Illinois Medicaid Plan Awaits Action by New Administration

January 15, 2015

The fate of a proposal to use more than $5 billion in new federal funds to overhaul the State of Illinois’ Medicaid program remains unclear as a new gubernatorial administration takes office in Springfield.

As previously discussed on this blog, the five-year proposal focuses on developing more community-based alternatives to institutional care for individuals with disabilities, including supportive housing for people with mental health and substance abuse problems. The plan also seeks new federal money to accelerate the State’s movement toward managed care.

Illinois submitted its Section 1115 waiver proposal to the federal government in June 2014 and subsequently began negotiations with the federal Centers for Medicare and Medicaid Services (CMS) about the terms of the plan. State officials said it could take six months to a year to reach a final agreement with CMS.

A timeline on the State’s health care reform website provides a summary of the negotiations with CMS since June. The last entry on the timeline was made in October.

On January 8, 2015, during her last week as Director of the Illinois Department of Healthcare and Family Services (HFS), Julie Hamos said that the federal government will not proceed with the proposal without continued backing from the State. At a conference sponsored by the Health & Medicine Policy Research Group in Chicago, Ms. Hamos urged advocates for Medicaid recipients to keep pushing for the proposal. She said that it represented the only way to expand funding for community-based services.

The Health & Medicine Policy Research Group and 36 other organizations cited their support for the waiver proposal in a letter sent to then Governor-elect Bruce Rauner and his transition team on November 24. The letter states that the proposal “moves Illinois’ Medicaid program to be more responsive to enrollees’ needs and brings additional federal resources to the State while becoming more cost effective, without limiting access to care which only multiplies costs that come due in the future.”

Governor Rauner, who succeeded Pat Quinn on January 12, has not provided many details about his ideas on Medicaid and has not yet named a new head of HFS, the State’s main Medicaid agency.

The new Governor has said that he would have vetoed Illinois’ expansion of Medicaid eligibility to low-income, non-disabled, non-senior adults without dependent children under federal health care reform but that he would not seek to roll back the coverage now that it is in place. He has also said that the Medicaid program is plagued by waste and fraud.

A report by Governor Rauner’s transition team in early January recommended that the State maximize available federal funding for Medicaid but also criticized previous efforts on the waiver proposal. According to the report, “the preliminary federal response suggests that the submission will be awarded significantly less than [the total requested amount] due to a lack of reform and innovation in payment models.” The report recommends that the proposal be “redesigned to maximize available funding and position Illinois to reduce long-term healthcare costs while improving quality and access,” but does not provide suggested changes.

Medicaid is a joint federal-state program in which state spending is reimbursed by the federal government; the federal matching rate in Illinois is currently 50.76%. The waiver plan would not involve additional State spending and is required to be “budget neutral” to the federal government.

Budget neutrality means that federal spending under the waiver does not exceed projected federal spending without the waiver. Neutrality is calculated over the life of the waiver. States can receive upfront federal funding for investments that are projected to generate savings in future years. The State and CMS had recently begun to discuss federal budget neutrality as of October 2014, the last posted entry on the waiver timeline.

As previously explained here, Illinois plans to generate additional federal dollars mainly by receiving federal matching funds for State expenditures that are not currently reimbursed but that contribute to the health of the Medicaid population. These expenditures are known as Costs Not Otherwise Matchable, or CNOMs. If the federal government agrees to reimburse these costs, then State revenues would be freed up for spending to transform the Medicaid program. This spending, in turn, would also be matched by the federal government.

Most Section 1115 waivers establish baseline spending without the waiver by using per capita spending caps, with spending limits based on a benchmark cost growth rate. Illinois requested permission to use an annual per capita growth rate of 4.85% to establish baseline spending. This rate represents the average annual increase in Illinois’ per capita Medicare costs from 2009 through 2013.

The State justified its use of the Medicare cost growth rate by pointing to a decline in average annual per capita Medicaid spending during this period. (Average annual total spending increased due to higher enrollment.) The State reined in per capita Medicaid costs by freezing reimbursement rates to healthcare providers for decades and making program and rate cuts in FY2013 under the Save Medicaid Access and Resources Together (SMART) Act. According to the proposal, costs would rise more quickly in the future without the investments requested in the waiver.