Louisiana’s health care budget is a strong mixture of state and federal funds that has grown to become a major portion of the overall state budget. Medicaid programs account for the great majority of state health care expenses. Chief among those is Medicaid support for the elderly and disabled, followed by health care coverage for low-income families with children and the recent expansion of Medicaid benefits to lower-income adults. A small portion of the people covered by Medicaid represent most of the spending due to their expensive treatments.
During the Jindal administration, total Medicaid spending in Louisiana increased from $5.9 billion to $8.1 billion. During this time Louisiana was required to increase its base match rate for federal dollars due to a federal recalculation of the state’s wealth after Hurricane Katrina. The state’s Medicaid match grew from $1.5 billion to as high as $2.9 billion. Even with these financial boosts, the health care system is under immense pressure to keep up with enrollment growth and medical inflation, which historically runs higher than general inflation.
Each state has its own “FMAP” calculations. The primary match rate for services, the Federal Medical Assistance Percentage (FMAP), fluctuates slightly year-to-year as it is adjusted annually by the federal government. It is based on a rolling three-year average of a state’s per capita income relative to the U.S. average. The rate can go no lower than 50% and no higher than 83%. The calculation is based on state and national income data from the most recently available three-year period. For example, the FMAP for fiscal 2013, which began with the federal calendar on October 1, 2012, was published on November 30, 2011, and was based on per capita income data for 2008, 2009, and 2010.
Each state in fact has several different assigned match rates depending on the particular Medicaid function. Federal law provides for enhanced FMAP for the CHIP program as well as some other programs or services. For example, family planning services have a 90% match rate. One key measure is the base rate. Over the years, the base FMAP for Medicaid services has been temporarily augmented, for both Louisiana and the nation as a whole. Examples include the American Recovery and Reinvestment Act in 2009, which included a nine-quarter increase in FMAP for all states of 6.2 percentage points, plus additional enhancements such as holding states harmless from any decrease in their base FMAP.
The Affordable Care Act in 2010 established a disaster-recovery FMAP adjustment for any state for which the President had declared a major disaster at any time during the preceding seven years. Louisiana qualified for this adjustment and did so for both Hurricane Katrina in 2005 and Hurricane Gustav in 2008. The subsequent loss of these disaster funds helped precipitate a budget crisis that resulted in the privatization of the LSU charity hospitals.
Click here to see state comparisons of FMAP by Kaiser Foundation:
Even small changes in the federal match rate make a big difference in the sums of federal money. The base rate primarily affects care for those with disabilities, not coverage of children or adults under the Obamacare expansion. If Louisiana had a slightly higher basic rate of 66.6%, then $1 billion in state matching funds would draw down $2 billion in federal support. Compare that with Louisiana’s current average rate at just a few percentage points lower – 63.7%– in which $1 billion in state money matches $1.75 billion in federal money, a difference of $250 million. People in Louisiana may be surprised to hear that 20 other states currently have a higher (better) federal basic match rate. For example, Georgia and North Carolina, normally thought as wealthier states than Louisiana, have a significantly more favorable Medicaid match rate.
In addition to Medicaid coverage, the state draws federal money to reimburse hospitals and affiliated clinics for uncompensated care (UCC) services for the poor and uninsured. These UCC expenditures dropped dramatically under Jindal and then began to rebound. Meanwhile, Louisiana developed a Low-Income and Needy Care Collaboration Agreement (LINCCA) as a local match program that essentially pays hospitals for community and health services that the government or Charity hospitals might otherwise have provided. As UCC payments fell, LINCAA stepped in to provide supplemental payments that exceeded the UCC loss, although not for all hospitals. This LINCAA program is under scrutiny by federal regulators and its future is uncertain. Also, the federal plan is for UCC dollars eventually to decrease under the Affordable Care Act by $43 billion nationwide as more Americans gain private or Medicaid coverage under Obamacare. The impact of this potential UCC reduction on Louisiana is not yet known; however, the federal government published a proposed rule on July 28, 2017, that could result in a cut to Louisiana UCC payments of about $1.6 billion by fiscal year 2025.
Gov. Jindal launched two major health care reforms in Louisiana: Bayou Health, rebranded Healthy Louisiana by the Edwards administration, and the privatization of the Charity hospitals. Both programs lean heavily on Medicaid and federal assistance matched with state dollars channeled through the Louisiana Department of Health. Jindal chose not to expand Medicaid coverage to low-income adults under the federal Affordable Care Act, while Edwards made the expansion his first official act. The Bayou Health program revamped the old fee-for-service Medicaid system, a sort of pay-as-you-go model in which doctors and other health care providers were reimbursed for services to Medicaid patients. Under the new plan, private administrators now manage the care of Medicaid participants within health care networks. While still costly and unpopular with some segments of the medical industry, this reform brought a significant change in the state’s system of Medicaid health care delivery and has improved utilization of services and health care outcomes. Medicaid costs overall have continued to rise, although Bayou Health may have slowed the increase.
The Charity reform placed the role of the state’s public hospitals into the hands of private operators, which have received preferential Medicaid reimbursement rates similar to what the government-run system enjoyed. The LSU System continues to oversee medical education but no longer operates the hospitals except for the Lallie Kemp Regional Medical Center in Independence. Each Charity hospital community has its own arrangement. In some communities, the state tried to economize before the privatizations by cutting back on Charity services and dipping deep into the hospitals’ reserve funds, but the amount and level of care under the private partners has rebounded and costs have continued to climb. These hospitals and their affiliated clinics will continue to be a key component of health care delivery in Louisiana, even with the Medicaid expansion.
Under the Affordable Care Act, states can choose to expand Medicaid coverage to lower income adults. The Edwards administration adopted the expansion, which has extended health care coverage to more than 453,000 Louisianans since July 1, 2016, with more expected in the future. Many of these people have newly obtained access to care ranging from preventative services to diagnosed cancers. This achievement is significant for such a short period of time. The long-term result of the expansion is dependent on how the national debate about health care plays out. Congress has debated but not passed replacement legislation for Obamacare.
Meanwhile, if the Obamacare expansion survives as a national policy, it still faces challenges internal to Louisiana. Long-term financing of the expansion is iffy. Like other states, Louisiana currently contributes 5% of the cost of this Medicaid adult expansion, which will rise to a 10% state share by 2020. The Louisiana Department of Health anticipates paying less to support UCC payments because of the Medicaid expansion. The state will need these savings to materialize in order to avoid a significant UCC budget shortfall.
Recently, the state has implemented two new increased revenue sources to assist with health care costs: managed care premium taxes and a hospital assessment fee. The hospital fee, which can be used as a state match for federal dollars, was supported by most hospitals because of the long-term financial advantages to them. These new tax revenues are sufficient to cover the state’s share of the Medicaid expansion through fiscal 2019, after which an additional state match will likely be needed to help fund the program.
Looking to the future, the governor and Legislature may have to cope with greater limitations on federal UCC and LINCAA funding. Other challenges will be managing the Medicaid expansion’s impact, not only on the LSU partnership hospitals and their unique arrangements with the state, but on the Louisiana private insurance market in general. Fewer covered lives in the private marketplace results in higher cost for those still covered by private health insurance. This is a hidden cost, if you will, and an unintended consequence of the Medicaid expansion. The expansion has already syphoned off about 70,000 enrollees from the Louisiana Obamacare health insurance marketplace and some stakeholders are concerned about further “crowd-out” in the private insurance market as more people move from existing health care coverage to Medicaid. As health care costs approach half the state’s budget and become an ever larger pull on limited state budget resources, leaders face the challenge of finding a balance with the state’s other genuine budget needs.