A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Section VII: Estimating the Medicaid Impact

10/14/2011

One of our key underlying policy assumptions for the LTC-PS is that the CLASS program would provide benefits for eligible participants before Medicaid payments. Effectively Medicaid would remain a “payer of last resort”. As such, we needed to create estimates of current spending estimates by Medicaid for the population in question (the baseline), how this spending would be impacted by CLASS policy options, and how many CLASS enrollees would otherwise have Medicaid as their primary payer of long-term care services. The following describes the steps we undertook to estimate the impact of policy choices on Medicaid spending.

  1. Determining Medicaid Utilization. For the baseline estimates, we first estimated the number of people receiving Medicaid payment for care provided in either a nursing home or home and community-based setting. We began with information in both SIPP and NNHS. Each of these surveys has information on the source of payment for any care received. We utilized this detail from the surveys to estimate the percentage of people with severe disabilities in each setting that had Medicaid as a payer. According to the surveys, approximately 61 percent of the disabled population residing in a nursing home and 7 percent of the disabled population residing in the community and receiving paid help had Medicaid as a payer. Using these rates, we calculated that nearly 0.9 million nursing home residents with a severe disability and 0.5 million persons with a severe disability living in the community were receiving help for their disability and had Medicaid as a primary payer.

    While we were fairly comfortable with the nursing home estimate, we believed the community estimate was too low. Specifically, we felt that due to the nature of the paid help question in SIPP--a potential response to the survey question “Who is the primary provider of assistance with your disability?”--respondents were likely reporting family members. It is possible that they were also receiving paid help from the Medicaid program via either Medicaid home health or personal care services, or a Home and Community Based Services (HCBS) Medicaid waiver program, but not reporting this care due to the nature of the survey question.

    To address the apparent underreporting of Medicaid utilization, we referenced the total estimated population receiving Medicaid home and community based services as published by the Kaiser Commission on Medicaid and the Uninsured. Using the same base year as the SIPP data (2004), Kaiser reported an estimated 2.7 million individuals received home-based care from Medicaid at some point during the year. To adjust this figure to represent a single point-in-time estimate comparable to the data from SIPP as well as remove any non-disabled individuals who qualify for Medicaid home care via alternate mechanisms, we applied a ratio slightly higher than the average relationship between Kaiser-estimated rates of average monthly Medicaid enrollment in June 2004 and total Medicaid enrollment in all of 2004. This ratio is approximately 71 percent, which if applied directly to the Medicaid home-based care recipient estimate of 2.7 million would still overestimate for purposes of the Model. That’s because some individuals could qualify for Medicaid home-based care and not qualify for community care in the Model. We removed an additional 5 percent to account for these individuals, leaving an estimated 1.8 million persons receiving home-based care paid for by Medicaid. We therefore inflated our initial estimates of 0.5 million persons with a severe disability in the community to 1.8 million.

    We then re-calculated the ratio of Medicaid beneficiaries to total beneficiaries for the community setting, resulting in a revised estimate of 26 percent of persons with a disability residing in the community who receive paid help for their disabilities from Medicaid.3 We applied this revised community estimate along with the nursing home estimate of 61 percent to each year’s estimated disabled population in each setting to calculate the number of individuals with a disability in any given year at any given age who would be receiving Medicaid-financed assistance with their disability.

  2. Determining Medicaid Spending. After creating estimates of the size of each Medicaid population, we also needed to determine the average per capita Medicaid spending for these residents. This estimate of Medicaid costs allows us to determine the potential for savings to Medicaid from the implementation of this federally run, long-term care insurance program.

    Having previously determined the size of the Medicaid population in each setting, we constructed a national average cost for these patients. For nursing home patients, we combined data from A Report on Shortfalls in Medicaid Funding for Nursing Home Care, October 2008, published by the American Health Care Association (AHCA) and adjusted this data to match the total estimated spending by Medicaid in nursing homes as published by the National Health Expenditures (NHE). In the nursing home setting, we assumed the per diem is equal to the national average per diem (approximately $125 per day in 2010). For the community setting, we utilized data published in the same Kaiser report we used to develop the estimated size of this population. This report estimates 2006 annual Medicaid payments for an individual receiving home care was $13,320. We adjusted this community setting data to 2010 rates using the growth in nominal wages as published by the BLS from 2006 to 2010.

    Once we determined the average Medicaid spending per person, we were able to develop an estimate of total Medicaid spending for the population with severe disabilities included in the Model. For purposes of calculating Medicaid savings in the Model, we estimated the portion of the baseline applicable to participants in the specific scenario (adjusted for the low-income subsidy interaction described previously).4 Since the CLASS program offers a cash benefit, we calculated the difference between expected Medicaid spending on the beneficiary and cash payments from the program. If expected Medicaid spending was higher than the cash payment, the Medicaid savings equaled the amount of cash paid, and if expected spending was lower than the cash payment, the Medicaid savings equaled total estimated Medicaid spending. We did not allow for a “personal care allowance” portion of the cash payment in the Model.

  3. Estimating Medicaid participation for CLASS enrollees: The final step in estimating the impact of the CLASS program on Medicaid spending is to estimate the number of CLASS enrollees who would have had Medicaid payment for their long-term care needs. To estimate this group, we worked with Medicaid experts to determine the relationship between the low-income subsidy, premium amount, and participation of future Medicaid enrollees. The basic relationship worked as follows: participation of individuals who would otherwise be eligible for Medicaid was higher for more generous low-income subsidies and lower premiums. We constructed a matrix of participation based on input from these Medicaid experts, shown in Exhibit 2.

EXHIBIT 2: Low-Income Subsidy and Premium Interaction Matrix
  Premiums   Low-Income Subsidy
  None     100% FPL     150% FPL  
>50 25% 50% 75%
50-80 20% 45% 70%
81-100 15% 40% 65%
101-120 10% 35% 60%
121-150   5% 30% 55%
150+ 0% 25% 50%

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