“The oldest and strongest emotion of mankind is fear, and the oldest and strongest kind of fear is fear of the unknown”  H.P. Lovecraft, “Supernatural Horror in Literature.”  I completely agree.  The unknown scares me way more than the known.

The unknown is what creates fear, right?  For example, my husband is scared of heights.  It is not the “heights” per se that scare him.  He says that when he is high up, he gets an abnormal and understandably disturbing sense to throw himself off the ledge.  He is scared, not of heights, but of his reaction to heights.  Similarly, remember when I had an anxiety attack while I repelled (fell without any control) down the 22-story Wells Fargo building to raise money for the Special Olympics?  To see my disastrous descend off of the Wells Fargo building, see my blog: “The Future of Managed Care in Medicaid and the Fear of the Unknown.”

But unknowns to a Medicaid budget can be disastrous.

For those of you who live in North Carolina, you probably got some snow last Wednesday.  I live in Raleigh, and we got about 3 inches.  My law firm was actually closed Wednesday. While I have to say that it takes a lot of snow to close a law firm (I mean, come on, think of how much money we lost by having a non-productive day.  Luckily, I work for a firm that cares more about the safety of its employees than the bottom line), I do live in the South.  And snow scares us (actually, not snow per se (we aren’t actually scared of the little white flakes), but the fear of the unknown…what can happen because of snow?)

A few weeks ago snow was in the forecast (not on the ground) and my daughter’s school closed.  Seriously, there was no snow, yet my daughter’s school was cancelled..  And Tuesday evening, the night before the Great Blizzard of 2014, the grocery store was slammed with people buying milk and bread (just in case we are stuck in our homes for weeks and could be on the brink of starvation due to the 3 inches of snow).  My husband, being the good southerner that he is, keeps our water running all night to prevent freezing pipes.  He also covers the vents outside with towels.

Needless to say our house was prepared for the snow.

But there are always unknowns.  Especially when it comes to Medicaid budgets.

Our unknowns regarding the Great Blizzard of 2014?  (1) No sled; and (2) Skinny, unpadded sleds = a bruised body.

We woke up Wednesday to 3 inches of snow and no sled.  And our 8-year-old was aching to sled.  How do we not have a sled? Hello…we are from the south.  It snows here maybe every 3 years.  So we run to Ace Hardware, because, according to my husband, it is family owned and run.  Ace had 4 sleds left (obviously other southerners were quicker to think of sleds than we).  Three of the sleds were very thin.  Almost like a towel, but more stiff and made of plastic.  One of the remaining sleds was thicker…a tad thicker than a boogey board with two yellow handles on each side.  Of course, my daughter chose the thicker one, leaving me with the skinny, unpadded sled.

We drove to Shelley Lake at which there is a VERY steep, almost, straight-down hill.  Seriously, I had to climb up on my knees because I couldn’t stand without sliding backward.  And, due to the skinny, unpadded sled, as I shot down the hill, I felt every bump…every jolt…every drop….on my knees, elbows and belly.  But it was fun, so we kept at it!  My daughter yelled, “Best day ever!” (Which made me smile ear to ear).

My other unknown?  Skinny, unpadded sleds equal a sore body with black and blue knees and elbows after 4-5 hours  of sledding (and climbing up the steep hill).  Again, chalk it up to me being a southerner.  Literally, the last time I sledded was when Madison was 4…the Great Blizzard of 2010….and I didn’t have a skinny, unpadded sled then.

So here I am today, writing this, but unable to cross my legs or wear skirts above my knees or people would think that….hmmmm…..what would people think if they saw my swollen, bruised knees?  That I jumped up and down on my knees?  That something fell on my knees?  That I fell on my knees?  That someone beat me up…but only my knees?  It is an odd thing to have bruised knees.  They are very difficult to explain.

So too are Medicaid budgets.  And Medicaid expenditures.  Something always comes up.  There is always grey (or black and blue).  And they are very difficult to explain.

Think about it…we expect our legislature to come up with how much we will spend the future year based on the past.  The General Assembly does not have a crystal ball (that I know of).  Yet we expect the budget to be correct, and we expect to not exceed the budget.  Otherwise we are over the budget.  And bruised.

Last year, 2013, State Auditor Beth Wood stated that we had exceeded the State Medicaid budget by hundreds of millions of dollars for at least three years running.  She estimated that going over the Medicaid budget by so much money cost the tax payers $1.2 billion.  But how can you budget medical necessity for Medicaid recipients?

Well, NC is asking the feds for permission to decrease Medicaid spending by freezing Medicaid reimbursement rates.  We have approximately 10 or more requests to the Center for Medicare and Medicaid Services (CMS) to freeze the Medicaid reimbursement rates for a range of Medicaid services. 

How else do we try to decrease Medicaid spending?  By hiring some managed care organizations (MCOs) to manage behavioral health and placing the risk of going over budget on the MCOs.  Hello, people, rationally, how do you think that the risk-based model will be implemented by the MCOs.  Surely the MCOs will be happy to have lots of providers in their catchment areas and happy to have lots of recipients so the MCO can pay out lots of money and receive little-to-no profit.  And we live in Disneyland, and all the animals help us clean our homes!

The concept of MCOs managing behavioral health is not inherently bad.  The WAY in which NC implemented MCOs and the pay-structure IS inherently bad.  Even CMS agrees with me.  See my blog: “CMS Declares the Payment Structure for the MCOs Violates A-87…”So what Happens Now?”

So, besides freezing reimbursement rates and outsourcing risk, how else could we manage Medicaid costs?

DECREASE ADMINISTRATIVE COSTS.

Medically necessary Medicaid services should not be decreased.  Reimbursement rates should be raised, not slashed.  Medicaid providers should have the incentive to accept Medicaid, not the converse.

Decreasing administrative costs accomplishes decreasing Medicaid expenditures without harming the medically necessary Medicaid services to Medicaid recipients.

On the national level, between 2010 and 2011, total Medicaid expenditures increased by 6.4%.  However, in 2012, the federal Health and Human Services Department (HHS) estimates that Medicaid expenditures will increase only 1.1%.  HHS opines that the slower growth of Medicaid expenditures is because of States’ efforts to limit growth in light of budget constraints and the knowledge that the States will be liable for more Medicaid recipients (if such state expands) after the temporary federal matching reimbursement under the Affordable Care Act (ACA).  In other words, we are spending less on Medicaid services.

Just to  get perspective on how important Medicaid is to our overall budget and tax dollars, total Medicaid spending in 2011 was $432.4 billion with the feds paying $275.1 billion or 64% and the states paying $157.3 billion or 36%.  That is a lot of tax dollars!

In 2011, nationally, administration costs increased from 2010 by 8.7%.  This increase in the highest percentage increase in administrative costs since 2003.

And North Carolina’s administrative spending is abnormally high.

Back in October 2013, our State Auditor Beth Wood was quoted saying, “The administrative spending for the state’s Medicaid program is 38 percent higher than the average of nine states with similarly sized Medicaid programs,” Wood maintained. “While those states on average have administrative costs of 4.5 percent, the state of North Carolina spent over 6 percent of its total budget on administrative cost. In real dollars that means that the state is spending $180 million more than the average of our peer states.”

$180 million more than peer states spent on administrative costs…not services to Medicaid recipients…not reimbusements to providers accepting Medicaid….just for administrative costs.

On a national level, Medicaid administrative costs are only expected to increase.

Over the next 10 years, Medicaid expenditures are projected to increase at an average annual rate of 6.4% and to reach $795.0 billion by 2021.  Average enrollment is projected to increase at an average annual rate of 3.4% over the next 10 years and to reach 77.9 million in 2021.  See CMS report.

 Because of the ACA , Medicaid expenditures are expected to increase by a total of $514 billion from 2012 through 2021.  See id.

Nationally, Medicaid spending on program administration totaled $20.2 billion in 2011—$11.4 billion in Federal expenditures and $8.9 billion in State spending.  See id.

Total Medicaid expenditures grew slightly faster in 2011 than in 2010, at a rate of 6.4 percent. Expenditures on benefits grew somewhat more slowly (6.3 percent) than in 2010, but administration expenditures increased at the fastest rate since 2003 (8.7 percent).  See id.

The point?

Each year we have more citizens who qualify for Medicaid.  Because of the ACA, we have the largest increase in the number of Medicaid recipients, quite possibly, ever in the history of Medicaid, except maybe during its inception.

Yet, the number of providers willing to accept Medicaid is not rising.  “The average rate of acceptance among family physicians, dermatologists, cardiologists, orthopedic surgeons and obstetrician/gynecologists in all 15 markets surveyed was 45.7 percent last year, according to data gathered from nearly 1,400 medical offices last year.”  “The 2014 survey showed a drop from 55.4 percent acceptance in 2009.”  See 2014 Survey by Merritt Hawkins.

Here is the formula:

More Medicaid recipients + Higher administrative costs + Fewer providers accepting Medicaid = Catastrophe? Medicaid recipients not receiving the medically necessary services? The cost of administrating Medicaid takes away from medically necessary services to Medicaid recipients?

Black and blue Medicaid budgets?

Here in NC, we have opted to not expand Medicaid.  However, not expanding does not equal less Medicaid recipients (obviously it means less than had we expanded), but regardless of expansion, the number of Medicaid recipients increase every year.  Just like our general population grows.

While NC has not expanded, NC has not cut Medicaid administrative costs.  Instead, we are freezing reimbursement rates and allowing the MCOs to cut mental health services and terminate providers.  Yet, our Medicaid population continues to grow, despite not expanding Medicaid.  More and more providers are opting to not accept Medicaid.

“North Carolina spent over 6 percent of its total budget on administrative cost. In real dollars that means that the state is spending $180 million more than the average of our peer states.”  Beth Wood.

“We exceeded the State Medicaid budget by hundreds of millions of dollars for at least three years running.”

So what will become of our Medicaid state budget?  Will our budget get black and blue from unexpected bumps in the road?  Do we have a sled that is too skinny and unpadded?

The worst fear is the fear of the unknown.