation also sets up protections for beneficiaries below 100% of poverty (about $9,500 for an individual and $13,000 for couples). 

In most states, the upper limit for Medicaid eligibility is below 100% of poverty, especially in states that do not provide supplement payments to SSI.  However, in states that do supplement SSI (including those that offer such payments for individuals in group homes and other congregate settings) beneficiaries can be above 100% of poverty.  In most states that do supplement SSI, it is done to offset room and board costs in a group or adult care home and the state supplement is not discretionary income to the individual beneficiary.  Likewise, individuals eligible for Medicaid through "spend down" (those who reach eligibility standards through high medical costs) are at great risk of being above 100% -- and therefore subject to higher cost sharing.

Most importantly, this legislation changes current Medicaid rules that prevent a provider (physician, clinic or pharmacy) from withholding a service when a beneficiary can not meet their cost sharing obligation.  This legislation repeals that requirement and allows providers (including pharmacies) to deny services from beneficiaries who cannot make co-payments.  Likewise, states would be able terminate Medicaid eligibility for beneficiaries who fail to payment premiums.  Finally, another important qualification is that premiums and cost sharing would be adjusted in the future by medical inflation -- a factor much higher than the general cost of living adjustments made annually to SSI benefits.   

Premiums and General Cost Sharing

For individuals below 100% of poverty, states cannot impose higher premiums and can charge only "nominal" co-payments (currently defined as $3).  For individuals between 100% and 150% of poverty, higher premiums cannot be charged, but cost sharing can be increased to as much as 10% of the cost of an item or service.  Above 150% of poverty (about $14,500 for individuals and $19,500 for couples), premiums and co-payments can be increased to 20% of the cost of an item of service.  All increased premiums and cost sharing are limited to 5% of the individual's annual income (assessed either monthly or quarterly). 

The legislation maintains a list of exempted categories from higher premiums and cost sharing that includes:

  • Mandatory children (children with disabilities on SSI),
  • Pregnant women,
  • Institutionalized individuals (including individuals in nursing homes and psychiatric hospitals),
  • Individuals in hospice,
  • Breast cancer patients,
  • Preventive services for children, and
  • Most emergency room services.

It is important to note that these exempt categories do NOT include mandatory beneficiaries eligible for SSI, including individuals with severe mental illness.

Cost Sharing for "Non-Preferred" Drugs

The legislation establishes a new cost sharing structure for state Medicaid programs with respect to prescription drugs.  This would specifically allow higher cost sharing for medications that are deemed by the state to be "non-preferred" -- drugs that are not on a state's Preferred Drug List (PDL).  NAMI is concerned that medications to treat severe mental illness will be extremely vulnerable to being designated by states as "non-preferred" and thus subject to higher cost sharing.  A number of states have moved in recent years to limit anti-psychotic and anti-depressant medications on their PDL and more can be expected to in the wake of this provision. 

For individuals below 150% of poverty, only nominal co-payments could be charged, adjusted by medical inflation.  Individuals above 150% of poverty could be charged as much as 20% of the cost of a medication.  Further, the exempt groups listed above could be charged higher cost sharing on "non-preferred" drugs. 

The provision does include explicit waiver authority allowing a physician to override the higher "non-preferred" co-payment.  This would require states to allow "non-preferred" medications to be available on the same terms a "preferred" drug if the prescribing physician determines that the drug on the state's preferred list would not as effective for an individual or would have adverse effects on the individual.  Further, states would be allowed to exclude specific medications or classes of medications from their status as "non-preferred."

Non-Emergency Services in Emergency Rooms

This provision -- originally in the House bill -- allows states to impose higher cost sharing for individuals who use emergency rooms for routine care.  The provision is intended to allow states to clamp down on high cost emergency care that would more efficiently be provided in physician offices and clinics.  NAMI is concerned that states would be allowed to impose these higher cost sharing requirements on individuals with severe mental illness who present in emergency rooms with suicidal ideation who may not be experiencing a "medical emergency."  This is especially the case for individuals who do not end up being admitted to an acute care unit in the hospital.

For non-emergency care delivered in an emergency room, states would be able assess a co-payment equal to twice the nominal co-payment for individuals below 100% of poverty.  The exempt groups listed above could be required to pay a nominal co-payment.  Further, for individuals above 100% of poverty, there appears to be no limit on cost sharing.  As with the other new cost sharing requirements, this would be subject to 5% of annual income.

Legislation Allows States to Offer Alternative Benefit Package

The final legislation maintains portions of a provision in the House passed version of S 1932 that allows states to offer a reduced alternative Medicaid benefit package that can exclude certain mandatory and optional services that states have previously been required to provide to all eligible populations (both mandatory and optional eligibility categories).  This alternative benefit 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:

  • Individuals deemed "blind or disabled" (regardless of whether the state follows the federal SSI definition or not),
  • 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.”

NAMI is especially concerned that this alternative package option for states would leave most screening and early intervention services for children in poverty at risk.  Currently, Medicaid EPSDT services ensure that low-income children receive the comprehensive mental illness and physical illness treatment services they need.  EPSDT (Early Periodic Screening Diagnosis and Treatment) is an early intervention focused program that targets at-risk children.

The final version of the bill contains a number of ambiguous provisions that appear to allow states to replace EPSDT for as many as 28 million Medicaid children with potentially far fewer benefits under the State Childrens Health Insurance Program (SCHIP).  Congress enacted SCHIP in 1997 as an add-on to EPSDT, not as a substitute.  SCHIP benefits standards in the legislation are much weaker than EPSDT coverage.  States are permitted to determine services to be covered, so long as the State's plan meets or is actuarially equivalent to a benchmark plan or a plan approved by HHS.  Some benchmark plans could result in significantly reduced coverage if adopted.

During debate in the Senate, the Centers for Medicare and Medicaid Services issued the following opinion stating that states would have to cover EPSDT services as part of any alternative benefit package.  Click here to view the CMS opinion.

Changes to Targeted Case Management Included in Final Bill

The final House-Senate agreement includes a provision 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) and clarifies rules for third-party recovery (how states can seek payments from managed care organizations).  NAMI is carefully monitoring this TCM provision to ensure that adequate guidance is provided to CMS (the federal agency that administers Medicaid) and state Medicaid programs so that additional administrative limits are not imposed on intensive case management and ACT programs.

Buyer Amendment Protecting Access to Medications Dropped from Final Legislation

The House bill contained a provision authored by Representative Steve Buyer (R-IN) that would have directed states to invest in disease management programs and evidence-based practice for prescribing of psychiatric medications.  More importantly, the Buyer Amendment would have limited the ability of state Medicaid programs to impose restrictive policies such as prior authorization on anti-psychotics and anti-depressants. 

NAMI strongly supported the Buyer Amendment as critical to protecting access to medications for the most vulnerable Medicaid beneficiaries with severe mental illness.  States are increasingly using prior authorization requirements (mandating that specific medications cannot be prescribed or paid for without special permission) in Medicaid against psychiatric medications.  These restrictive policies result in limited short-term savings, but higher long-term costs as Medicaid recipients with severe mental illness decompensate when they are unable to access the specific medication that works for them.  Despite repeated efforts by Rep. Buyer to offer compromise language, the amendment was rejected by House leaders.    

Snowe Amendment on Inpatient Excluded

The final version of S 1932 excludes a proposal offered by Senator Olympia Snowe (R-ME) that would have created a new demonstration program allowing states greater flexibility to avoid current restrictions on Medicaid funding for acute inpatient psychiatric care.  This amendment would have allowed for a waiver of the so-called Institutions for Mental Disease (IMD) exclusion for acute psychiatric care.  NAMI strongly supported the Snowe Amendment.  This important waiver program would have permitted 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.

Family Opportunity Act Included

The final agreement includes a provision authorizing a new program allowing states to establish Medicaid buy-in programs for families of children with severe disabilities.  The program would be available to allowing these families to purchase Medicaid coverage for a child with a severe disability (including mental illness) in order to avoid having to impoverish the entire family (e.g., by quitting a job) to qualify for Medicaid.  This new demonstration program would be available for families at 300% of the poverty level or below.  The provision also authorizes a 10-state demonstration program for home-based care for Medicaid eligible children with psychiatric disabilities (as an alternative to institutional care).  This version of the FOA is estimated to cost $872 million over the next five years.  

Katrina Medicaid Relief

Both the House and Senate versions of S 1932 provided relief to states in the Gulf region still under stress from Hurricanes Katrina and Rita.  The final legislation authorizes $2 billion in additional funds for impacted state Medicaid programs.  These funds would be allocated both the direct impact states (Alabama, Louisiana & Mississippi), as well as states that have accepted evacuees who are Medicaid eligible.  By contrast, the previous versions of S 1932 allowed for 100% Medicaid matching funds through June of 2006.  This provision in the final legislation will allow states that have accepted evacuees to access these funds.  

Supplemental Security Income (SSI)

Under the final version of S 1932, low-income individuals with severe disabilities who have waited months for the Social Security Administration (SSA) to review and approve their applications for SSI (a common occurrence in SSI), and consequently are owed more than three months of back benefits, would have to receive these benefits in installments that could stretch out over the course of a year.  The first installment would include no more than three months of back benefits.  By contrast, under current law, most such disabled individuals receive their back benefits in a single lump sum payment. Individuals owed more than 12 months' worth of benefits receive benefits in installments, but the first installment is equal to 12 months of benefits.

This change in policy means many low-income SSI recipients would have to wait longer for benefits they are owed, making it more difficult for them to pay off arrears in bills that have built up during the period when they were unable to work due to their disability and were not receiving monthly SSI benefits because SSA was still processing their application.  Under the proposed change, some low-income beneficiaries could die before receiving the full back benefits they are owed.  (With two minor exceptions, if a person dies before being paid SSI benefits they are owed, the SSI benefits are not paid to the person's relatives or estate.  These back benefits are not even available to help family members pay for funeral costs.)

It should be noted that critics of this change in the law have criticized it as a "budget gimmick" in that it would make most of the affected beneficiaries wait longer for the benefits they are owed, thereby shifting costs from one year to the next and providing savings in the five-year budget "window."  (Some "true" savings apparently would be achieved, as well, as a result of some individuals dying before receiving the back benefits they are owed).  CBO estimates the savings from this provision at $425 million over five years.