THE NEXT BIG CRISIS

Aging of Baby Boomers makes Medicaid the next big health care crisis

The aging of the Baby Boomer generation is upon us.

That means more and more old Americans are seeking health care coverage through programs like Medicaid. Many states, including Illinois, are worried about how to handle the situation with more patients and less money.

Medicaid is the nation’s largest health insurer providing health care for 60 million Americans. It functions as a partnership between states and the federal government. Right now Medicaid surpasses even Medicare, the second largest federally funded program, in terms of enrollment and spending. In Illinois Medicaid covers 2.6 million people spending $12 billion per year in state and federal funds. 20 % of the enrollees are blind, disabled or elderly and cost Medicaid $700 million per year or $18,000 per patient. Medicaid is designed primarily to help those who are indigent or with very limited means. The elderly have Medicare to pay for most of their physician and hospitalization needs, but Medicare does not pay for nursing home care excerpt for a few weeks immediately following a hospital stay. For limited-income seniors who require nursing home care, Medicaid is often the only potential source of payment.

Illinois’ state budget cannot be ignored when understanding Medicaid. The state and federal governments split payments to hospitals, clinics, doctors’ offices, nursing homes, supportive living facilities, health centers and pharmacies. For the 2008 fiscal year, $13.9 billion was sent by Medicaid to health care providers. Medicaid also covers 50 percent of the state’s births, 25 percent of its nursing home care and 16 percent of hospital admissions.

According to Heather O’Donnell, policy Director for Healthcare and Human Services at the Center for Tax and Budget Accountability in Illinois, “Medicaid, including the State Children’s Health Insurance Program (SCHIP), is the bedrock of the nation’s health care safety-net.”

Between 1999 and 2008 the cumulative growth in average premiums for private family health insurance coverage was 119 percent. “With that increase the state ended up with more people who cannot afford private insurance, which led to more people who need coverage from Medicaid,” O’Donnell said. The Illinois budget deficit for Fiscal 2011 is estimated to exceed $12 billion due to structural imbalances in the state’s revenue system. Furthermore, Illinois’ unemployment rate had increased to 11 percent by Dec. 2009, up from 6.8 percent in Oct. 2008, which put even more people in the Medicaid line.

O’Donnell said there is another significant concern – that the  budget deficiency will seriously affect the quality of health care. “In essence, Medicaid reimbursement to providers becomes, in part the earnings of doctors, nurses, technicians, pharmacists and other staff, as well as local business throughout the medical industry,” she said.

On March 10, 2010, Gov. Pat Quinn unveiled his 2011 fiscal year budget. In his address to the Illinois General Assembly he said: “Services such as home care for older adults, child care and community mental health services will be reduced by $ 276 million. Scaling back prescription drug assistance and group health coverage for state retirees, combined with a managed care pilot program for seniors and adults with disabilities who are enrolled in Medicaid will save the state $ 325 million.”

Another important fact is the correlation between state and federal funding.  “When the state of Illinois, forced by its budget deficits to cut funding of Medicaid, the matching federal funding decreases too. If Illinois cuts $10 million, it will lose an estimated $16.2 million in federal matching funds, resulting in a net cut to Illinois’ Medicaid program of approximately $26.2 million,” O’Donnell estimates. As a result the state will suffer will lose an estimated $80.4 million in lost business activity and $27.6 million in lost wages across the state.

Research conducted in 2010 by the American Medical Association shows that “the number of Americans ages 50 to 64 will grow from 55 million in 2007 to 63 million by 2015 -about an average of 1 million per year. These 50 and 60-somethings will make up about 20 percent of the population.”  AMA also predicts that most baby boomers will have at least one or more chronic health problems. Overall, aging of baby boomers will lead to the need of billions of dollars to the American health care system.

Stacey Solano, spokesperson of Illinois Department of Healthcare and Family shared that, although the majority of the aging baby-boomers will be covered under Medicare, there will be additional pressure placed on Medicaid.  Illinois has implemented several cost-saving programs such as its Disease Management program, Your Healthcare Plus, and its Primary Care Case Management program, Illinois Health Connect.  “The focus of these programs is to promote and sustain patient-physician relationships, to support and educate participants on the appropriate management of their medical conditions, to improve the person’s quality of care/ life, while achieving cost savings to the state by keeping people healthier through better care coordination and preventing unnecessary hospitalizations and emergency room visits.” Solano said.

“In terms of economics, Boomers have been the most important generation since the Founding Fathers,” said Dr. Leslie Harris, Managing Partner of consultancy Mature Marketing and Research. “They now account for over a third of US economic activity and everything they have done since their birth has radically altered the economic and marketing landscapes. It will be no different as they become what used to be called “senior citizens.”

Aaron D”Costa, Vice President of Pathway Senior Living, sees the next fiscal crisis in the aging of baby boomers. “Unfortunately, unlike their parents, Baby Boomers have not saved enough for their own retirement. It will be the next fiscal crisis as their needs for housing and care increase. Thankfully, affordable senior housing operators like us will benefit, but we’re dealing with a tough financial climate right now, and banks are not willing to lend just yet so our aggressive growth strategy has been on hold for the past two years,” D”Costa said.

There are two primary issues concerning the Medicaid program: reimbursement levels and state payment delays.

In Illinois, the state pays a Chicago area nursing home on average $110 per day to care for each Medicaid resident. For the average nursing home operator, however, the cost to deliver the appropriate care is $130 per day, so it is clearly a loss. Operators therefore have a mix of residents – some on Medicaid, some who pay privately, some who are using their Medicare benefits, and some on managed care plans – and through that mix, are able to offset the losses on Medicaid residents. This isn’t the fairest solution – in essence, some residents are paying more than their share in order to cover the costs of Medicaid residents.

The supportive living program in Illinois is reimbursed at roughly $75 per day for Medicaid residents. While the revenues are less than what a nursing home operator would receive, the cost structure for a supportive living environment is much less, and the amount of care that is provided is more limited to help keep costs down. Therefore, a resident who doesn’t need much care and is on Medicaid in a nursing home can move to a supportive living community such as the ones operated by Pathway and can have a better quality of life in nicer, newer surroundings and at the same time, the state benefits by saving nearly $35 per day.

The biggest problem is that Illinois has severely underfunded its liabilities and cannot afford to pay all of its obligations. At the end of 2008 the state’s unpaid Medicaid bills totaled $2.1 billion. As a result, Illinois often delays making its obligated payments, including monthly Medicaid payments to skilled nursing and supportive living operators. Aaron D’Costa said that at Pathway, 80 percent of their revenues come from Medicaid.  And they received a state payment in Feb. for the months of Sept. thru Dec. “We have not received payment since and are now into the fifth month of the year. Imagine a store that has 80 percent of its purchases made by credit card, and that MasterCard and Visa failed to pay the store for five consecutive months. That store would be out of business. It wouldn’t be able to pay its mortgage, the salaries of its employees, the vendors it used to stock its shelves, etc.” he said.

On the other hand, Illinois Department of healthcare says that the state has been consistent in paying its medical practitioners, hospitals and nursing homes within 30 days as required by federal economic stimulus bill, American Recovery and Reinvestment Act (ARRA).  According to Stacey Solano “many other Medicaid providers have been experiencing payment delays related to cash flow issues within the state’s General Revenue Fund.” Furthermore, as part of his fiscal year 2011 introduced budget, the Governor assumed the continuation of ARRA funding beyond its 12-31-10 scheduled expiration and proposed increasing the Illinois income tax to improve the state’s revenue picture. “Absent an ARRA extension and the passage of the Governor’s income tax proposal, or similar increase in state revenues, the Department of Healthcare and Family Services expects provider payment cycle delays to continue, if not increase, in fiscal year 2011,” Solano said.

The new health care plan significantly expands the Medicaid program through the Community Living Assistance Services and Support (CLASS) Act, which is a national long-term care insurance program.  While this program won’t be fully implemented until 2014, states such as Illinois already have a nearly bankrupt Medicaid system, and expanding the program without demonstrating how it is to be paid for, makes supportive living companies extremely worried about the long-term viability of the program.

In terms of the new health care plan, Mr. D’Costa raises some serious concerns, “While there is much speculation about the impact of the new health care plan, there is far too little information readily available on its impact and how and when it will be funded. “

With the stimulus package federal funding on Medicaid was increased from 50 percent to 61.88 percent for the period Oct. 2008 – Dec. 2010. This increase of coverage from federal funds has absolutely helped states strengthen local economies, but at the same time the state of Illinois is still concerned about its budget deficiency.

Facts about the CLASS Act

The Community Living Assistance Services and Supports program (CLASS Act) will be effective on January 1, 2011.  The CLASS benefits will be defined by October 2012 with enrollment to begin subsequently.  However, the payout of CLASS benefits will not take effect until 2017.

• CLASS will work in conjunction with other long-term services and support programs such as Medicaid.
• Eligibility for CLASS program benefits will have no effect on eligibility for Medicaid, Medicare, Social Security retirement, survivors, or disability benefits or Supplemental Security Income (SSI) benefits.
• If an individual is eligible for both CLASS program benefits and long-term services and supports under Medicaid, CLASS benefits will be used to offset the costs of Medicaid.
• Working people (part-time and full-time) and people who’ve already retired but continue to work part-time will be eligible to enroll. Nonworking spouses and unemployed are not eligible for enrollment.
• Participants have to pay premiums for five years, the so-called vesting period, before they can receive benefits, and they have to continue working for three of those five.
• The self-employed and anyone whose employer declines to offer Class coverage — it’s optional— will be able sign up through a yet-to-be-determined mechanism.
• The CLASS program is not designed to replace the need for basic health insurance or for long-term care coverage through Medicaid or private long-term care insurance.  Rather, it will supplement this coverage by providing a mechanism to pay for non-medical expenses that allow a person with a disability to remain independent.
• Individuals who are low-income, or become low income as a result of their medical expenses or other factors, will still qualify for Medicaid long-term services and supports.
• Healthcare reform as it relates to Medicaid primarily affects people under the age of 65.  Since most of the population served by  Supportive Living Facilities is over 65 years old, given what we know today, the Supportive Living program should not be impacted.
• In addition to the CLASS Act, Illinois Healthcare department recently issued a Request for Proposal (RFP) under which two managed care organizations will be selected to provide the full spectrum of Medicaid covered services to older adults and adults with disabilities, who are not eligible for Medicare, residing in Cook collar counties and suburban Cook County under an integrated care delivery system.   This pilot program will affect approximately 40,000 individuals in the selected counties.  Once the effectiveness of the program is evaluated, the department will determine whether it should be employed in other parts of the state. 

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