What States Need to Know About IT and Medicaid Reform

States face the dual challenge of modernizing Medicaid management information systems and building health insurance exchange portals.

by / August 29, 2011

Editor’s Note: John Petraborg is the client industry executive of HP Health and Human Services.

“This country cannot be strong if its people are sick and poor.”

This quote is attributed to President Teddy Roosevelt during his 1912 candidacy when advocating for universal health coverage for Americans. During the past century, several presidents — including Harry Truman, Richard Nixon and Bill Clinton — pushed for comprehensive health reform but failed. But history was made in March 2010 when Congress passed the U.S. Patient Protection & Affordable Care Act and the Health Care and Education Reconciliation Act, which were both signed by President Barack Obama.

Unlike past legislation enacted by Congress, the Affordable Care Act will touch the lives of virtually every single American regardless of age or economic status. The new federally enacted reform is projected to cost $940 billion over 10 years and add millions of people to public and private insurance programs. Medicaid agencies will be at the heart of making health reform a success.

Medicaid has always been categorical in nature — meaning that to qualify for coverage a person had to fit into a specific category, such as being a low-income child, pregnant or a disabled adult. This will change markedly with the implementation of health reform, broadly expanding Medicaid to virtually all Americans whose income is below 133 percent of the poverty level. Thus, health reform will affect many groups that aren’t now able to obtain or maintain coverage.

Who Will be Impacted?

Low-income adults without dependent children and who have incomes up to 133 percent of the poverty level are the largest portion of the estimated 16 million to 20 million new Medicaid enrollees under reform. To help states pay for the influx of new Medicaid enrollees, the Affordable Care Act provides 100 percent federal funding for newly eligible individuals in 2014, 2015 and 2016. A 5 percent state match requirement begins in 2017. This will phase to a 10 percent state match in 2019 and thereafter. 

Low-income families that don’t qualify for Medicaid will be eligible for subsidies to purchase insurance within newly established state-run health insurance exchanges. The subsidy will be on a sliding scale based on income — up to a maximum of 400 percent of the federal government’s definition of the poverty line.

Another group significantly affected by the bill is young adults, who will immediately have the option to remain on their parents’ health insurance until they turn 26 years old — three years longer than allowed today. Young adults will also be required to have insurance — something a number of them may have forgone in the past. 

How Much Will it Cost?

The impact of the Affordable Care Act on the nation’s state-administered Medicaid programs — and on states’ private-sector vendors — is far-reaching, labor-intensive and costly. Looking at the big picture, there are two significant changes that will affect the Medicaid program. The first will be the sheer volume of newly eligible Medicaid enrollees and the ancillary impacts of that volume on eligibility processes and systems, health-care delivery networks, costs and budgets. The second change will be the establishment of health insurance exchanges, with the requirement for extensive interoperability between the exchanges and determination of Medicaid eligibility.

A number of states understandably have expressed concerns about the permanent financial obligations on state budgets, especially after the 100 percent federal share to cover the expansion begins to phase out after 2016. To cite one example, California projects an annual spike in Medicaid costs of between $2 billion and $3 billion starting in 2018, as reported by the San Francisco Chronicle last year.

And there’s another “added cost” provision that has the attention and concern of all states. Beginning in 2013 and continuing through 2014, states are required to increase the Medicaid fees for primary care physicians to an amount equal to what Medicare pays. For these two years, the increase is fully covered by federal funds, but the problem for state budgeters is what happens in 2015. Most states currently pay between 60 and 80 percent of the Medicare rate.

Eligibility Determination Systems

States are incentivized under the Affordable Care Act to demonstrate new Medicaid payment methodologies. The additional 16 million to 20 million people who will qualify for Medicaid starting in 2014 will severely strain Medicaid agencies and systems. There also will be many people eligible for Medicaid who previously never applied for the program but are motivated by the mandate to get coverage. Beyond that group, we can reasonably expect that millions more will apply — even if found to be ineligible — when seeking to comply with the mandate.

Although many states have moved to modernize their Medicaid management information systems (MMIS) in recent years, eligibility systems and the process of determining coverage eligibility both have lagged behind. The old model of face-to-face interviews with a caseworker won’t work under reform; the current delivery system simply cannot handle the crush of Medicaid applicants.

The impact on legacy eligibility systems that have existed for decades will also be severe. The legacy systems will need to be significantly modernized to support new eligibility categories, standardized eligibility policies for income and resources, and streamlined verification processes. Essentially states will need to rethink how the application process flows, with an emphasis on self-services and minimal worker intervention.

Health Insurance Exchanges

Apart from eligibility determination, the second cornerstone of state health IT reform will be the creation of the state-run health insurance exchanges — brand-new entities in almost all states that will require a great deal of time and effort in order to be up and running by 2014.

One newspaper referred to the concept of health insurance exchanges as “buying insurance Travelocity style.” The concept is that qualifying health insurance companies will offer their wares within the exchanges. Individuals, families and small businesses will log on to an exchange site, compare the offerings and purchase competitively priced insurance.

Some states will create their own online insurance exchanges, which will be managed either by state agencies or nonprofit entities. It’s expected that some states will create entirely new agencies to run the health insurance exchanges. Oregon, for instance, is creating the Oregon Health Authority to implement the Affordable Care Act, and this entity will most likely oversee the state’s exchange. A number of other states, perhaps the majority, will build and run their health insurance exchange within the office of the state insurance commissioner.

How Should States Move Forward?

Like any major technology-related initiative, decisions must be made regarding people and processes, as well as technology. Decisions on functionality and the processes needed to support the exchange will be based on new requirements and will end up changing how eligibility determination and claims administration processes will need to be adjusted. Incorporating requirements for enhanced self-service will affect the process flows as well as define the technology requirements.

Legacy eligibility systems must be assessed to determine their capability to handle additional volume, expanded interfaces and data-sharing, rapidly changing policies and support for streamlined processes. Commitments to enhance or replace legacy eligibility systems will result from this analysis. When enhancing or replacing these systems, states might consider adding the health-care eligibility capabilities to the current legacy system or as a component of a new MMIS. Consideration must also be given to incorporating other state health-care programs, such as the Children’s Health Insurance Program, into long-term plans.

States must also determine how Medicaid eligibility rules will be defined. For example, which should be the rules in the front-end insurance portal versus the back-end eligibility system? The significant policy changes required by the health reform law will drive demand for a modern rules engine that supports flexible implementation of policy. Moving to a rules-based application will enhance the state’s ability to add new program categories, quickly implement policy changes, and standardize policy application to accurately determine eligibility and address variable federal medical assistance percentage rates.

Once these high-level decisions are made, development of requirements, federal approval documents and procurement vehicles can still take a significant amount of time before actual work on system modifications can begin.

As states look ahead to the federal deadlines in 2014, there is a pressing need to take action now. Applying for federal planning grants provides the opportunity for states to articulate their high-level concepts and strategies. This includes designating the state’s key stakeholders — which can include the entity or agencies to be responsible for the exchange — and identifying the basic approach, methodologies, schedule and techniques that will guide decision-making and implementation.

As currently envisioned, over the next three years, all 50 states must prepare to flip the switch on health reform — an act that’s expected to expand coverage to 32 million more people and change the insurance rules for every American. Controlling growth in health costs will be an ever-present priority as will the focus on improving quality and achieving greater value for the nation’s health-care investment. Medicaid agencies will be at the heart of making this work. And technology will be the vital foundation to making this historic transformation a success.

John Petraborg

John Petraborg is the client industry executive of HP Health and Human Services