Budget and AHCCCS

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Governor Brewer is seeking federal approval to reduce health care coverage for approximately 280,000 AHCCCS patients. Tom Betlach, Arizona Health Care Cost Containment System (AHCCCS) director, discusses the proposal and how state budget cuts have impacted the state’s Medicaid program.

Jose Cardenas: Governor Brewer's budget plan proposes to drop health care coverage for almost 300,000 individuals from the state's Medicaid program, the Arizona health care cost containment system, known as AHCCCS. The legislature met in special session this week to give Governor Brewer permission to seek a waiver from federal health care regulations. Joining me to talk about the proposed cuts to the program is Tom Betlach, the director of the Arizona health care cost containment system. Tom welcome to "Horizonte."

Tom Betlach: Thank you.

Jose Cardenas: Before we start talking about the waiver and what that all entails, give us a brief overview of AHCCCS.

Tom Betlach: AHCCCS is a federal state partnership. And Arizona entered into the Medicaid system in 1982, it was the last state to join, and it provides coverage for low-income individuals. And we are the largest insurer in the state of Arizona covering 1.35 million Arizonans so about 1-5 Arizonans are enrolled in the program. We cover about 50% of the bursts in the state of Arizona, about two-thirds of those nursing facilities and health care in between. So really quite a gamut and array of health care services delivered through the program.

Jose Cardenas: The situation we find ourselves in now is a result of expansion, both as a result of more people being eligible under the old standards, and also the expansion created by prop 204.

Tom Betlach: Right.

Jose Cardenas: Explain that.

Tom Betlach: We've got a perfect array in terms of events leading up to the fiscal crisis. So during the recession our program has gone by 300,000 members. It's counter cyclical, as the unemployment rate rises, more people are look for health care from the AHCCCS system. At the same point in time, the state's revenues have decreased dramatically from about $10 billion to just a little bit over $6 billion. At the same point in time, you've got the federal government, which provided some assistance to states to help weather the great recession, but that money is set to expire on June 30th of this current year.

Jose Cardenas: And we're talking about the stimulus program.

Tom Betlach: Exactly. The stimulus dollars. With those stimulus dollars going away, the state has to replace almost $1 billion in federal funds that are being lost. So that is really the dilemma that the governor was facing in developing her budget for fiscal year 2012.

Jose Cardenas: We've got that budget that we're going to talk about, but we also have this current fiscal year.

Tom Betlach: There is a shortfall in the current fiscal year, around $700 million. The governor came out with her plan that included some borrowing from the first things first, and some rollovers, and budget cuts. But there really are no more additional significant reductions to the AHCCCS program on top of things that we've already been implementing for the current year. So we've had some benefit changes, we're reducing provider rates, and we've had other changes like increased cost sharing for our members that we've implemented to date so far.

Jose Cardenas: Perhaps the most controversial of those steps have been taken to deal with the current budget situation is the elimination of coverage for at least some kinds of transplants. Can you comment on that?

Tom Betlach: Some of the transplants changes were made on October 1st. There's about 100 transplants we cover in any given year, and we'll still be doing about 85. So there's about 15 that we won't be doing. In aggregate numbers. And there were about three or four specific transplants that were eliminated by the legislature. What we did was we looked at some of the data that we have in our system on what some of the outcomes were for the results of the transplants we have, for example, unrelated bone marrow transplant. We looked at a two-year period and we had 13 out of 14 individuals pass away within a two-year period.

Jose Cardenas: By unrelated the donor was unrelated --

Tom Betlach: Exactly. So we're just in the situation now because of the fiscal crisis of having to make some very difficult decisions in terms of finite resource and how you allocate those, and one of the benefit changes that we identified was transplants. But really in AHCCCS, it's very difficult. Because you only have three options. You have the ability to adjust benefits, and the federal government defines what's mandatory and what's optional. And they said transplants are an optional category. You then also have what you pay your provider, and we've done some significant provider rate reductions, several hundred million dollars worth. But we still need providers that are willing to participate in the system. So it's not like we can just keep reducing what we are paying providers. And then the third is eligibility. And we really haven't been able to do much with reducing eligibility levels, and that's why the governor's interested in pursuing the waiver, and making changes to the proposition 204 program.

Jose Cardenas: And this is the eligibility change that would eliminate 300,000 people --

Tom Betlach: Yes.

Jose Cardenas: And specifically, what is the change?

Tom Betlach: The change goes back to 2000 when the voters enacted proposition 204 and said the state should cover up to 100% of the federal poverty limit, which is about $22,000 for a family of four. And Arizona is one of only a handful of states that provides this broad a coverage, up to 100% for individuals who don't have children, which is really not a traditional Medicaid coverage category. And so with that action, we expand our program to 100%, we're just one of handful of states that does that. And when the governor was looking at all the options in terms of how to make this budget work, knowing that we've already issued $2 billion in debt, knowing that taxes have already been raised by a billion dollars, and we've had to make over a billion dollars of reductions in all state programs, what she wanted to do was do to the federal government and say for a time limited period, we would like to be able to reduce the population that we serve so that we look more like the other 44 states that offer coverage and Medicaid.

Jose Cardenas: What would those reductions be? Eliminate coverage for childless couples?

Tom Betlach: There's about 250,000 adults that do not have kids that would be impacted by this. And there's about 30,000 --

Jose Cardenas: That's regardless of their poverty level?

Tom Betlach: Somewhere between 0% and 100% of the poverty limit. Those adults that don't have kids would lose their coverage. And then you've also got a group of parents that are somewhere between 22% of the federal poverty limit, and 100%. And we're going to ratchet that 100% down to probably about 50% or so. And about 30,000 of those individuals would lose coverage.

Jose Cardenas: How many children do we think that would impact?

Tom Betlach: The plan is to not impact any kids. We think there might be some kids in a couple of those different buckets, but we're looking at various options to ensure that they can continue to have coverage. The rest would be adults that would be impacted.

Jose Cardenas: And the issue we're dealing with is the fact that the new federal health care law requires that you maintain your current benefit level?

Tom Betlach: Yeah. The federal health care law, when it was passed, said states cannot change eligibility levels at all. So what used to be this large optional category, and that's what proposition 204 was, it wasn't mandated by the federal government, it was really an optional category, and was since the beginning of time when the president signed health care reform legislation in March of 2010. It stated that states can no longer change their eligibility levels. And so this was a new environment that was impose order states.

Jose Cardenas: Does the statute itself, the new health care law, specifically provide for a waiver process?

Tom Betlach: It is in a section of law that is waivable by the secretary, and so the governor called the secretary and said, I've got this budget crisis, you're a former governor, and we're dealing with this issue, I'm going to propose this to the legislature, and we want to pursue the waiver. And so that was really just a preliminary conversation. The legislature has taken the action, so we will then move forward with the waiver to the federal government and the governor said she would like to sit down with the secretary and go through this in a lot more detail.

Jose Cardenas: What is a criteria for getting a waiver?

Tom Betlach: The waiver in federal law talks about trying to demonstrate something. And traditionally AHCCCS operates under this whole 1115 waiver, and what we demonstrated was that managed care works. Now what we'd like to demonstrate is the state really needs this flexibility to preserve its core program. Because really the options that the state has are so limited, that one option would be to go away completely from Medicaid, and that would have a serious, serious impact on the state of Arizona. And so the governor is saying, give us a little bit of flexibility so we can preserve this core program.

Jose Cardenas: Now, you talked about this being for a time limited period. What is the proposal?

Tom Betlach: The governor's proposal is that we have the waiver and have the ability to change our eligibility levels up until January 1st, 2014. And that date is the date in which health care reform mandate that all states cover up to 133% of the federal poverty limit. So it would actually be an increase above and beyond where Arizona currently covers its Medicaid population. But that's part of the stipulation of health care reform, so the governor's plan in presenting it to the secretary is to say, we will do this up until January 1st, 2014.

Jose Cardenas: Now if we don't get the waiver, where does that leave Arizona?

Tom Betlach: Well, it's really a dual track. The governor is one of 33 other governors to sign a letter that was sent to the president and the congressional leaders and said, we need flexibility. We would like to see a congressional proposal to allow states to change their eligibility levels. And there's been some language drafted, and I would imagine that will get introduced in the not too distant future. So it's not just Arizona that is stuck in this very budget crisis and looking at having to deal with the loss of stimulus dollars. There's a number of other states that are looking to get this type of flexibility to deal with the budget problems.

Jose Cardenas: But there are only a few states that have the same set of circumstances that Arizona does.

Tom Betlach: There's only a few states that that have expanded all the way to the population of adults that don't have kids. But there's other states that have expanded coverage for parents up to 100, 125%, and they may be looking at reducing their coverage for parents as part of getting out of their budgetary crisis.

Jose Cardenas: Now there are other options are there not? Including increasing taxes if we wanted to deal with this in a different way?

Tom Betlach: There are, but the governor has said, and she's talked to the provider community for the last couple of years, saying, this day is coming.

Jose Cardenas: The provider community meaning the hospitals --

Tom Betlach: Hospitals, other providers in the program. And she said, this day is coming. We're going to lose the stimulus dollars. And I am open for alternatives. And there's dozens of states that have implemented provider taxes, where they impose taxes upon the hospitals or the nursing facilities to try and generate some revenue to help support their Medicaid programs. To date it's unfortunate that the hospital community and the state of Arizona has not stepped up and offered any type of plan or proposal in terms of some revenue option for this state. And I know the legislative leaders have also met with the hospital industry, and other stakeholders and said, look, this is something that's been done elsewhere, do you have a proposal for us? And so far there hasn't been a specific proposal.

Jose Cardenas: Do you have any expectations as to whether we might be able to come to agreement with the provider community?

Tom Betlach: We'll have to wait and see what transpires over the next few months. But it's clear that time is running out, and the state's options are very limited. As we look forward to trying to solve the fiscal year 2012 problem.

Jose Cardenas: I assume part of the problem would be differences in opinion, amongst the providers, some of them would be impacted differently by such --

Tom Betlach: That's exactly how it plays out, and so you've got those differences in terms of how it impacts individual facilities and I think providers are looking at that. But again, I think this is something that's been done in a number much states, and they've figured out ways to mitigate those problems. So we'll have to see what happens, but the message has been, look, we've been talking about this for two years, you've been talking about this for two years, time is up. We need to come up with what is the proposal in terms of how the state is going to proceed. The governor's laid out her plan, right now it's the only plan on the table. So we'll see what happens.

Jose Cardenas: And Tom our time is almost up for this interview, just a quick note on how AHCCCS is dealing with the cuts you've already had that resulted in reductions in staff.

Tom Betlach: You know, we've had reduction of almost 30 -- over 30% in terms of our staffing levels since the start of the recession. We're also looking at the fact we've got 35% of our staff eligible for retirement in the next five years, which is a lot of institutional knowledge that's walking out the door. We're trying to administer a program that's grown by over 30% since the start of the recession, with greater than 30% staff reduction. And just trying to hang on to the core capacity of our program and managing it.

Jose Cardenas: Tom Betlach, director of AHCCCS, thanks for joining us on "Horizonte."

Tom Betlach: Thank you for having me. I appreciate it.

Tom Betlach:Director, Arizona Health Care Cost Containment System (AHCCCS);

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