JMOC: Preliminary Report from the Actuary

It has been a couple months since the last Joint Medicaid Oversight Committee (JMOC) hearing, and the latest meeting covered a lot of ground in a five-hour-plus session. The majority of JMOC dealt with the behavioral health redesign, including testimony from providers and the administration. If you want to learn more about what was shared during that portion, I recommend you read the following post from Kelly Smith of the Mental Health and Addiction Advocacy Coalition. For my blog, I will focus on the preliminary report from JMOC’s actuary, Optumas. While it may not have had the depth of content (or attendance) as the “redesign” section, the implications of what was shared may have a more significant impact in the next budget, generally.

According to Ohio Law, at the beginning of every fiscal biennium, JMOC must contract with the actuary to provide a projected medical inflation rate, determine if it agrees with the projection, and submit a report on its findings to the Governor and the General Assembly (GA). If JMOC doesn’t agree with the projection, they must develop their own rate for the submission. This report will be submitted October 25th, to comply with the requirement to have it to the Governor 90 days before he submits a state budget proposal for the upcoming year (at least January 23, 2017).

The language in Ohio Revised Code goes on and directs the Medicaid Director to limit growth to an aggregate per member per month (PMPM) at the JMOC rate or the three-year average of the Consumer Price Index medical inflation rate (CPI), whichever is lower, and focus on improving health, reducing infant mortality, and helping individuals who have the greatest potential to obtain income and move to private insurance. To review, a “PMPM” includes all aggregate reimbursement the state pays each month for each person in Medicaid, with a few excluded costs like rebates.

Optumas went through their process to determine rates, delivered initial projections, and discussed next steps. Here are a few takeaways:

    The Medicaid expansion population lowered the overall PMPM for the state. This makes sense because this population represents non-disabled adults and, as I have written about before, the costs associated with expansion have been steadily decreasing since expansion began. Moreover, children are often 40-60 percent the cost of adults, likely due to the decreased instance of chronic disease. So, while they represent a large portion of the population in Medicaid, they are less expensive than the other, often more complex populations.
    Pharmacy is a cost driver in the Medicaid program, which is not a shock, especially when looking at the trends nationally. Fee for service (FFS) costs increased 5 – 7 percent while managed care costs increased 25 percent. As Optumas explained, this disparity in FFS and managed care cost is a consequence of the population and service mix of each funding source.

    Although managed care covers nearly 90 percent of the Medicaid population, FFS still covers many individuals with more complex needs. FFS includes coverage of individuals in long-term care, whose pharmacy requirements tend to be more expensive and ongoing due to the nature of their care. Because this coverage is usually more consistent, there is less variability in utilization, which explains the lower percentage cost increase. This is not the case with the managed care population, however, wherein coverage for pharmacy, like the utilization, might be intermittent and diverse, thus leading to a higher cost increase of 25 percent.

    It should also be noted that increases in pharmacy expenses were not driven by utilization rates, but instead by the costs of the drugs themselves. Interestingly, there have been some efforts by state policymakers to address Medicaid pharmacy spending, including a pay for performance effort in Oregon which ties treatment effectiveness to payment. There is also a report due from the National Academy for State Health Policy’s Pharmacy Cost Work Group, (of which Director McCarthy is a part), which will outline steps state agencies can take to contain prescription costs. And while these state-based efforts are ongoing, federal policy may ultimately have the greatest influence on spending in the future.

    As is the case with the state’s elimination of “spend down” and the carving-in of more services to Managed Care, the aggregate PMPM will likely change as reform-minded policies are developed. For example, with the rejection of the Healthy Ohio waiver by the federal government, future efforts resulting in limiting eligibility for the expansion population may increase average cost.

    As I wrote in my public comment submission for Healthy Ohio, consumer cost sharing, which continues to be a goal by some policymakers, often serves as a disincentive for enrollment in Medicaid. If initiatives like Healthy Ohio are implemented, then, expansion enrollees, who are comparatively low cost, may leave the program, thus raising the aggregate PMPM. This would happen because the overall case-mix would now retain more complex, higher cost populations. I should also note, however, that Ohio law states the Medicaid Director shall not use eligibility restriction as a reform to control costs or encourage individuals to seek coverage outside of Medicaid, so the GA will have to make a determination as to which initiatives comport with this existing language.

What I found most interesting was the conceptualization from Optumas about how JMOC should view their responsibility in the reporting process to the GA and Governor. As they explained, JMOC could make one of three potential recommendations (paraphrased):

  1. Stick with the Median
    This is an average cost and if you project no major changes or reforms, this is the “maintain the course” option.
  2. Lower Bound
    This is stating you believe that Medicaid needs to be more cost efficient and the Director should stress efficiency measures in policy.
  3. Upper Bound
    This is stating you believe additional investments need to be made consistent with the directives in Ohio law and potential future policy.

In the end, this preliminary review is just that – preliminary. The finalized report from Optumas will be coming out next month and, pursuant to Ohio law, JMOC will have to send its recommendation to the Governor and the GA. And while it is important to note the administration must “live within its means,” the GA is able to appropriate whatever it wishes (as long as the budget is balanced). This means that any major policy initiative that is subject to budget deliberations will need to not only account for the obligations of the Director in the Governor’s proposed budget, but what those policies could mean in terms of the desire to meet the JMOC standard.