SENATE BILL NO. 109 "An Act repealing the statute that sets priorities for the Department of Health and Social Services to apply to administration of the medical assistance program when there are insufficient funds allocated in the state budget for that program; authorizing the department to make cost containment decisions that may include decisions about eligibility of persons and availability of services under the medical assistance program; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. Commissioner Gilbertson explained that this bill would allow the Department of Health and Social Services to eliminate the optional Medicaid services priority list regulation that the Department must abide by when budgeted Medicaid funds are insufficient to meet the fiscal year's demands. He continued that the optional services list would be replaced with language authorizing the Department to undertake cost containment strategies for the Medicaid program based on three principles: 1) that the Department pursue all reasonable cost containment measures before eliminating any eligibility groups or services; 2) that the Department pursue strategies to maximize federal financial participation in the Medicaid program; and 3) that the Department make cost containment decisions that best reflect the needs and interests of eligible Medicaid recipients. Commissioner Gilbertson shared that the Medicaid Options list is viewed by Governor Murkowski and the Department as an inefficient method to contain costs as, he explained, no annual review of the options list is conducted, and the items on the list are inappropriately ordered in that the most expensive procedures would be disallowed last. He explained that the listing, in effect, forces the Department "to eliminate broad categories" such as prosthetics, wheelchairs, prescription drugs, and other valuable services "before any real savings are incurred." He stated that this legislation proposes that the same level of savings could be obtained without impacting services to beneficiaries in a negative manner. He continued that this change would allow the program to be operated within its appropriated budget without eliminating such things as pharmaceutical products that might incur more costs in the long run. Commissioner Gilbertson assured "that individual decisions on individual procedures or individual cases" would not be allowed, but rather that decisions would be determined on a broad category of eligibility groups or services. He summarized that this legislation would allow the Department to make decisions on an annual basis as technology and medical industry changes occur. In response to a question from Senator Taylor, Co-Chair Wilken clarified that the Members' packets contain information detailing the optional Medicaid services list in regulations "Sec. 47.07.035 Priority of medical assistance" [copy on file] that would be repealed. Commissioner Gilbertson affirmed that the statute would be repealed and replaced with language that provides the Department with the discretion "to engage in the same level of cost containment but with greater flexibility" through the implementation of the three aforementioned guidelines. Senator Taylor voiced appreciation that the Administration is addressing the Medicaid situation in this manner. Co-Chair Wilken expressed that were the Committee's action on this bill to incur criticism, the three aforementioned objectives would assist in defending Committee action. He continued that the intent of the action is clearly identified by the Governor and in the bill on pages two, 24, and 31. He joined Senator Taylor in applauding the Administration's efforts to control the increasing expenses of the Medicaid program. Co-Chair Green expressed that the zero fiscal note further supports the Department's effort to contain program costs without further "cuts or general fund money being withdrawn from the program." Commissioner Gilbertson stated that the accompanying zero fiscal note is based on Governor Murkowski's efforts to offset projected Medicaid program growth by implementing other "sizable general fund reductions" in FY 04. He informed that continuing the Medicaid program in FY 04, as it is currently designed, would result in "well over $60 million in general fund growth" over the FY 03 budget. He stated that the Administration has exerted substantial effort to contain general fund growth in the Medicaid program and to limit impacts to beneficiaries and providers. He stated that the zero fiscal note is based on the assumption that the FY 04 Medicaid funding would be approved at the Governor's proposed budget level, which contains numerous cost containment strategies. He declared that, were the Governor's funding level approved, additional cost containment measures would not be required. Senator Olson agreed that the more expensive procedures are at the bottom of the thirty-one items on the optional priority list; however, he voiced concern that the proposed change would eliminate the long established list that was developed "by a fair amount of thought and effort." He questioned whether the Department's decision-making process would allow the same level of input and consideration from such people as medical personnel. Commissioner Gilbertson stated that this legislation would provide the Department "the discretion and the authority to make and weigh decisions" and the subsequent impact of those decisions. He reiterated that the current optional priority list is inadequate and is not a good cost containment method in that it does not allow for annual review or current circumstances to be considered. He avowed that the issue is complex and that the Department would be presenting cost containment strategies and their impact, on an annual basis, to the Legislature. He expressed that the Department anticipates a "very interactive process" with clear directives as to how the Department would "engage in cost containment" measures. Senator Olson voiced that the mission of the Medicaid program is to provide a health care delivery system "to people in need" as determined by the eligibility standards defined in State statute, rather than "driving the program" from a cost containment position as proposed in this legislation. Co-Chair Wilken reiterated that the sponsor statement and the three aforementioned guidelines indicate that this bill would provide benefits in addition to cost containment. Commissioner Gilbertson agreed that "the Medicaid program is about providing care," and he specified that approximately $900 million of health care services is projected to be spent in FY 04 to support those services and to protect service for low income individuals at a time when State revenue resources are limited. He specified that cost containment efforts should be enacted in an effort "to protect the program and allow for good reimbursement rate." He continued that, were the program allowed to be "stretched so thin," such things as good reimbursement rates and the ability to "take care of our neediest seniors and disabled individuals" would be jeopardized. Therefore, he continued, cost containment is required in order to continue adequate level of care. He alerted that the Department has experienced tremendous growth that could jeopardize the Medicaid program. Senator Bunde asked whether the Department would increase delivery of Medicaid services were the Legislature to increase funding to the program. Commissioner Gilbertson responded that the Department would manage the program within the parameters of the budget provided. He stated that program expansions or increases in services would be determined through the Legislative process. SFC 03 # 40, Side B 09:48 AM Senator Bunde summarized the Department's position to be that there is "the very great likelihood that the Medicaid program would have less money or would grow beyond" available funding; however, he questioned whether the Department would further "these options of limitation" efforts, were an increased amount of funding made available to the Medicaid program. Commissioner Gilbertson responded that regardless of the funding, cost containment measures would be implemented, as he asserted, the program must be administered efficiently. He stated that were additional funding provided, the Department could not expand programs or services without Legislative approval. He stated that the program would be managed as efficiently as possible and that any remaining funds would be returned to the general fund at the end of the fiscal year. Senator Bunde commented that, were the program to continue to grow beyond the State's funding ability, cost containment measures must be implemented. He asked whether it could be anticipated that the Department might produce "its own list of thirty-one" services guideline. Commissioner Gilbertson anticipated this would occur. He voiced the hope that "a dialogue with the Legislature" would take place during the development of the forthcoming fiscal year's budget. Co-Chair Green informed the Committee that the options list, to her knowledge, has not been reviewed since its original development; however, she opined, it has been expanded in response to requests from "special interest groups," without "proof" regarding the need or ranking of the item on the list. She summarized the process as "inconsistent" and "troublesome." In contrast, she stated that the Department's approach to the program is "consistent with their message that they are engaging in cost containment measures in the right way." Co-chair Wilken ordered the bill HELD in Committee. [Note: the following Committee discussion regards the Medicaid program discussed in SB 108 and SB 109.] Senator B. Stevens, referring to the Medicaid charts provided by the Department of Health and Social Services during the hearing on SB 108, generalized that the Medicaid program is experiencing "a two-pronged" containment problem: the first being the cost of providing services; and the second being "the eligibility of your monthly recipients." He noted that, according to the chart on page one, titled "Medicaid Total Average Monthly Eligibles and Costs," there has been a 47 percent increase in eligible monthly participants between FY 99 and projected FY 04. He continued that the chart on page two titled "Medicaid Eligible Children and Costs" indicates that, during the same time frame, there has been an increase of 73 percent in monthly eligible children, while, he noted, the page three chart titled "Medicaid Eligible Adults and Costs" reflects a decrease of approximately one half of one percent. He continued that other charts in the packet indicate an approximate 18-percent increase in senior recipients and a 33- percent increase in disabled recipients. He asserted that, "no sector of our population is growing at that rate." He asked for an explanation to justify the increases in eligible participants. Senator B. Stevens stated that SB 108 and SB 109 focus on cost containment, and he specified that, "the average cost per month per member" is identified on the charts. However, he identified the containment of program eligibility as the primary focus. He expressed that between FY 99 and FY 04, the total number of program recipients has increased by 30,691, with 27,734 of that total number being children. Commissioner Gilbertson acknowledged Senator B. Stevens's concern, and stated that the growth in the Medicaid program "is a national trend." However, he clarified that on the national level, 71 percent of Medicaid cost increases result from seniors and disabled individuals; whereas, he attested, these groups account for approximately 50-percent of the cost increase in Alaska. He furthered that the costs for these groups are projected to align with the national average as "the graying of Alaska" results in more demand for long-term care and as people with disabilities "live longer." He specified that the most rapid population growth in the Medicaid program has been in children services, which is reflected by the growth of the Denali KidCare program while the only program that reflects a reduction is the adult program. He attributed this reduction to the success of such efforts as the State's welfare reform and welfare to work programs. However, the program has experienced an increase in costs associated with the number of pregnant women in the program. He noted that separate legislation is being considered to address eligibility standards for the various programs. Co-Chair Green interjected that the increase in costs is associated with pregnant women who qualify for services through the Denali KidCare program. Commissioner Gilbertson concurred, and he commented that "the vast majority" of growth in terms of children is associated with the Denali KidCare program. He professed that the State would eventually incur the majority of its cost increases from the overall growth in services to seniors and the disabled. BOB LABBE, Deputy Commissioner, Department of Health and Social Services informed that prior to the "expansion" of the Denali KidCare program in 1999, the child population growth in the Medicaid program "was flat," and the family being on temporary assistance determined the edibility for a child. With the implementation of welfare reform measures, he continued, the number of child participants in the Medicaid program decreased "as the parents went to work." He noted that when the eligibility policy expanded to 200-percent of the poverty level, the caseloads started to increase. Mr. Labbe stated that while the elderly Medicaid population growth has been "very predictable and very constant," the level does not correspond to the overall number of seniors in the State. He informed that to qualify for Medicaid funding, seniors must be receiving public assistance. However, he stated, the high incomes of many seniors excludes them from the program. Mr. Labbe opined that these seniors might not qualify for the program until the age of 85 or older when long-term care services might be required. Mr. Labbe noted that the State is experiencing a growth of individuals with disabilities as "baby boomers" are aging and as adults and children with disabilities live longer lives. He expressed that the population growth in the number of children in the Medicaid program is the result of a State "policy choice" to expand the State services through the Denali KidCare program. Senator B. Stevens asked whether the eligibility specifications are located in Section B(13) of the Denali KidCare program. Mr. Labbe was unsure of the specific section. Commissioner Gilbertson interjected that the 200 percent of poverty level eligibility guideline is the standard for children and pregnant women through the Denali KidCare program. Senator B. Stevens asked the level of the current federal poverty guidelines. Commissioner Gilbertson replied that it is determined by the size of the family. Co-Chair Wilken interjected that discussion relating to eligibility for the Denali KidCare program would be more appropriately addressed through forthcoming legislation. Senator Bunde commented that, antidotally, people move to Alaska in order to qualify for the Permanent Fund Dividend and other State benefits. He asked whether the Department "tracks" the length of residency of new individuals to the Medicaid program. Mr. Labbe responded that the Department does not track length of residency; however, he noted, Medicaid recipients are required to be a resident of the State. He mentioned that the Department had, several years previously, conducted studies in which a length of residency question was included and, he commented, that information could be provided. Senator Bunde suggested that a length of residency question would be beneficial. He asserted that the minimum length of residency to qualify for Medicaid benefits should be at least 30 days. Commissioner Gilbertson responded that the Medicaid program is an entitlement program whereby if an individual meets the program's criteria, they must be enrolled in the program. However, he agreed that the length of residency information could be beneficial. Senator Taylor asked the penalty that might be incurred were a state to deny benefits to individuals, contrary to federal standards. Commissioner Gilbertson responded that were the State to disregard federal guideline standards for the Medicaid program, the State would be denied access to federal Medicaid funds. However, he noted that a state's participation in "the Medicaid program is optional; it is voluntary for States," and he continued, although "it is rare," states have the option to submit and manage their own plans through a wavier process. Co-Chair Wilken asked whether a bill that passed in an earlier Legislative session included a study being conducted regarding the Medicaid program and the Permanent Fund. Co-Chair Green reminded the Committee that the bill in question had been vetoed.