December 20, 2013
On December 18, 2013, the Illinois General Assembly held its first hearing on the plan to apply for a federal waiver to overhaul the State’s Medicaid program.
State officials plan to submit an application to the federal government by the middle of February 2014. A draft of the proposal—scheduled to be posted for comment on January 5—is likely to be delayed because of continuing work on the financial aspects of the plan, according to testimony at the joint hearing in Chicago of two House committees, Human Services and Human Services Appropriations.
Although the financial analysis has not yet been completed, Deputy Governor Cristal Thomas and consultants from Health Management Associates provided an initial indication of the range of additional federal funding that will be requested. The State is expected to seek significantly more than $1.9 billion but less than $5 billion, officials said in response to questions from lawmakers. In 2012 the federal government agreed to invest $1.9 billion in Oregon’s Medicaid waiver, which is one of the models for the Illinois plan.
Illinois officials explained that federal policy requires that waiver proposals 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, which is typically five years. States can receive upfront federal funding for investments that are projected to generate savings in future years.
As previously discussed on this blog, the Illinois waiver proposal, called Path to Transformation, covers all of the State’s Medicaid spending and all of the populations that are currently eligible or may be eligible under the federal Affordable Care Act. The proposed Path to Transformation is a Section 1115 waiver. Section 1115 of the Social Security Act allows the U.S. Department of Health and Human Services (HHS) to waive certain Medicaid requirements for experimental, pilot or demonstration projects that promote the objectives of the program.
According to testimony at the hearing and a concept paper issued in early November, Illinois plans to use the waiver to increase home and community-based services for the disabled, including Medicaid recipients with mental health and substance abuse problems. The waiver would also assist with the State’s planned expansion of Medicaid managed care and the continued development of managed care at Cook County’s public health system.
State Medicaid spending is reimbursed by the federal government at a rate based on state per capita income; the federal matching rate in Illinois is 50%. In exchange for federal funding, states are required to follow certain federal standards about who is covered and what services are provided. Waivers provide more flexibility for states to shape their Medicaid programs.
At the hearing, officials said that Illinois plans to seek federal matching funds for State expenditures that are not currently reimbursed by the federal government but that contribute to the health of the Medicaid population. The State’s consultants are gathering data on these Costs Not Otherwise Matchable, known as CNOMs.
The federal investment of $1.9 billion in Oregon is based on CNOMs. As an example, Illinois consultants said that Oregon was able to cover the cost of air conditioning for a patient who visited the emergency room weekly due to health problems caused by excessive heat. Illinois officials said they are focusing on creating funding mechanisms for supportive housing to allow high-risk individuals to live independently. Supportive housing has not typically been covered by Medicaid.
The extent of federal investment in Illinois will also depend on budget neutrality conditions agreed to by HHS’ Centers for Medicare and Medicaid Services (CMS). Federal spending limits are based on projected costs of the existing Medicaid program without a waiver. As recently explained by the Government Accountability Office, the higher the projected costs without the waiver, the more federal funding states are eligible to receive. Cost projections are based on calculations of baseline costs and growth rates.
Illinois also plans to propose several new funding pools for hospitals and nursing homes, including a pool to assist nursing homes that reduce the number of beds or convert to community-care facilities. Details about these funding structures were not provided, but other states have used payments from local governments or assessments on healthcare providers to generate federal matching funds.
Representative Greg Harris, who chairs the Human Services Appropriations Committee, said another hearing will be held after the State issues a draft of the waiver application. Federal rules require a 30-day public comment period on the final application before it is submitted to CMS.
After the application is filed, Illinois officials said negotiations with CMS will probably take six months to a year. The waiver plan is not expected to have an impact on the State budget until midway through fiscal year 2015, which begins on July 1, 2014.