State's Medicaid faces new $30 million shortfall
by Tim Lockette
Nov 25, 2012 | 6607 views |  0 comments | 19 19 recommendations | email to a friend | print
Anniston physician Carla Thomas says she believes managed care could work as long as there is better coordination of care. (Anniston Star photo by Bill Wilson)
Anniston physician Carla Thomas says she believes managed care could work as long as there is better coordination of care. (Anniston Star photo by Bill Wilson)
MONTGOMERY — Just two months after Alabama voters agreed to raid a state fund for $437 million to patch a hole in the state budget, the state is again facing a Medicaid shortfall.

State Health Officer Don Williamson said changes at the federal level will tack an additional $30 million onto the state’s Medicaid funding needs for 2014 — a cost state officials didn’t know about when voters approved the $437 million budget plug on Sept. 18.

“With no fundamental change in the program, you’re looking at an additional $30 million just to stand still,” Williamson said.

Medicaid, a joint state-and-federal program that provides health care for people below the poverty line, has become a nightmare for the state’s budget planners in recent years. The economic crash of 2008 dumped thousands of previously prosperous people into poverty, adding them to the Medicaid rolls. A tidal wave of aging baby boomers is expected to keep up demand for years to come; the majority of Alabama’s nursing home residents are on Medicaid.

Increased Medicaid costs forced belt-tightening for many state agencies in the 2012 budget, even though the overall budget grew. For the 2013 budget year Medicaid needed more than $100 million beyond what was available in the budget. Lawmakers proposed, and voters approved, a plan to take nearly half a billion dollars from a state oil and gas fund to fill that gap over a three-year period.

Williamson said a change to the federal formula for matching funds will leave the state $22 million short of where it expected to be in 2014. New federal requirements for Medicaid to assist the federal Medicare program will add another $8 million.

It’s a frustrating but not entirely surprising development for state officials like Williamson, who say much of the demand for Medicaid funds is beyond their control.

Around 900,000 Alabamians — about one in every six residents — are now eligible for the program. About half of them are children. Enrollment in the program has grown by 24 percent since 2008, state figures show, and the overall cost of the program has gone up by 27 percent.

The share of that cost coming from the state’s General Fund budget has more than doubled over the same period.

“I can’t control the federal matching rate, medical inflation or the number of enrollees,” Williamson said. “What I can control is the cost per member per month, and we’re working on that.”

A new approach

Earlier this year, Gov. Robert Bentley appointed Williamson to head a 24-member panel, the Medicaid Advisory Commission, to determine how to stem the growing cost of Medicaid. The commission is expected to deliver a final recommendation Jan. 31, just a week before the Legislature starts its session.

Jim Carnes, communications director for the anti-poverty group Alabama Arise, is the sole consumer representative on the commission. He said the group will almost certainly recommend that the state hand Medicaid patients’ care over to a managed care organization.

“It’s not even a subtext of the conversation,” he said. “It’s the text. It’s clear that we’re looking at different options for managed care.”

Under the managed care approach, the Medicaid Agency would pay a fixed amount per patient to a third party to handle the patients’ medical care. The managed care organization would have an incentive to keep the cost of that care within a set limit.

At a meeting earlier this month, committee members were briefed on two broad proposals for managed care. One proposal would invite two or three commercial, for-profit managed care organizations in to run the managed care system. Another would set up a public-sector system, either by bringing in local governments and hospitals to set up managed care operations, or by expanding an existing program that’s already being piloted by the Medicaid Agency.

Williamson said the change shouldn’t hurt the patients who use Medicaid the most. Ideally, Williamson said, the managed care system would bring down overall costs by focusing more on prevention and by paying closer attention to patients with multiple health problems.

“I hope it will be transparent to patients,” he said. “For those patients who have a higher cost, they’ll have a case manager assigned to them, which should help better coordinate their care.”

‘Dual eligibles’

Figures from the Kaiser Family Foundation show that kids make up about half of the state’s Medicaid recipients, and working-age, non-disabled adults make up another 16 percent. But together, those groups account for only about a third of Medicaid expenditures.

Elderly patients and people with disabilities make up only 35 percent of the Medicaid-eligible population — but their care takes up 64 percent of the Medicaid budget. They’re sometimes called “dual eligibles,” because they’re eligible for both Medicaid and Medicare.

One reason for their high cost, Williamson said, is that dual eligibles often have multiple medical problems — and there’s little incentive for doctors to get together and work out an overall plan for treating them properly, and at a reasonable cost.

That’s not to say there aren’t limits on the amount of services a Medicaid patient can use. Anniston physician Carla Thomas said her Medicaid patients are covered for about a dozen doctor’s visits per year — which is fine, unless they have a chronic condition that keeps them coming back.

“Medicaid only pays for 12 to 14 visits a year,” said Thomas. “If they run out in June, they’re in a tough situation.”

Many of those patients go to the emergency room, she said, where they can’t be turned away.

Thomas said she thought managed care could work, though she wouldn’t want to see a sudden switch that affects the entire population.

“It’s worth a try,” she said. “But we would have to improve the communication system to do better coordination of care.”

‘Cultural shift’

The hospital system is also apparently ready to give managed care a try.

“It’s a huge cultural shift,” said Rosemary Blackmon, executive vice president of the Alabama Hospital Association. “But most people now understand that we can’t continue to keep doing it the way we have been doing it.”

The Hospital Association favors the home-grown option for managed care. If in-state agencies run the system, Blackmon said, the savings can go back into providing more services.

Carnes, the consumer advocate, put it more bluntly.

“Why would we want to send dollars outside Alabama to do something we could do here?” Carnes said.

Williamson said there’s one big advantage to turning the job over to commercial managed care companies.

“They already have an infrastructure,” he said. “We wouldn’t have to build it from the ground up.”

Both Williamson and Carnes said they are still open to either option.

Attempts to reach Kyle Godfrey, an employee of United Healthcare who represents for-profit insurers on the commission, were unsuccessful.


Raising taxes to fix Medicaid is an option that’s almost completely off the table.

Earlier this year, legislators offered a bill that would boost cigarette taxes by $1 per pack, enough to wipe out Medicaid’s 2013 budget hole. The bill went nowhere.

And even though there has been talk of new revenue sources in the commission meetings, commission member Sen. Arthur Orr, R-Decatur, said it’s not going to happen.

“The governor’s made it pretty clear that he’d veto any tax increase that comes to him,” Orr said. He said there’s not enough political support to pass a tax, much less override a veto.

Williamson, who in the past has spoken in favor of tobacco taxes as a public health measure, said finding new revenue sources wasn’t part of the commission’s mandate.

Legislators have also talked about a “global cap” on Medicaid spending — essentially giving the entire program an upper spending limit and adjusting it only for inflation.

Orr said he thought that option would jeopardize the state’s matching funds from the federal government, which funds much of the program as long as the state meets certain basic requirements.

Moving target

Medicaid reformers also have the challenge of trying to hit a moving target. Federal health care reform and the looming fiscal cliff have added an element of uncertainty to every calculation.

Gov. Bentley announced last week that the state wouldn’t expand Medicaid eligibility to people living at 133 percent of the federal poverty level, something states were expected to do under the Affordable Care Act. The move would have added 350,000 people to the program, by some estimates.

Williamson said Bentley probably made the right call, given the current system’s struggles to pay for care.

“You’ve already got a system that’s pretty dysfunctional,” he said. “Imagine if you add more than 300,000 people to the rolls.”

Carnes disagreed, saying the denial would leave many Alabamians uninsured. He said he hoped a reformed Medicaid system would make the governor more open to the expansion.

The biggest question mark is the fate of federal Medicaid funding as the nation nears the fiscal cliff — a deadline for Congress to implement budget cuts in order to avoid automatic budget reductions.

Commission members said they couldn’t predict the outcome of those negotiations.

But they know Medicaid will have to change.

“I think everybody understands at this point that we can’t keep going the way we’ve been going,” Williamson said. “If we do, we’ll be bankrupt.”

Capitol & statewide correspondent: 256-294-4193. On Twitter @TLockette_Star.

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