Medicaid expert sees few options for cuts

By Jamey Dunn

As lawmakers look to cut billions from the state’s Medicaid budget, one expert told them today that the task will be difficult and their options are limited.

Joy Johnson Wilson, health policy director for the National Conference of State Legislatures, addressed the Illinois Senate today about Medicaid trends across the country. She indicated that Gov. Pat Quinn’s demand that lawmakers find a way to curb Medicaid growth by $2.7 billion next fiscal year is an ambitious goal. She said she was not aware of another state that was trying to cut costs as much as Illinois, and that states that had successfully trimmed Medicaid expenses had done it through multi-year plans. “It is very hard to get savings in the Medicaid program in real time. It just is.”

Wilson emphasized that under the Affordable Care Act, states cannot make changes to who is eligible for Medicaid until 2014. At that time, residents above a certain earning level may be deferred to an online insurance exchange, where they could buy low cost insurance with the help of government subsidies. States can seek permission from the federal government to more rigorously check residents' eligibility status. After some delay, Illinois was granted permission to verify through state records whether applicants are residents. However, federal officials have not signed off on another piece of Medicaid reform passed in the state that would require applicants to provide multiple paychecks to prove their income level under eligibility requirements.

Wilson pointed out that the federal law leaves only a few areas to look for substantial savings. Lawmakers can reduce the rates paid to health care providers, limit how often patients can access some services, go after fraud and reduce services offered that are not required by the federal government.

“Optional programs in Medicaid are not like options on a car.” She said that options on a car are often considered luxury items, such as seat warmers or nice stereos, but they are not essential to making the car run. Wilson said many so-called optional Medicaid offerings, such as prescription drug coverage, are essential to the success of the program. She cautioned lawmakers to look at the “downstream financial, legal and political impacts” of cuts and reductions to services. “It’s very important that you make sure that you don’t make cuts that actually cost money,’ she said. Wilson said many states that eliminated adult dental services, something that is under consideration in Illinois, put the services back in place after they found that hospitalizations were going up. “So it actually cost them more when they eliminated them than what they were actually paying for them.”

She said some cuts can go too far and be met by public backlash. Arizona eliminated transplantation services but then put some back in place after a public outcry. “They have since restored some but not all of the transplantation services. She noted that Illinois is considering cuts to in-home services and said such reductions could run counter to Quinn’s stated desire to move people out of  institutional settings whenever possible. She said such cuts might also put the state in violation of court agreements, known as consent decrees. “If you are going to do something on the institutional side, then you’ve got to make sure that there’s some support for home and community based services.”

Wilson indicated that Quinn’s plans to transition people with developmental disabilities and mental health issues from institutional care to community care could be a crucial factor in the state’s efforts to find savings. “The critical piece is the assessment piece. Who belongs in an institution and who doesn’t? If you get that wrong, you will lose money. So that’s critical,” she said. “Who can actually be taken care of and function in a community, and who needs institutional care?”

According to Wilson, states that were early adopters of HMO-style managed care systems saw savings of up to 20 percent, but she said Illinois would likely not see such savings from a managed care program now. Instead, the state might see upfront costs. “We’re not seeing that now. … I think that you’re not going to get those big savings up front. In fact, it may actually cost something to expand Medicaid [managed care] to get savings later on because you have to make sure that your [health care provider] networks are adequate and that you do all the education outreach activities that are necessary to get people in the system and teach them how to utilize managed care.” She also said that managed care programs in the state’s rural areas would likely face challenges, but as the trend grows, more providers have become familiar with managed care.

Wilson also warned that ferreting out fraud involves upfront costs, such as hiring investigators. She said that eliminating fraud would not produce the desired savings on its own.

Sen. Heather Steans, who is a member of the working group looking to find the cuts Quinn has called for, said she found Wilson's presentation ‘a little disheartening.” “There’s a lot of restriction being put on by the feds in terms of the flexibility the states have, so there’s only certain things we can really look at, and that makes it, I think, more challenging to achieve the kind of reductions in the short period of time in which we’re talking about.”

But she said the presentation reassured her that her group is looking at all possible options. “Everything she talked about we’re actually already looking at and considering here. So I do think we’re on the right track in terms of making sure we are looking across the breadth of things that are possible,” said Steans, a Chicago Democrat. She said the Medicaid working group is meeting weekly to work on a plan to reduce the state’s Medicaid liability.

For more on the legislature’s efforts to cut billions from Medicaid, see the upcoming April edition of Illinois Issues.