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Medicaid: Fiscal Year 2018 State Budget

Posted on March 16, 2017

John Bel Edwards’ executive budget for fiscal year 2017-18 proposes to spend $2.2 billion in state general funds to provide Medicaid health coverage for 1.7 million Louisiana residents. That translates to a $229 million reduction in state spending on Medicaid – or 12 percent below current-year levels after accounting for inflation. But overall spending on Medicaid is projected to increase from $11.7 billion in the current fiscal year to $13.1 billion in the budget year that starts July 1. The growth is mainly due to a $1.8 billion increase in federal Medicaid funding, a 21 percent increase. The jump in federal funding is mainly due to the extension of Medicaid coverage to low-income, working-age adults.

Source: Division of Administration

Medicaid expansion has allowed more than 408,000 low-income Louisianans to gain health insurance since enrollment opened in July 2016. The Louisiana Department of Health expects another 50,000 to 60,000 people to enroll next year. But the costs to the state are low compared to other Medicaid enrollees due to a favorable federal match rate. In FY 2018, the state is responsible for only 5.5 percent of the costs of the expansion population, with the federal government picking up the remaining 94.5 percent. Additionally, the federal matching rate for the traditional Medicaid population (low-income children, seniors, and disabled adults) will increase from 62.3 percent in the current year to 63.7 percent next year, which saves the state $93 million.

Federal funding accounts for nearly three-quarters of all Medicaid spending in Louisiana. When statutory dedications ($843 million) and interagency transfers ($25.1 million) are accounted for, spending on Medicaid from all state sources in FY 2018 is estimated to be $3.4 billion. The “statutory dedications” funding includes fees collected from providers and interest earnings that are constitutionally dedicated to Medicaid provider payments.

Source: Division of Administration

Medicaid Administration and Payments
State spending on Medicaid falls into two major buckets: Administrative overhead (Medicaid Vendor Administration) and payments to health care providers (Medicaid Vendor Payments). Administrative costs make up about 4 percent of state Medicaid spending ($118 million next year), with the remaining 96 percent going to pay providers. 

The largest portion of provider payments goes to the private managed-care organizations that oversee care for certain Medicaid populations for a fixed monthly per-patient cost. The executive budget proposes an additional $1.4 billion for managed care above the $6.8 billion the state is spending in the current year. Other large spending categories include payments to nursing homes, supplemental payments to hospitals, prescription drugs, group homes for people with developmental disabilities and waiver services that let people who are elderly or disabled receive care at home or in their community.

More people are being covered
The main reason overall Medicaid spending is projected to increase in 2017-18 is because more people are enrolling in the program. The Louisiana Department of Health expects that the program will cover an additional 200,000 people next year compared to FY 2017. In total, 1.7 million Louisianans, more than 1 in 3, will receive insurance coverage through Medicaid, up from just over 1 million in 2008.

While the Medicaid expansion significantly increased the number of low-income adults receiving Medicaid, the bulk of Medicaid beneficiaries (71 percent) still are “traditional” Medicaid enrollees, including low-income children and their caretakers, disabled persons, and seniors. Nearly 60 percent of children in Louisiana received health insurance through Medicaid last year. The rise in Medicaid coverage has driven Louisiana’s uninsured rate to a historic low, putting the state on the path to improved population health outcomes, reduced emergency room care, long-term savings and economic growth.

Source: Medicaid Subcommittee of the Health and Social Services Estimating Conference

Medicaid Spending by Enrollee Category
Louisiana spends an average of $6,454 per Medicaid beneficiary annually, but there is great variation in average costs among different types of Medicaid enrollees. In FY 2015, the Louisiana Department of Health reported that while children made up 53 percent of beneficiaries, they accounted for just 25 percent of total Medicaid payments made to providers. People with disabilities and seniors, while making up just 24 percent of the Medicaid population, accounted for 64 percent of all Medicaid payments.

Source: Louisiana Department of Health

The cost of Medicaid for people with disabilities and seniors is substantially higher because the program is main source of coverage for their long-term care needs, including in nursing homes and community-based settings. Medicaid also helps to pay for Medicare premiums and prescription drug benefits. Not only do these benefits and services cost more than the average hospital visit or check-up for a child or adult, the costs of long term care benefits and Medicare premium and prescription assistance have increased substantially over time, outpacing medical inflation, enrollee growth, and overall growth in Medicaid spending. For example, between FY 2008 and FY 2016 the number of persons with a disability receiving Medicaid increased by 4.7 percent and the number of seniors by 3.4 percent, but the Medicaid payments to nursing homes increased by 8.4 percent during the same window, when medical inflation is accounted for. Payments to Medicare Part A, B, and D also have significantly outpaced the growth in seniors enrollment in Medicaid.  


Although inflation-adjusted per enrollee costs have increased 7.7 percent since 2008, Louisiana still ranks low on per-capita spending in Medicaid compared to other states. In 2011, the most recent year data from all states is available, Louisiana spent 15 percent less than the national average rate and nearly 50 percent less than Alaska, the state with the highest per-enrollee spending.

The decision to expand Medicaid has resulted in significant savings in the state budget and an influx of federal funding in the upcoming fiscal year.  Still, the state must work to ensure that the program is sustainable in the long-term so it can continue to provide quality care to the Louisianans who need it most. Given that more than 1.7 million vulnerable Louisianans’ health and well-being will depend on Medicaid next year, including nearly 750,000 children, it is critical that Louisiana strengthen its investments in the program while seeking ways to slow cost growth in areas that are the major drivers of Medicaid spending increases.

Implementing best practices such as funding additional slots for home and community-based long-term care services and enhancing care coordination for people eligible for both Medicaid and Medicare are examples of ways that other states have improved care and reduced Medicaid costs.

Future blog posts will explore in more detail the budget picture for education, non-Medicaid health spending, and human services.

  • By Jeanie Donovan

Sources:

Appendix:

Managed Care Organization (MCO) – a private health organization that provides for the delivery of Medicaid health benefits and additional services through contracted arrangements with the Louisiana Department of Health and accept a set per member per month (capitation) payment for these services.

Fee for service – A method of reimbursement for medical services in which doctors and other health care providers are paid for each service performed. Examples of services include tests and office visits.  

Federally-Qualified Health Center (FQHC) – community-based organization that provides comprehensive primary care and preventive care, including health, oral, and mental health/substance abuse services to persons of all ages, regardless of their ability to pay or health insurance status. FQHCs also are called Community/Migrant Health Centers , Community Health Centers (CHC), and 330 Funded Clinics. All FQHCs are eligible to receive enhanced reimbursement from Medicaid at the higher Medicare rates.  

Rural Health Clinic –  a public, nonprofit, or for-profit healthcare facility located in rural, underserved area. RHCs are eligible to receive enhanced reimbursement from Medicaid at higher Medicare rates.

Supplemental Payments to Hospitals – Includes two categories of payments – Disproportionate Share Hospital (DSH) payments and Upper Payment Limit (UPL) payments. DSH payments reimburse hospitals for the costs of caring for indigent, uninsured patients and UPL payments fill a gap between the base reimbursement rate a hospital receives and the rate at which Medicare would reimburse the hospital.  

Dual-eligible – a person who is eligible for both Medicare and Medicaid based on their income, age, and/or disability status.  Medicaid helps make Medicare affordable for these individuals by covering Medicare premiums and/or cost-sharing for medical services and prescriptions.

Long-Term Care – encompasses the broad range of medical and personal care assistance that people may need – for several weeks, months, or years – when they experience difficulty completing self-care tasks as a result of aging, chronic illness, or disability. Long term care can be providing in a nursing facility or through home and community-based care providers.

 

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