Vermont Global Commitment

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Vermont Global Commitment

• Health Access Oversight Committee
• Joint Fiscal Committee
• September 27 28, 2005
• Montpelier, VT
• Theresa Sachs, Principal
• Eileen Ellis, Principal
• Health Management Associates

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Presentation Overview
Presentation Overview

• HMA review process
• Waiver concept
• Programmatic issues
• Financing issues

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HMA Review Process
HMA Review Process

• Joint Fiscal Office contracted with Health
  Management Associates
• Review team Eileen Ellis and Theresa Sachs
• Our background
• State Medicaid Agency experience, including
• Extensive experience in program financing and
  fiscal analysis
• CMS experience, including
• Medicaid reform and Health Insurance Flexibility
  and Accountability initiative
• Our charge
• Independent review, risk analysis of Global
  Commitment

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HMA Review Process (cont.)
HMA Review Process (cont.)

• What we did
• Review of documents
• Interviews of staff and consultants
• Our work products
• Presentations
• Written recommendations

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Waiver Concept
Waiver Concept

• Global cap
• Public managed care organization (MCO)
• Financing flexibility
• Benefit flexibility
• Protection of mandatory eligibles

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Unique Feature of the Waiver Public MCO
Receives Premiums

• VAHS pays premiums to OVHA
• Because of Global Cap, federal funds will match
  premiums for ALL enrolled waiver populations,
  including VHAP expansion adults other waiver
  expansion adults
• OVHA pays for direct care services and
  distributes funds to other state agencies
  pursuant to contractual agreements
• OVHA can also distribute its savings to other
  agencies to fund allowable health-related
  programs for low-income populations
• Discussed in more detail later. These are Costs
  Not Otherwise Matchable or CNOM

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Programmatic Discussion

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Issues Related to Meeting MCO Requirements

• The OVHA would have to meet all managed care
  requirements specified in federal regulation
• The only requirement being waived is the provider
  credentialing process
• The intergovernmental agreement between VAHS and
  OVHA has been reviewed by CMS as an MCO agreement
  and has met with preliminary approval

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Issues Related to Documentation of Demonstration
Provisions

• Demonstration documentation
• Special terms and conditions (STCs) are the only
  documentation of what is being approved
• The original demonstration proposal has not been
  updated
• No operational protocol will be required
• No Attachment C of the STCs will be required

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Documentation Risk and Recommendation

• Demonstration documentation (cont.)
• Risk Future disagreements over operational
  elements of the demonstration
• HMA recommendation Written documentation of all
  understandings between the Agency for Human
  Services and CMS
• This can be done via a letter from VAHS to CMS
  CMS would have to respond in writing to correct
  any misunderstandings

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Financing Discussion

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Topics Regarding Financing the Global Commitment
Waiver

• Parallels to financing of the Vermont Health
  Access Plan (VHAP)
• Global Cap How calculated what are the risks
• Premiums How established what are the risks
• Use of Savings to cover Costs Not Otherwise
  Matchable (CNOM)
• Internal CNOM
• External CNOM

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Parallels to VHAP

• VHAP waiver used some of the same concepts as
  Global Commitment
• Without Waiver budget traditional Medicaid
  populations with generous trend rate
• With Waiver costs budget traditional
  populations and expansion populations
• VT used savings on traditional populations to
  fund VHAP expansion
• As a result Vermont has more generous eligibility
  than almost every other state
• Surplus of 66.6 million authority from VHAP

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How was 4.7 B. Cap developed?

• Projected costs - mandatory optional Medicaid
• Trend rates
• Average over 10 for mandatory and optional
  waiver populations
• Over 9.25 for non-waiver families ABD
• Developmental services waiver 9.92 per year
• Since MCO Model, allowance of 9 for
  administrative costs
• Includes 66.6 million VHAP Surplus
• Allowance of 10.8 million per year for Vermont
  State Hospital (VSH) alternatives
• Excludes costs of expansion groups (such as
  VHAP adults who are not parents or caretakers)

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Average Annual Growth RatesTotal Medicaid
Spending, 1992 - 2005
Annual growth rate
SOURCE For 1992-2002 Urban Institute estimates
based on data from Medicaid Financial Management
Reports (HCFA/CMS Form 64) For 2003, 2004 and
2005 Health Management Associates estimates
based on information provided by state officials.
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How was the Cap developed?
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Premiums

• Actuarially sound premium RANGE to be set by an
  external actuary for each population in the
  waiver
• Will use historical medical costs, the funds for
  the VSH alternatives and an actuarial trend rate
• The premium includes an allowance of 9 of
  premium for administrative costs (total of 405
  million over five years)
• CMS guidelines allow for risk, contingency
  profit in MCO rate setting
• The premiums have not yet been calculated

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How it works Chart Joint Fiscal Office
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Scenario A Premiums above Cap

• Actuary sets premium RANGE hopefully part of
  range is below cap and VAHS pays at lower end of
  the range
• If premiums too high, federal share limited by
  the cap
• VT does not appear to have sufficient state funds
  to support 4.7 billion anyway, so program
  reductions are required with or without waiver if
  spending is at that level.
• Federal CMS 64 reports of amounts expended still
  required
• Cant carry excess federal funds forward to use
  as match
• Would need to return any excess federal funds

Note Global cap is cumulative can be exceeded
in a given year within STC thresholds, and if
VT has sufficient state funds
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Scenario B Premiums at Cap

• Staff (administration and JFO) estimates imply
  that if the product of premiums and enrollment is
  4.428 billion, it would match current program
  estimates, including matchable CNOM. This is less
  than the 4.7 billion cap.
• If total premiums are at the Cap
• If due to higher than anticipated caseload, VT
  would need to find additional state funds or
  reduce programs.
• If due to high premium rates, would need to
  identify additional CNOM for use of savings or
  try to reduce the premiums.

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Scenario C Premiums below Cap

• If premiums payments are below the cap, but at
  4.428 billion or above, projected 5 year savings
  are attainable (staff estimate of 135 million in
  internal CNOM)
• Some have suggested funding of external CNOM
  between cap and premiums.
• Would require a waiver amendment.
• While possible, this seems unlikely
• If premiums are below 4.428 billion
• If due to lower than expected caseload, state
  will share in savings
• If due to lower per capita premium rates, less
  ability to fund CNOM through savings hurts state
  budget.

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How internal CNOM is funded

• Premium rates may exceed costs pmpm if
• Administration costs less than 9 (highly
  probably)
• Benefit costs less than rate due to favorable
  trend in premium
• Medical management or provider rate negotiations
  reduce cost trends
• OVHA may spend the savings
• Generates federal matching funds for existing
  state funded programs
• Only for specified activities related to the
  uninsured, underinsured, and Medicaid populations

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Uses for premium savings

• Per waiver Special Terms Conditions (STC),
  savings can be used for programs to
• Reduce the rate of uninsured and, or underinsured
  in Vermont
• Increase the access of quality health care
  uninsured, underinsured and Medicaid
  beneficiaries
• Provide public health approaches to improve the
  health outcome and the quality of life for the
  uninsured, underinsured Medicaid-eligible
  individuals in Vermont and
• Encourage the formation and maintenance of
  public-private partnerships in health care.
• Clarification is needed regarding this indirect
  funding of CNOM and waiver list (which may be
  only restrictions on direct use of waiver funds
  for CNOM).

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Is the Cap Sufficient What are the Risks?

• September 9/07/05 staff document shows forecast
  of total expenditures subject to the cap lt 4.2
  billion over 5 years.
• Result is cushion of 518 million
• Staff estimate opportunity to use 255.8 million
  of waiver authority for other programs.
• This part SAVES state funds (135 million) since
  these programs would otherwise have been funded
  with 100 state dollars
• Still gross waiver authorization cushion of
  262.3 million
• If costs within waiver exceed 4.182 billion
  forecast, would need state funds for matching
  purposes
• Absent additional state funds, would need to cut
  programs, with or without the waiver

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Risks To Vermont Related to the GC Premiums

• Initial premiums havent been set may be too
  low or high
• Rates will be set annually
• Current documents discuss interface with
  legislative decisions. Staff indicate that
  initial trends will be used by the actuary, but
  modified for any legislative changes in coverage
• Existing documents dont fully explain this.
• HMA recommendation
• Initial premiums should be available before the
  waiver is approved by the legislature and
  implemented by VAHS and OVHA.
• The process for annual changes should be further
  specified.
• Also a concern that CMS or HHS Inspector General
  might review rates and discount some of the
  savings for year three or beyond.

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Risks of Global Commitment Waiver to the State

• Apparent risk if cost increases exceed an average
  of 9 to 10 per year due to caseload or medical
  cost increases. Due to 4.7 billion cap, VT would
  be at risk to spend 100 state funds.
• However, existing data indicates VT doesnt have
  state funds to even reach the cap without
  savings for CNOM
• Premiums unknown
• Could be too low or too high for viability
• Need assurance that there isnt going to be a
  rebasing in the middle of the waiver period.

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Risks of Global Commitment Waiver to Beneficiaries

• Assertion Under GC, OVHA has an incentive to
  reduce costs by limiting amount of care for
  waiver enrollees to increase savings for other
  programs
• Observation While perhaps waiver increases this
  incentive (because savings can be used for CNOM),
  the state already has this incentive due to
  budget deficits.
• Assertion Due to waiver cap, OVHA may not be
  able to pay for all eligible individuals
• Observation The waiver lets VT fund more
  individuals with less state funding. If total
  program cost were to exceed 4.7 billion, VT
  would need significant additional state revenues.

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Risks of Global Commitment Waiver to Providers

• Assertion Under Global Commitment, OVHA has an
  incentive to reduce costs by reducing provider
  payment rates or limiting increases
• Observation While the waiver may increase this
  incentive (because savings can be used for CNOM),
  the state already has this incentive due to
  budget deficits.
• Observation This is an issue without waivers in
  almost every state.

• On October 19 our latest report on Medicaid
  budgets will be released by the Kaiser Foundation
  at www.kff.org.

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Some Advantages of Global Commitment Waiver

• Vermont can continue funding VHAP expansion
  groups
• Vermont is able to carry-forward VHAP
  authorization surplus (66.6 million)
• Federal funding is included for alternative
  services to Vermont State Hospital
• Generous cap allows direct federal funding in
  premiums for VHAP expansion populations and new
  expansion populations (expansions dont require
  other savings to fund them)

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Additional Advantages of GC

• If service costs can be kept less than premium
  assumptions, funds are available for CNOM
• Because OVHA is an MCO, premiums can include 9
  administrative component
• Expected much lower spending on administration
  savings for CNOM
• CNOM Potential to draw 135 million (or more)
  in federal matching funds over waiver period for
  currently 100 state programs

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Wrap-Up
Wrap-Up

• Federal perspective
• Key benefits
• Predictable spending growth
• Ability to claim savings inside the cap if
  Vermont does not draw down full amount
• Ability to test Medicaid reform principles
• Key risks
• No major risks seen

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Wrap-Up
Wrap-Up

• State perspective
• Key benefits
• Generous cap
• Flexibility with respect to financing, benefits,
  eligibility
• Key risks
• Scant documentation may lead to future
  misunderstandings
• The actual premium has not been set

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Wrap-Up
Wrap-up

• Beneficiary perspective
• Key benefits
• More stable financial support for some existing
  state-funded programs
• Potential to lower uninsurance rate
• Key risks
• No major risks seen that would not also exist
  without the waiver