Malloy proposal cuts Medicaid, payments to working poor, hospitals

Gov. Dannel P. Malloy’s budget proposal would eliminate Medicaid coverage for thousands of poor parents, reduce a tax credit for low-income workers, eliminate the state-run Charter Oak Health Plan and slash payments to hospitals.

It would also take advantage of federal funds to increase Medicaid enrollment and raise rates paid to primary care providers who treat Medicaid patients, both of which are required by federal health reform.

Several of the governor’s health care proposals are related to new federal health reform provisions slated to roll out Jan. 1, 2014, six months into the new budget.

A major one is the proposal to eliminate Medicaid coverage for certain poor parents once alternative insurance options become available in 2014, something many advocates for low-income residents have feared would be an inadvertent consequence of health reform.

Beginning Jan. 1, those parents would lose their HUSKY Medicaid coverage but would be eligible for federal subsidies to buy health insurance through a new market being created, called the health insurance exchange.

The poorest parents in HUSKY would remain in the program; federal health reform requires the state to provide Medicaid to all legal residents earning up to 133 percent of the poverty level. But the state currently offers coverage to parents of minor children earning up to 185 percent of the poverty level. Malloy’s plan would end Medicaid eligibility for the thousands of parents earning between 133 percent and 185 percent of the poverty level. The change does not apply to pregnant women.

Although those adults would get federal help paying for new insurance, they would likely face out-of-pocket premium and deductible or co-payment costs, something they don’t pay now with free Medicaid coverage. Concerned this could happen, advocates had been urging the state to instead use federal funds to create a new public health program for low-income adults who fall just above the required Medicaid threshold, but that’s unlikely.

Moving those parents off Medicaid would save the state $5.9 million in the coming fiscal year and $59.5 million the following year, according to budget documents.

Sen. Toni Harp, a New Haven Democrat who co-chairs the Appropriations Committee, said she wasn’t surprised by the proposal, “given the dire nature of our budget.” She said she wants to find out if it’s possible for the parents to buy their insurance through the exchange but use Medicaid as a “wraparound” that would offset their premium and copayment costs.

“There might be ways to live with it,” she said.

Sheldon Toubman, an attorney with the New Haven Legal Assistance Association, blasted the proposal, saying that few parents who would lose Medicaid coverage would be able to afford the costs associated with their new insurance plans.

“This proposal, if adopted, would severely damage the basic health safety net in Connecticut,” he said. “Although the exchange theoretically offers alternative coverage, the required cost-sharing under the exchange plans will as a practical matter render insurance out of reach for most of them, and the governor’s proposal would cause a major increase in the number of uninsured low-income individuals in our state, at least among low-income parents.”

Malloy’s plan would also, on Jan. 1, eliminate the state-run Charter Oak Health Plan, which former Gov. M. Jodi Rell created in 2008 to offer coverage to uninsured adults, regardless of whether they had pre-existing conditions. State lawmakers removed subsidies for the program in recent years and premiums have increased significantly, and enrollment has fallen. According to budget documents, Charter Oak recipients will have alternative coverage options through health reform.

Hospital cuts

Another proposal would reduce the money hospitals receive for treating uninsured and underinsured patients. In the first year of the budget, the funding would be cut in half, and in the second year, it would be eliminated entirely.

The Malloy administration has argued that fewer patients will be uninsured once health reform rolls out, although hospitals say they will still face financial challenges because many of the newly insured will be covered by Medicaid, which tends to pay less than treatment costs.

Budget director Benjamin Barnes said the federal government is phasing out the payments for uncompensated care, and that the state is simply doing it sooner. He noted that the cut is only about an eighth of what hospitals receive from the state each year, and that Medicaid payments to hospitals have increased in recent years.

“Hospitals are hurt by that, I’m not going to deny that, but they have been very well treated under the system of reimbursements over recent years, and I believe that they will ultimately have to adapt to a funding system that does not include uncompensated care payments because of changes in federal law,” he said.

But Connecticut Hospital Association President and CEO Jennifer Jackson called it “unacceptable for the state to balance its budget — yet again — on the backs of hospitals and the patients they serve.”

“The administration has acknowledged that these cuts will hurt hospitals, but that is an understatement. Quite simply, it will devastate them,” Jackson said in a statement. “The cuts will cause immediate and lasting damage to Connecticut’s health and human services safety net-affecting patients, employees, and every community in the state. Moreover, it will undoubtedly put people out of work at a time when the state is focused on job growth.”

Two years ago, the Malloy administration instituted a tax on hospitals aimed at bringing more federal money to the state. By taxing hospitals, then redistributing the money back to hospitals, the state was able to capture federal matching funds.

Stephen A. Frayne, the hospital association’s senior vice president for health policy, said the budget proposal would collect the tax from the hospitals but not return money, reducing the amount of federal funding the state could get.

“We’re moving from a system where the state required the hospitals to participate in a program to maximize federal revenue to a system where we’re saying, ‘Forget the federal revenue, let’s just keep the hospital’s money,'” he said.

Frayne said hospitals are still trying to figure out how to handle nearly $90 million in cuts that took effect in December.

“We were already looking at eliminations of positions, both existing and open, curtailing of replacement equipment and so forth, curtailing of services,” he said. “If that was the dynamic when the cut was a forth of what we’re now looking at, you can imagine how much larger it’s going to be.”

More Medicaid coverage, higher rates, paid for by the feds

While the state would cut Medicaid coverage for some poor parents under Malloy’s proposal, it will also be expanding Medicaid to thousands of poor adults beginning Jan. 1 as part of health reform. But the federal government will pay the state back for the entire cost.

Similarly, the federal government will begin paying the full cost of the state’s embattled Medicaid program for low-income adults, known as LIA, beginning in 2014. Currently, the state gets reimbursed for half the costs. The program has grown faster than officials expected when it was created in 2010, and the Malloy administration has been trying to scale back eligibility, arguing that it’s financially unsustainable. Those changes require federal approval, which is still pending.

The federal government will also pay for the state to increase the rates it pays primary care providers for treating Medicaid patients in 2013 and 2014.

Overall, the budget projects that federal health reform will cost the state $171.3 million in the coming fiscal year, largely because of the need to pay for Medicaid LIA with only 50 percent reimbursement from the federal government for the first six months of the budget year. In the second year of the two-year budget, health reform is projected to save the state $19.6 million.

Earned income tax credit cut

The working poor would receive less money back as part of a program known as the earned income tax credit, according to Malloy’s proposal. Last spring, 182,000 poor families claimed the credit and received an average of $601; under Malloy’s plan, they would receive about $500.

The federal government also provides a tax credit for poor families that earn income, and the state’s credit is equal to 30 percent of the value of the federal credit — the largest of any state’s program. Under Malloy’s proposal, the state’s credit would be reduced to 25 percent of the federal credit, or a cut of about 16 percent. The maximum credit would drop from $1,767 to $1,473.

Barnes said the cut would be temporary. The administration’s plan calls for increasing the credit after the coming tax year to 27.5 percent in the 2014 tax year, and return to 30 percent in 2015.

Social service caseload growth

Barnes said the budget fully supports caseload growth for services provided by the departments of Developmental Services, Children and Families, Mental Health and Addiction Services, and Social Services.

But he said the budget continues millions of dollars in cutbacks to those departments made late last year to address a budget deficit. He said he believed those cuts had been absorbed without “unduly compromising” the services provided.

“While we may have found some ways to reduce the costs of those programs and we have certainly trimmed some of the least essential programs, the core programs, the provision of services to the developmentally disabled, whether it’s group homes or day services, the provision of mental health services to people with major mental illnesses, the provision of health care to the indigent, those are fully supported and caseload growth is funded,” Barnes said.

The state spends close to $1.5 billion contracting with private nonprofits that provide services to people with developmental disabilities, mental illness, addiction and children who have been abused. Malloy’s budget proposal would continue a 1 percent increase in the rates those agencies are paid, which began this year and is intended to go toward staff compensation.

Mental health

Asked during a briefing whether the budget included changes spurred by the shooting at Newtown’s Sandy Hook Elementary School, Barnes said no specific initiatives were funded, other than maintaining a “robust” public mental health system.

“I think it treats our mental health system very fairly,” he said of the budget. “This is a budget filled with cuts.”

There are some cuts to mental health, but Barnes said he believes they will not lead to service reductions. In part that’s because more people will have health insurance under federal health reform, meaning that more mental health services will be paid for by either Medicaid or private insurance.

The budget includes $10 million each year to develop a “health home” program that would better coordinate the behavioral and physical health care of people served by the Department of Mental Health and Addiction Services. Health reform allows states that use health homes — a type of health care practice, not a residential facility — to receive reimbursement for 90 percent of their costs.

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