LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE 74th Regular Session April 27, 1995 TO: Honorable Hugo Berlanga, Chair IN RE: Senate Bill No. 10, Committee on Public Health as engrossed House of Representatives By: Zaffirini, et Austin, Texas al. FROM: John Keel, Director In response to your request for a Fiscal Note on Senate Bill No. 10 (Relating to development of a health care delivery system under the state Medicaid program that results in cost savings to the state.) this office has determined the following: The bill would make no appropriation but could provide the legal basis for an appropriation of funds to implement the provisions of the bill. The bill would authorize the Health and Human Services Commission to develop a health care delivery system that restructures the delivery of health care services provided under the State Medicaid Program. The bill provides intent and direction, to the extent possible, regarding the design of the system. The bill would allow the Commission to maximize the financing of the Medicaid Program by obtaining federal matching funds for local and state resources spent on indigent health care. The Commission would be required to apply for a federal waiver no later than July 31, 1995 to implement the provisions of this bill. The bill details the requirements for the Commission and other entities intending to develop a managed care system, to provide funding for matching purposes or to form an intergovernmental initiative to administer the health care delivery system subject to state oversight. The following assumptions were made in developing the fiscal estimates: 1) Local units of government would make available funds for matching potential federal funds. These matching funds are assumed to be currently available from such sources as tax revenues and other public funds used to operate hospital districts and public hospitals; funds allocated under the County Indigent Health Care Program; and general revenue funding associated with charity care provided through physician practice plans. It is estimated that savings to the General Revenue Fund would range from $0-$250 million annually for the next five years. Savings to the State would accrue to the extent local funds can be made available for matching federal funds within the regular Medicaid Program. This number will have to be agreed upon by the local matching entities. 2) As part of a waiver, the State of Texas would exercise an option in the Social Security Act that permits states to raise eligibility levels for children and pregnant women by disregarding certain types of income or assets. 3) Because other states have expanded eligibility for adults under federal waivers by using a portion of their disproportionate share (DSH) funding, it was assumed that the State would also attempt to use funds to protect current levels of DSH program funding by using these funds to expand Medicaid eligibility. It is assumed that a portion of the per capita cost of covering newly eligible persons, thereby discontinuing the availability of a portion of these DSH funds for lump-sum DSH payments to hospitals. The funding contributions of government entities would return to them through capitation fees for managed care coverage to expanded numbers of eligible Texans. This assumption would protect approximately $900 million in federal funds payments annually for the next five years, the life of the waiver. The bill would allow the Health and Human Services Commission to design the system using different types of delivery systems in different service regions, including primary care case management, a partially capitated system, fully capitated arrangements or a combination thereof. Managed Care savings would accrue to the Department of Health in Medicaid acute care services. The following assumptions are made in developing and implementing a managed care system: 1) Phase-in of Medicaid eligible populations. Rural (assumes 19 percent of eligibles live in rural areas) and aged populations are excluded from the managed care system. Disabled and blind population groups are phased in: 1996, 10 percent; 1997, 30 percent; 1998, 50 percent; 1999, 81 percent. Remaining populations would begin phase-in at the same percentages but are anticipated to begin in 1995. 2) All participants, disabled and non-disabled, would be responsible for copayment of services. 3) Eligibility for Medicaid benefits would be guaranteed for a period of 12 months. 4) Savings and costs from implementing managed care are based on the assumption that the State will receive the necessary waivers from the Health Care Financing Administration. Approval of a waiver allowing the State to implement managed care is fairly routine; however, the approval of a waiver to charge copayment for services to all individuals in the Medicaid Program is less certain. The managed care system savings were projected using February 1995 updates by the Health Department for acute care caseloads and costs for fiscal years 1996 and 1997. Managed care savings and costs for fiscal years 1998, 1999, and 2000 were calculated by applying the original managed care trend assumptions from November 1994 estimates to the February data for fiscal years 1998-2000. Savings from copayments and costs for 12 month eligibility coverage were calculated by applying the same trends from the updated managed care calculations to the copayment and 12 month eligibility assumptions from November 1994. Administrative costs are included and are related to Public Health Technicians at the Department of Health and eligibility determination workers and computer programming at the Department of Human Services. NOTE: Updates to Medicaid caseloads and costs will be made in mid-April 1995. At that time, Lewin-VHI will calculate managed care fiscal implications for HHSC. The probable fiscal implication of implementing the provisions of the bill during each of the first five years following passage is estimated as follows: