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Mass Health Basics: The Medicaid Program in Massachusetts

Mass Health Basics:
By: Massachusetts Medicaid Policy Institute

The Medicaid program is the underpinning of the health care safety net in Massachusetts. It provides health care coverage — the key to accessing care — to 950,000 of the Commonwealth’s neediest, most vulnerable residents. It pays providers such as hospitals, physicians and pharmacies for treatment that would otherwise go largely uncompensated. It brings billions of federal dollars into the state to help finance care for low-income people. In a state where most believe that people who need medical care should get it, regardless of their economic circumstances, the Medicaid program — known in Massachusetts as MassHealth — goes a long way to making that possible. MassHealth presents challenges as well. Because of its important role and the medical needs of the people it serves, the program demands a large amount of public resources. It competes, in these times of fiscal belt-tightening, with other priorities in the state budget process, often coming up short in the eyes of MassHealth members, advocates, or providers. The large and diverse MassHealth population requires a variety of approaches to delivering and managing care. And because of its size, the number of interested stakeholders, and the need for public accountability, most major decisions about MassHealth are made under intense public scrutiny. This fact sheet introduces the Massachusetts Medicaid program, describing its basic structure, who receives benefits and what those benefits are, and how enrollment and spending has changed over time. It concludes with a discussion of some of the current policy issues and challenges facing the MassHealth program.

Background

Medicaid is a joint federal-state program, created by Congress in 1965 as Title 19 of the Social Security Act. (Medicare was passed at the same time, as Title 18.) In 1997, the State Children’s Health Insurance Program (SCHIP), another funding stream for MassHealth, was added to the Social Security Act as Title 21. Medicaid is a means-tested entitlement program, jointly funded by state and federal governments. States administer the program and set rules for eligibility, benefits and provider payments within broad federal guidelines. As a result, there are wide variations in the Medicaid program across states.

Who is covered?

MassHealth provides health coverage to many of the poorest, most vulnerable and most intensive users of health care services in the Commonwealth. Since 1997 the Commonwealth has, as a matter of policy, sought to expand MassHealth enrollment among critically underserved groups. This policy has been largely successful: MassHealth added over 300,000 members from June of 1997 to its peak enrollment of 995,700 in August 2002; enrollment as of October 2004 stands at 958,200.

MassHealth covers about one out of every seven residents of Massachusetts. The program provides health care coverage to low-income children and families, pregnant women, long-term unemployed adults, seniors and persons with disabilities. Eligibility for coverage is different for each of these categories and the rules are complex. Eligibility is determined by a variety of factors, which include income relative to the federal poverty line, age and immigrant status, and assets (for some categories of eligibility). In general, children in families with income up to twice the federal poverty line (FPL; $37,700 for a family of four in 2004) qualify for some form of coverage. Parents of these children are eligible with incomes up to 133 percent of the FPL. The eligibility limit is 100 percent of FPL for long-term unemployed adults, and 200 percent for pregnant women, disabled adults, people with HIV, and employees of certain employers (for whom MassHealth subsidizes premiums for private coverage). Higher income children and adults with disabilities may enroll in MassHealth by paying a sliding-scale premium based on income. People over age 65 generally must have income at or below the federal poverty level and minimal assets, although they may qualify at higher income or assets if they have sufficiently large medical expenses.

Who is not covered?

Though Medicaid is popularly thought of as “health insurance for the poor,” it does not comprehensively cover that population. In particular, low-income, non-disabled adults with no children have limited access to MassHealth. In 2002, about one in five Massachusetts adults with incomes below 200 percent of the federal poverty line had no health coverage, and that group comprised more than a quarter of the non-elderly uninsured.

What services are covered?

The federal government mandates a set of services that all state Medicaid programs must cover with no more than minimal cost sharing (such as co-payments) required of beneficiaries.These services include hospital care, physicians, skilled nursing facilities, home health care, and several other categories. In addition to the mandatory services, states may provide coverage for 30 other services for which they may receive federal matching funds. The most commonly offered optional services are prescription drugs, intermediate care facilities for individuals with mental retardation (ICF/MR), personal care, and targeted case management. Massachusetts covers 25 of the 30 optional services.

What does it cost/how is it funded?

Massachusetts spent an estimated $6.1 billion for the MassHealth program in fiscal year 2004, or about 26 percent of the total state budget. Of every dollar the state spends, the federal government reimburses approximately 50 cents. Net state spending on MassHealth, then, was about one eighth of the budget in FY2004 (see Chart 4). The $6.1 billion continued a recent trend of rising MassHealth pending, after a period of relative stability in the mid- to late 1990s. In the four years from 1999 to 2003, spending increased 34 percent, a compounded annual average of 7.6 percent. FY2004 expenditures continue that trend with a 9.4 percent increase. Medicaid spending has not been growing as rapidly as private health insurance premiums, however. From 2000 to 2003, premiums for employer-sponsored insurance in Massachusetts increased an average of 12.4 percent annually for family coverage and 11.6 percent for individual coverage.

A number of factors are responsible for the recent increase in Medicaid spending in Massachusetts. First and most important, health care costs in general have resumed a rapid rise both locally and nationally. In this sense, Medicaid faces the same cost challenges of any other health plan. Medicaid covers a number of costly services that the Medicare program does not, such as prescription drugs and nursing home care, for many low-income seniors and people with disabilities who are Medicare beneficiaries. The state has also shifted services offered by the Departments of Mental Health and Mental Retardation into the Medicaid program in order to maximize federal contributions. A final factor, less significant in its effect on overall spending, is the expansion of MassHealth eligibility.

MassHealth spending is not spread evenly across the various categories of beneficiaries. Fully 71 percent of spending in FY2004 was for services to seniors (37%) and non-elderly people with disabilities (34%), though these groups comprise only one third of MassHealth members. Average spending per elderly MassHealth member was over $15,000, and for members with disabilities about $8,400, compared with about $5,200 for all members. More than half of the growth in MassHealth spending in the last five years has been for services for people with disabilities. Similarly, payments for different providers and services vary widely. In FY2004, 40 percent of MassHealth spending was to long-term care facilities, 13 percent to acute care hospitals, and 16 percent was for prescription drugs.

From the perspective of providers, the role of Medicaid in financing health care varies in importance. In 2001, for example, MassHealth payments accounted for over half (56%) of nursing homes’ revenues, just under a quarter (23%) of community health centers’ revenues, and about 12 percent of hospitals’ revenues. Of course, the dominance of Medicaid as a payer also varies around these averages within provider groups.8 How does Massachusetts Compare with Other States? Three-quarters of Massachusetts residents believe that people in need of health care should be able to get it regardless of their economic circumstances, and eight in ten think that the government should make some effort to provide health insurance for the uninsured.9 State policy reflects the public’s sensibility, as manifest in the sizable increase in MassHealth enrollment since 1997, and the relative generosity of the program compared to many other states.

Massachusetts also has a higher proportion of enrollees with disabilities, who typically use more expensive services. All of these characteristics are consistent with the public’s desire to make health insurance and health care available, and the state appears to be more successful than most in achieving that goal. Massachusetts has the third-lowest rate of uninsured among the peer states. Though MassHealth coverage is relatively available and relatively generous, state spending on the program is relatively moderate: Massachusetts is exactly in the middle of the group of states in average spending per beneficiary, despite being a state with high medical costs.

Some of the challenges ahead

MassHealth is a critical program to a significant portion of the state’s residents and health care providers, and a major concern to public policy makers. These policy makers and the program’s administrators face a number of ongoing challenges to keeping MassHealth viable and effective for the populations it serves. These are but a few, briefly summarized:

Health care costs.

Overall medical costs will continue to rise at rates that exceed general inflation. The federal Centers for Medicare and Medicaid Services projects that expenditures on health care services will grow by over seven percent per year over the next decade, and Medicaid spending nationally will grow a percentage point or two faster than that.11 This, of course, has significant implications for state and federal budgets.

One important contributor to rising medical costs is prescription drugs. In recent years, MassHealth has done a good job controlling increases in prescription drug pending, through initiatives such as a preferred drug list, prior authorization, and incentives to use generic alternatives. Cost pressures continue, however, and the new Medicare prescription drug benefit that begins in 2006 presents a new challenge to the state’s ability to control drug spending. This is because, while the state will be relieved of the responsibility of purchasing drugs for the 190,000 MassHealth members who are also eligible for Medicare (and who account for half of MassHealth drug spending), it will be required to contribute to the financing of the federal benefit, at a level that may exceed what the MassHealth program would spend for the same population.

Federal financing

One approach the federal government may take to control its Medicaid costs is to change the financing structure of the program from one of federal matching payments for qualified state expenditures to one of a fixed federal allotment or “block grant.” In its last two proposed budgets, the Bush Administration has proposed offering states broad flexibility and exemption from federal rules in administering Medicaid, in exchange for a cap on the amount of funds the federal government would contribute. While this arrangement might offer states the opportunity to better tailor a program its own residents needs, such a departure from the traditional shared funding responsibility of Medicaid would also put states at greater financial risk and threaten eligibility or benefits during times of budget stress. Medicaid block grants will probably continue to be a subject of policy discussions between state and federal governments.

Medicaid as safety net coverage

Health insurance is the key to health care access. MassHealth provides health insurance to people who otherwise would not have it. As employer-sponsored private coverage has slowly eroded, increases in MassHealth enrollment have kept the number of uninsured from growing higher than it is. MassHealth expansions have reduced the number of uninsured; conversely, cost-saving measures that reduce MassHealth enrollment add people to the ranks of the uninsured. MassHealth thus serves an important public health function, improving health through the coverage it offers, the value of which must be weighed against the pressure to control costs.

Delivering care to high-cost beneficiaries

Seniors and non-elderly people with disabilities account for a disproportionate share of MassHealth spending. While many of the services they receive through MassHealth are essential to their health and quality of life, program planners face a challenge of controlling the increasing costs of these services. A number of initiatives currently in place stress case management and community-based alternatives to institutional care.13 As the needs of these groups continue to require significant resources, the effectiveness of these efforts should be assessed and the most successful replicated or expanded.