Health Policy for Low-Income People in Wisconsin

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

About the Series

Key components of the project include a household survey, studies of policies in 13 states, and a database with information on all states and the District of Columbia, available at the Urban Institute's Web site. This paper is one in a series of reports on the case studies conducted in the 13 states, home to half of the nation's population. The 13 states are Alabama, California, Colorado, Florida, Massachusetts, Michigan, Minnesota, Mississippi, New Jersey, New York, Texas, Washington, and Wisconsin. Two case studies were conducted in each state, one focusing on income support and social services, including employment and training programs, and the other on health programs. These 26 reports describe the policies and programs in place in the base year of this project, 1996. A second set of case studies to be prepared in 1999 will describe how states reshape programs and policies in response to increased freedom to design social welfare and health programs to fit the needs of their low-income populations.

The income support and social services studies look at three broad areas. Basic income support for low-income families, which includes cash and near-cash programs such as Aid to Families with Dependent Children and Food Stamps, is one. The second area includes programs designed to lessen the dependence of families on government-funded income support, such as education and training programs, child care, and child support enforcement. Finally, describe what might be called the last-resort safety net, which includes child welfare, homeless programs, and other emergency services.

The health reports describe the entire context of health care provision for the low-income population. They cover Medicaid and similar programs, state policies regarding insurance, and the role of public hospitals and public health programs.

In a study of the effects of shifting responsibilities from the federal to state governments, one must start with an understanding of where states stand. States have made highly varied decisions about how to structure their programs. In addition, each state is working within its own context of private-sector choices and political attitudes toward the role of government. Future components ofAssessing the New Federalism will include studies of the variation in policy choices made by different states.

Contents

Highlights of the Report

ey to Wisconsin's health care system is its long history of low numbers of uninsured. In 1995, 8.6 percent of the state's population was without insurance, compared with the national average of 15.5 percent. While policy intervention has added to the high level of insurance, most of the credit belongs to the state's high rate of employer-sponsored health care coverage. Because of the strong union presence in the state, nearly 80 percent of Wisconsin's population has health insurance through an employer; nationally, only 66 percent of the population has such insurance. Also contributing to the low level of uninsured is Wisconsin's Medicaid program, which has generous eligibility standards.

About 5 million people live in Wisconsin, with a large share (more than 30 percent) residing in rural areas. Compared with populations of other states, few Wisconsinites are members of racial or ethnic groups— nearly 90 percent of the state's population is non-Hispanic white. According to several health status indicators, Wisconsinites are also relatively healthy. The incidences of AIDS, violent crime, and premature death are all substantially lower than the national average.

Like many other states, Wisconsin is enjoying a buoyant economy. Indeed, Wisconsin's economy appears to be stronger than the average state's; the unemployment rate is nearly two percentage points below the national average. The state's poverty rate is also much lower than elsewhere. Further, Wisconsin's growth in per capita income between 1990 and 1995 outpaced the rest of the nation.

In accordance with the state's constitution, Wisconsin is politically led by Republican Governor Tommy Thompson, who has been in office for 12 years. Since becoming governor, Thompson has enjoyed great popularity and has successfully implemented major pieces of legislation. A top priority of the governor in recent years has been local property tax relief. Another has been overhauling the cash welfare system. Wisconsin was one of the early pioneers in welfare reform, implementing some of the most sweeping reforms in the nation. In 1996, the state enacted legislation mandating the replacement of Aid to Families with Dependent Children (AFDC). Eventually this mandate brought about the development of the nationally prominent Wisconsin Works or W-2 program, which began statewide implementation on January 1, 1998.

In recent years, health care has not been a top policy priority, partly because the state has been pursuing other policy initiatives, which has limited growth of the health care budget. For example, for the past few years, the Medicaid budget basically has reflected the level of expenditures needed to maintain the current program. Another reason health care matters may not have received as much attention is that Wisconsin's health care system is sound, relative to many other states. It has a strong base of private insurance, a fairly extensive Medicaid program, and low numbers of uninsured. State officials report vigorous competition in the health care market. Moreover, health care insurers and providers at present seem generally satisfied and are in solid financial shape. In short, the need for extensive policy intervention has not been as compelling as in other states.

Nonetheless, Wisconsin has proposed or implemented some important health care initiatives over the past several years. A highly visible one linked the Medicaid program with welfare reform, which has played the dominant role. As part of welfare reform, Governor Thompson proposed fairly radical changes to the Medicaid program that could have ended entitlement to benefits and reduced eligibility and services for some currently eligible individuals while increasing them for others. Proposed during the national debate on the Medicaid block grant, this plan was highly contentious, and the federal government never approved waivers to implement the demonstration.

As a consequence of the extensive changes that were implemented as part of the W-2 program, the breaking of the link between cash assistance and Medicaid eligibility required by the 1996 federal welfare reform law has had a particularly profound effect in Wisconsin, with some people eligible for W-2 and not Medicaid and vice versa. As a result, the state's computer system for eligibility has required an overhaul, and people were dropped from the Medicaid rolls who could have retained eligibility. Moreover, sharply falling caseloads for W-2, in part due to the state's robust economy, have had spillover effects on Medicaid rolls, causing them to fall dramatically. This decrease has raised concerns that the number of uninsured may be rising. Concerned about this possibility, the state has proposed to use the mostly federally funded State Children's Health Insurance Program to expand Medicaid eligibility for adults as well as children, but final federal approval has not been obtained.

Beyond Medicaid, Wisconsin operates three relatively small programs designed to provide health care for low-income persons not eligible for Medicaid. The largest is the General Assistance program known as the County Relief Block Grant Program, which has gone through significant changes in the past few years. In 1995, Governor Thompson proposed eliminating the program, which— at the time— provided both cash and medical benefits to beneficiaries. In the end, the legislature converted it into a block grant program in which counties had the option to participate; previously counties were required by state law to operate a General Assistance program. As part of the shift to the block grant program, state lawmakers also cut state funding. These changes and cutbacks have had particularly important effects on safety net providers in Milwaukee, which receives the bulk of the program funding.

Perhaps because of widespread private insurance coverage, Wisconsin has not felt compelled to enact major insurance reforms. It has implemented some insurance reforms for the small group market, including limits on exclusions of preexisting conditions, portability, guaranteed issue, and renewal. It has also adopted some limited rating restrictions. Otherwise, however, Wisconsin's insurance regulation, like that of most other states, has not been particularly intrusive into the operations of insurers and managed care plans.

Another major initiative is the statewide implementation of Medicaid managed care for AFDC-related groups. Wisconsin's health maintenance organization (HMO) Medicaid program started more than 15 years ago in Milwaukee and was among the first such programs in the country. In 1996, the state began expanding the program in all parts of the state. The effort, which was undertaken primarily as a cost-containment strategy, was completed in 1997 with relatively few problems. While the state hopes to extend managed care to other populations in the future, only limited pilot managed care programs for the elderly and the disabled exist at present.

The health insurance and delivery markets in Wisconsin appear to be quite successful. Hospital financial health is stable despite some overbedding and price discounting for HMOs. Physicians are in strong bargaining position vis-à-vis health plans because of physician undersupply in many parts of the state and concentration in large group practices. The insurance market was described as highly competitive, yielding affordable premiums and wide insurance coverage. Like providers, insurers appear to be in good financial shape.

Although the health care safety net is generally strong in Wisconsin, Milwaukee County is plagued by poorer health status and lower rates of insurance coverage than the rest of Wisconsin. In addition to pressure from the 1995 overhaul of the state's general assistance program, Milwaukee safety net providers are feeling pressure from the recent closure of the county's only public hospital and the implementation of welfare reform. Early indications are that welfare reform has increased the number of uninsured in the county while the closing of the public hospital has brought about a shift in where the poor are served. However, to date providers seem to be financially stable, and hospitals' charity care burdens remain low compared with those of city hospitals in other states, although some observers questioned how safety net providers will fare in the long term.

Long-term care for the elderly and persons with disabilities has also been an area of significant activity for state policy, in part because it accounts for a majority of Medicaid expenditures. Although the vast bulk of Wisconsin's long-term care spending is for institutional care, the state's home care programs (particularly the Community Options Program, or COP) have achieved national recognition for their innovative flexibility and consumer direction. In 1997, the Thompson administration put forth an ambitious proposal to integrate acute and long-term care services through managed care organizations, but withdrew it almost immediately because of opposition from the counties and advocacy groups for the elderly and disabled. A new proposal to redesign the long-term care system, unveiled in May 1998, addresses the concerns expressed about the first plan.

Overview of Wisconsin

A hallmark of Wisconsin's health care system is its low rate of uninsurance, 8.6 percent in 1995, the second lowest in the United States. The low number of uninsured is largely attributed to Wisconsin's high rate of employer-sponsored health care coverage. In 1995, Wisconsin was ranked number one in the nation for employer-based insurance coverage, with nearly 80 percent of state residents receiving health insurance through an employer. Interestingly, the high employer coverage rate was achieved without extensive state involvement or policy intervention. Alongside its high rate of private insurance, Wisconsin supports a relatively generous Medicaid program that includes liberal eligibility standards and a rich benefit package, one of the most comprehensive nationwide. Taken together, these insurance characteristics make Wisconsin's health care system and safety net stronger than those of many other states.

This report focuses on the development and implementation of health care policy in Wisconsin in 1997. In addition to reviewing the evolution of state health care policies in recent years, this series provides a detailed look at one or more localities in each state to gain an understanding of how policies are implemented and how policies affect health care providers, with a special focus on safety net providers. The local site in Wisconsin was the city of Milwaukee.

The study is based on documents and interviews with key persons in Wisconsin. Interviews with state and local officials (from Milwaukee), legislators, health care providers, and advocacy organizations were conducted during two site visits to Wisconsin in mid-1997. Subsequent telephone interviews were also conducted. The state, health care providers, and others provided additional documentation.

The report lays out the major issues, initiatives, and challenges in health care policy that faced Wisconsin in the spring of 1997. To the extent possible, the research team has tried to update key policy changes since that time. After a brief background description of the state, the report describes the state's current health care agenda and gives some sense of the prevailing attitudes among key health stakeholders. Then it provides a detailed review of state health care programs and initiatives, with a special focus on Medicaid. Next, it delves into the specifics of Wisconsin's financing and delivery system, including discussions on Medicaid managed care and provider payment issues, as well as the general health care market. This discussion is followed by an examination of how state health policies are affecting the health care safety net (highlighting the experience of Milwaukee) and an examination of state policies for the care of the elderly and persons with disabilities. The report concludes with a discussion of what the future may hold for health care in Wisconsin.

Sociodemographics

In 1995, Wisconsin had a population of 5.1 million, which had been growing at a slightly slower rate than the rest of the country (table 1). One in 10 Wisconsinites had an income that fell below the federal poverty level (FPL), a rate lower than that in the rest of the nation. Relatively few Wisconsinites are members of racial or ethnic groups— nearly 90 percent of the state's population is non-Hispanic white. Compared with the rest of the nation, a large share of Wisconsin residents (more than 30 percent) live in rural areas.

Health Status and Health Care Indicators

Wisconsinites are comparatively healthy relative to the rest of the nation. For example, in 1995 the incidence of AIDS in Wisconsin, 6.8 per 100,000 persons, was well below the national average of 27.8 per 100,000. Similarly Wisconsin's violent crime rate and premature death rate are substantially lower than the national average. The state's birth outcome statistics are less encouraging. In 1995, Wisconsin's infant mortality rate was comparable to that of the rest of the nation, but the percentage of low birth-weight births was nearly a full percentage point below the national average.

Economic Indicators

Like much of the rest of the country, Wisconsin at present boasts a robust economy. Indeed, Wisconsin's appears to be stronger than the average state's. Wisconsin's 1996 unemployment rate was nearly two percentage points below the national average, 3.5 percent, compared with 5.4 percent. In some areas of the state— Madison, for example— unemployment was reported to be under 2 percent. Per capita income in 1995 was $22,261, slightly below the national average. Growth in per capita personal income between 1990 and 1995, however, was slightly higher in Wisconsin than in the nation as a whole (25.6 percent, compared with 21.2 percent).

Political Overview

For the past decade, Wisconsin politics have been largely dominated by Republican Governor Tommy Thompson, who took office in 1986. Since assuming office, Thompson has enjoyed great popularity and has successfully implemented major legislation, cutting local property taxes, establishing one of the country's first school choice programs, and overhauling the cash welfare system.

The state legislature has two chambers— the Assembly and the Senate— both of which are controlled by Republicans. Historically, the Senate has been dominated by Republicans while the Assembly has swung back and forth between the two political parties. Policymaking in Wisconsin has typically been dominated by the governor's office, largely because of the state's constitution, which vests significant authority in that office. Most policy initiatives are developed by the governor with the legislature responding. The legislature generally does not put forth its own legislative initiatives.

The top priority of the governor in recent years has been property tax relief. With strong voter support, in the 1993–95 biennium session the legislature passed and the governor signed several bipartisan measures to control local property taxes. According to state documents, the tax reduction plan has been highly successful: After averaging 8 percent annual increases in the recent past, property taxes increased by only 2.5 percent in 1994 and 3 percent in 1995; in 1996, average property taxesdeclined by nearly 7 percent. Several respondents indicated that Wisconsin historically has had high property taxes— much higher than neighboring states such as Minnesota— and that finding a way to reduce them has long been on the state's political agenda.

Cutting property taxes has been costly for the state. According to the governor's 1997–99 budget documents, more than 6 out of every 10 general-fund dollars go to support the property tax relief initiative. Interviewees said the effort will consume about 75 percent of any new state revenue growth for the next four years. Not surprisingly, the property tax relief measure has affected other state budget sectors by reducing funds that otherwise would have been available. For example, funding for the University of Wisconsin was reduced in the 1995–97 biennium budget. Other programs, including Medicaid, have received only "very modest" increases. As a result, some belt tightening has occurred in Medicaid as well as other parts of the state government. Beyond property tax relief, Governor Thompson's other budget priority has been corrections.

Among human services issues, welfare reform has clearly dominated Wisconsin's social policy agenda; health care reform has played only a supporting role. As discussed later in this report (and in much more detail in the companion to this volume,Income Support and Social Services for Low-Income People in Wisconsin ), Wisconsin has been one of the pioneers in reforming the cash welfare system. Since 1987, the state has implemented a number of reform initiatives— some of the most sweeping in the nation— leading to the eventual replacement of the Aid to Families with Dependent Children (AFDC) program with the nationally prominent Wisconsin Works or W-2 program. While fundamental reforms to the Medicaid program were contemplated in Wisconsin's comprehensive strategy to reshape the welfare system, Medicaid changes were never implemented because the federal government did not grant the waivers necessary to implement the W-2 Health Plan.

State Budget Overview

Table 2 shows state expenditures in 1990 and 1995 by selected budget sectors— Medicaid, corrections, K–12 education, AFDC, higher education, and miscellaneous. The first panel shows state general-fund expenditures only; the second panel shows total state spending— general fund as well as federal aid and other state funds. In 1995, Wisconsin spent nearly $850 million on Medicaid, about 10 percent of state general-fund spending. As in most other states, K–12 education was by far Wisconsin's largest budget item, accounting for nearly 40 percent of state general funds in 1995. Spending for higher education followed, consuming 13 percent of state funding.

While corrections comprised less than 5 percent of state spending in 1995, in recent years it has been the fastest growing budget item. Between 1990 and 1995, spending for corrections increased an average of 26.3 percent each year. By contrast, spending for all other major budget sectors increased by less than 10 percent over the period. Particularly noteworthy is thedecline in spending for the AFDC program. Between 1990 and 1995, state spending on AFDC averaged a 2.5 percent decline each year. This decrease reflects a number of factors, including the healthy state economy and Wisconsin's welfare reform efforts. When all state and federal expenditures are included— as shown in the second panel oftable 2— the spending patterns remain largely the same.

For the 1997–99 biennium budget (not shown), state legislators approved a state general-fund budget of $9.6 billion in state fiscal year (SFY) 1998 and $9.9 billion in SFY 1999. These budgets represent annual increases of 6.2 percent in 1998 and 2.0 percent in 1999. Among major budget categories, funding property tax relief received the largest expenditure increase— more than 13 percent greater than it had been in the 1997–99 biennium budget. Significant spending increases (nearly 12 percent over levels in the 1997–99 biennium) for corrections were also approved.

For Medicaid, general-fund spending of $910 million for 1997–98 and $929 million for 1998–99 was approved. These approved budgets represent a decrease in state dollars budgeted for Medicaid compared with the SFY 1996–97 Medicaid budget of $942 million.¹ A number of factors contributed to the funding drop. One key factor is expanded use of county funds (through intergovernmental transfers) in lieu of state dollars for federal Medicaid matching funds. The budgets also assumed cost savings from changes in service delivery and stepped-up collection efforts, primarily from third-party payers (i. e., Medicare). A projected decline in Medicaid caseloads also significantly contributed to the expected program spending decreases. Most of the caseload changes occur in the AFDC-related categories. Much of the anticipated decline was attributed to the impact of welfare reform on Medicaid enrollment.

Setting the Policy Context

Overview of the State's Health Care Agenda

In recent years Wisconsin's health care agenda has been largely dictated by other state policy initiatives— most prominently, property tax relief. Consequently, funding increases for health care programs or new initiatives have been limited.

Another reason health care matters may not have received as much attention is that Wisconsin's health care system is sound, relative to many other states. It has a strong base of employer-sponsored health insurance coverage, a fairly extensive Medicaid program, and low numbers of uninsured. Further, while state officials report vigorous competition in the health care market, Wisconsin's health care insurers and providers are generally in solid financial shape. In sum, the need for extensive policy intervention has not been as compelling as it has been in other states.

Although health care has not been a top priority, Wisconsin has put forward several major health care initiatives and reforms in recent years. A significant effort is the statewide expansion of mandatory managed care for Medicaid recipients statewide. Wisconsin's health maintenance organization (HMO) Medicaid program, started more than 15 years ago in Milwaukee, was among the first such programs in the country. In 1996, the state began implementing its mandatory HMO program for AFDC-related groups in all parts of the state. This effort, which was undertaken to contain costs as well as to improve quality, access, and choice for beneficiaries, was completed in 1997. While the state hopes to extend managed care to other populations in the future, only limited pilot programs for the elderly and disabled exist at present.

Wisconsin also has been a national leader in long-term care and has developed several innovative long-term care programs. In particular, the state has a strong commitment to community-based long-term care, as evidenced by its popular state-funded Community Options Program (COP), started in 1982, and its several Medicaid home and community-based service waiver programs.

Despite the reputation of its community-based programs, Wisconsin uses nursing homes at a higher rate than other states. In an effort to reduce this institutional bias and improve the quality of care, in 1997 the state recommended a fundamental redesign of the long-term care system for Wisconsinites of all ages. Among other things, the redesign initiative sought to create "one-stop shopping" for individuals by integrating acute, long-term, and primary care under a single, capitated payment arrangement. While the specific proposal was withdrawn after heavy criticism from key stakeholders, the elements of the initiative remain part of the state's debate on how to handle its vast public system for long-term care. In May 1998, the Department of Health and Family Services announced a new draft plan to redesign the long-term care system that emphasizes the coordination of long-term services.

Another major state policy initiative was the W-2 Health Plan, which was intended to complement the broader W-2 welfare reform. The health plan was proposed as a Medicaid Section 1115 waiver program. Although the federal government ultimately denied Wisconsin's waiver request, the proposal highlights the direction state officials would like to take the Medicaid program. The W-2 Health Plan called for fundamental changes. Most prominently, it would have eliminated Medicaid entitlement for most AFDC-related groups. It was this program feature in particular that stirred considerable controversy. In lieu of Medicaid, AFDC populations would have been eligible for health care coverage under the to-be-created W-2 Health Plan,provided they met new program rules. With some exceptions, families with children whose incomes were below 165 percent of the FPL would qualify, and they would remain eligible until their incomes reached 200 percent of the FPL. Thus, while the plan would have expanded coverage to some uninsured persons, some Medicaid recipients would have lost coverage. Benefits under the proposed plan would have been similar to but less than existing Medicaid; however, all enrollees would have been required to pay a monthly premium, regardless of income. While the premiums were nominal for most, charging premiums to the very poor proved to be another controversial feature. State officials, however, felt that charging premiums was important because they wanted to emphasize to enrollees that paying for health insurance is part of the working world. In addition, they did not want things to be better for people on welfare than for those who were working. Further, officials viewed the premiums as a way for people to begin taking responsibility for themselves, a centerpiece of many of Wisconsin's welfare reforms.

The most recent state health care initiative, put forth on September 30, 1997, by Governor Thompson, is called BadgerCare. In part, the initiative was prompted by concern among state officials about the significant decline in the Medicaid AFDC caseload, which had dropped 22 percent (nearly 45,000 recipients) between January and September 1997. (To some extent, the decline in AFDC enrollment has been offset by an enrollment increase in pregnant women and children in Healthy Start, Wisconsin's program for Medicaid poverty populations.) BadgerCare seeks to preserve access to health care by extending publicly subsidized health insurance to low-income families. BadgerCare drops several controversial features included in the W-2 Health Plan. Most noteworthy is that Medicaid entitlement would be maintained. As currently envisioned, BadgerCare would operate as a program wholly separate from Medicaid, although it would be run through the Medicaid program. It also would use federal funds from the State Children's Health Insurance Program (S-CHIP) to help finance the program. As with the W-2 Health Plan, families enrolled in BadgerCare would be able to remain in the program until the family income exceeds 200 percent of the FPL. Other features include offering health insurance to all children and adults in families with incomes below 185 percent of the FPL. Premiums would be required for those families with incomes above 150 percent of the FPL, but the cost would not exceed 3.5 percent of income. Thus BadgerCare would be a heavily subsidized insurance program. The new program is expected to cover about 23,000 children and 26,000 adults. To the disappointment of state officials, in August 1998, Health Care Financing Administration (HCFA) officials denied the BadgerCare waiver request, contending that "federal guidelines forbid states from using children's insurance funding for adults," as envisioned by Wisconsin. HCFA officials said they were committed to "moving forward with approval," contingent on revision of the BadgerCare proposal.²

While Wisconsin sought to expand Medicaid eligibility to uninsured persons in its W-2 Health Plan and BadgerCare initiatives, in 1995 the state significantly reduced its state-funded general relief program that provided both cash and medical relief to low-income persons. In short, mandatory General Assistance (GA) was eliminated and replaced with an optional County Relief Block Grant program in which state general-fund expenditures are capped. As part of the same legislative action, the state also eliminated the Relief of Needy Indian Persons program, which had provided public assistance, medical and nonmedical, to unemployed Native Americans. Respondents suggested a variety of reasons for these policies. Some indicated that counties viewed the general relief programs as an unfunded mandate and wanted to be released from the obligation. Others claimed that the state sought to reduce its expenditures. Cutting back a program that largely serves the unemployed is also in keeping with the state's "work, not welfare" philosophy.

In the area of private health care insurance, Wisconsin has not enacted exhaustive reform policies. It has implemented some reforms for the small-group market, including limits on exclusions of preexisting conditions, guaranteed issue and renewal, and some rating restrictions. As to individual market reforms, Wisconsin operates a high-risk pool, one of the oldest in the country (see Other Programs for the Uninsured, below, for details). Other than the high-risk pool, however, the state has not adopted any individual market reforms. In sum, Wisconsin's insurance regulation is typical among many states. Limited insurance reform activity in this area may simply reflect the limited need for policy action, because the state already enjoys the nation's highest rate of employer-sponsored insurance coverage.

Assessing the New Federalism: Potential State Responses to Additional Flexibility and Reduced Federal Funding

Governor Thompson has been a pioneer in reforming Wisconsin's welfare system. A central theme in his reforms is to move people from a state of dependency to one of work and self-sufficiency. A second theme is personal responsibility, that individuals should be allowed to make their own choices but should also be held accountable for those choices. Another keystone to the reforms is that government should be responsible for providing assistance to individuals only for some finite time period. While these philosophies toward the poor are clearest in the welfare reforms, they are also reflected in several of Wisconsin's recent health care policies and initiatives. Terminating the mandatory GA program and replacing it with a limited version is one example. Another is the proposed W-2 Health Plan, in which Medicaid entitlement was to be eliminated and all enrollees were to be charged a premium.

When formulating health care policy, many state officials acknowledged that they did consider policies in other states, but how Wisconsin ranked did not drive policy decisionmaking. State officials reported that Wisconsin paid attention to the Medicaid policies of Minnesota, Michigan, and Illinois, not so much because of variation in levels of eligibility and benefits but rather to assess the differences in implementation of HCFA-Region V guidance on federal requirements. State officials indicated that because Wisconsin's Medicaid and cash assistance programs have been relatively liberal, there has been some concern about attracting low-income residents from nearby states. Indeed, the state recently sponsored a pilot program in selected counties that gave people seeking cash welfare benefits who had recently moved to Wisconsin the level of benefits they would have gotten in the state they moved from rather than the Wisconsin package.

When Congress debated a major overhaul of Medicaid in 1995, Wisconsin was strongly opposed to the per capita caps proposed by President Clinton. Specifically, state officials were concerned that the caps preserved all the Medicaid entitlements but limited federal dollars. Respondents were also concerned about the growth that was contemplated. Policymakers felt that under the per capita caps, states would be vulnerable to any new federal regulations, changes in medical technology, Medicare cost-shifting, and the like. Some Wisconsin officials were also worried that funding at the state level would be inadequate over the long run.

By contrast, the state favored block grants. Indeed, Governor Thompson was a strong supporter of this approach. State officials felt that they would have had much more flexibility under a block grant than under the per capita caps. They also felt that because Wisconsin's Medicaid caseloads have fallen— and are expected to continue falling— the state would have been much better off financially than it would have been under per capita caps or otherwise.

Some observers, however, expressed concern about the long-run implications of a Medicaid block grant. Specifically, they felt that having federal Medicaid standards (as under current law) prevents states from engaging in a "race to the bottom." Under a block grant, though, many barriers to cutting or eliminating benefits would be removed. The concern in Wisconsin was that, although it is at present a high-benefit state, benefits would be lowered gradually under a block grant. Some of the decrease would come about because of state politics, but some of it would result from the federal government's unwillingness to continue passing money over to the states without having the ability to impose standards, which would be the situation under Medicaid block grants.

If given the opportunity, Wisconsin officials suggested that they would like to implement a Medicaid program akin to what they proposed in their W-2 Health Plan. That is, they would ideally want to move away from the categorical restrictions of Medicaid and expand health insurance to intact families (as opposed to single-parent families). To do this, they proposed increasing the level of protected assets and allowing families to buy into the program up to some specified income level. State officials were not happy that the federal government denied the W-2 waiver request. Some felt it was an attack on the overall W-2 initiative and was an attempt by the federal government to undermine the state's welfare reform efforts. Officials maintain that as more states begin to implement welfare reform, the need to fundamentally restructure Medicaid is going to become increasingly clear.

Providing Health Coverage for Low-Income People

Because of widespread private insurance, a generous Medicaid program, and smaller state programs for the uninsured, Wisconsin has a low level of uninsurance by national standards. As part of welfare reform, Governor Thompson proposed to eliminate the entitlement to Medicaid benefits and to cut Medicaid coverage for some currently eligible individuals and services in order to expand coverage for others. His plan was controversial, though, and never obtained the federal waivers needed for implementation. The state's low level of uninsurance has been threatened recently by dramatically falling welfare caseloads, which have caused Medicaid enrollment to decline as well. The state is now pursuing a Medicaid expansion that would use federal funds available for health insurance for children. Perhaps because private health insurance levels are so high, state insurance regulation has not been a high priority.

Medicaid³

Wisconsin operates one of the most extensive Medicaid programs in the country, covering a wide range of optional services and eligibility groups. Although it is an expensive program, spending increases in recent years have been well below national averages. As a result, Medicaid is not viewed by Wisconsin officials as a runaway program or a budget buster, but rather as a program that needs to be managed.

Covered Benefits

The Wisconsin Medicaid program covers all of the optional services identified under federal law, making it the most comprehensive program in the country. Although Governor Thompson has proposed to trim some covered services (e. g., nursing home care for individuals who qualify for Medicaid under medically needy provisions), the legislature has usually rejected these proposals (with the exception of the W-2 Health Plan, described below). Indeed, some respondents contended that limiting Medicaid services was not a politically viable cost-containment option in Wisconsin.

In general, services are available without restriction, although there are limitations on dental services, and for some services prior authorization or a second opinion is required. Within restrictions established by federal law, nominal copayments are required on a large number of services, including inpatient hospital, physician, dental, and chiropractic services; dental services; hearing aid purchases; ambulatory surgery; and prescription drugs, making the program slightly less generous than it would be otherwise.⁴State officials stress, however, that providers may not deny services because of an inability to pay the established cost-sharing. Enrollees in managed care organizations do not have to make copayments.

Eligibility

Wisconsin's Medicaid eligibility criteria are some of the most generous in the country. As a result, in 1994–95, Medicaid covered 76 percent of the low-income population (i. e., people in families with incomes below 150 percent of the FPL), compared with the national average of 64 percent.

For younger people with children, pregnant women, and children, Medicaid coverage rules build on relatively generous levels of cash assistance and make use of many coverage options that existing federal law offers the states. Wisconsin's AFDC program historically provided high benefits relative to AFDC in other states, although the benefit level has been frozen since 1987, when it was reduced by 6 percent. For example, the state provided AFDC cash benefits and Medicaid to families of three with incomes up to $647 a month in 1996, or 59.8 percent of the FPL.⁵In addition, under the Healthy Start component of the Medicaid program, Wisconsin provides coverage to pregnant women, infants, and children up to age six in families with incomes up to 185 percent of the FPL, rather than 133 percent as required by federal law. In addition, Wisconsin makes use of the options that allow states to cover these groups without an asset test and allow the use of "presumptive eligibility" for prenatal care. However, the state does not provide additional Medicaid coverage for older children beyond the federal mandates.

Wisconsin Medicaid also covers certain optional groups of the elderly, blind, and disabled. For example, elderly and disabled individuals who have incomes below the FPL, but have too much income and assets to qualify for Supplemental Security Income (SSI), also qualify for Medicaid. In addition, the state operates several Medicaid home and community-based waiver programs with income eligibility levels above that normally permitted for community-dwelling individuals.

Finally, Medicaid covers the medically needy, persons with high medical expenses who meet the demographic criteria of AFDC and SSI beneficiaries but have too much income to qualify for cash assistance. Unlike some states, Wisconsin entitles medically needy beneficiaries to the full range of Medicaid-covered services.

Expenditure and Enrollment Trends

From 1990 to 1995, Wisconsin Medicaid expenditures and enrollment increased less rapidly than they did in the country as a whole, and these trends are continuing. In fact, in more recent years, Medicaid spending has been less than budgeted by the legislature. From 1990 to 1992, Wisconsin expenditures increased 16.4 percent per year, compared with 27.1 percent for the country as a whole, with the lower growth rate largely as a result of the state's decision not to maximize federal disproportionate share hospital (DSH) payments and to lower enrollment growth (table 3). As with the rest of the country, during the period from 1992 to 1995, the annual rate of growth in Medicaid expenditures in Wisconsin fell substantially, to 6.5 percent per year, again below the national average of 9.9 percent. Medicaid expenditures increased by only about 2 percent between fiscal years 1995–96 and 1996–97 and are projected to increase by only about 3 percent between fiscal years 1996–97 and 1997–98.⁶

Consistent with their generous service coverage, Medicaid expenditures per enrollee are substantially above the national average (table 4). Total expenditures per enrollee were 17 percent above the national average in 1995, with Wisconsin ranking above the national average in expenditures for the elderly and children; only expenditures for the blind and disabled and for nondisabled adults did not exceed figures for the country as a whole. While overall Wisconsin expenditures per enrollee grew faster than the national experience during 1990 to 1992, they grew less quickly than the national average between 1992 and 1995.

In part because Medicaid eligibility levels were already fairly high, and in part because AFDC caseloads were falling, Medicaid enrollment grew relatively slowly in Wisconsin between 1990 and 1995, especially compared with the national experience. Enrollment in Wisconsin grew 4.7 percent per year between 1990 and 1992, and 1.3 percent per year between 1992 and 1995, compared with 11.3 percent and 5.2 percent nationally (table 5). Most of the increase over the five-year period is because of larger numbers of blind and disabled and child enrollees; enrollment of the elderly and nondisabled adults was unchanged.

More recently, Medicaid caseloads for low-income families and children have fallen sharply, a matter of considerable concern for state officials and advocates for the low-income population. Between January and August 1997, the Medicaid caseload of low-income adults and children on AFDC fell from

Welfare Reform and Wisconsin Works⁷

Wisconsin has a long history of welfare reform experiments, and Governor Thompson is a nationally known advocate of tough welfare-to-work programs.⁸ The culmination of these demonstrations is the Wisconsin Works program, also known as W-2, which was signed by the governor in April 1996 as Wisconsin Act 289. In addition to radically changing the AFDC program, W-2 proposed to significantly alter the Medicaid program by eliminating entitlement, expanding coverage for some groups while reducing it for others, and imposing premiums. Benefits under the W-2 Health Plan would have been comparable to those under Medicaid. Obtaining the necessary AFDC and Medicaid waivers from the U. S. Department of Health and Human Services to implement the plan was soon caught up in national presidential politics and congressional proposals to overhaul the nation's welfare system.⁹ In the end, however, the cash assistance portion of the waiver request was approved, but the proposed W-2 Health Plan was rejected. Thus, the Medicaid provisions of W-2 were never implemented.

Work Requirements

Philosophically, W-2 is an employment and training program, rather than a means of providing income support. People are required to participate in work experience and education and training activities in order to receive cash benefits. According to Governor Thompson, "W-2 means the end of the automatic welfare check. We believe that everyone is capable of some level of work, and W-2 will help participants move directly into work at the earliest possible time."¹⁰ Fundamentally, W-2 is a liberalization of the previous system for individuals who can successfully work themselves off welfare. For individuals who cannot or will not adjust to the working world, the safety net of the previous system is eventually removed. There is no entitlement to benefits, a provision that was radical in 1996 but became a central part of the Temporary Assistance for Needy Families (TANF) program that replaced AFDC.

W-2 has four main premises. First, for those who can work, only work should pay. To that end, participation in some sort of work experience is mandatory for everyone, and time limits "create a sense of urgency for recipients to become self-sufficient." Second, the best training is actual work experience; the emphasis is on short-term, job-specific training activities with strong employer direction. Third, because the long-run future of participants is as employees, W-2 attempts to replicate the conditions and expectations of the working world. In general, the program tries to level the playing field between welfare and work by making welfare less attractive. Finally, supportive services— child care, health care, and transportation assistance— must be available to facilitate employment.

Participants in W-2 are assigned to one of four placements: unsubsidized employment, trial jobs, community service jobs, and transitional placements.¹¹ Under W-2, a recipient's monthly cash benefit will depend on the type of placement and the number of hours worked per month. Unlike the AFDC program (and like the world of work), there is no payment adjustment for family size. Only parents with children less than 12 weeks old receive a cash grant without having to participate in a W-2 employment position.

Proposed Medicaid Changes

From a health care perspective, Wisconsin Works would have replaced Medicaid for AFDC and Healthy Start-related groups with a new health plan to provide coverage for certain low-income working families with dependent children, pregnant women, and minor custodial parents. Medicaid for the elderly and disabled would not have changed.

Some components of the W-2 Health Plan were expansionary and enjoyed broad support. The proposal sought to provide Medicaid eligibility to all persons participating in W-2 (including those not currently eligible for Medicaid) as a way of smoothing the transition from welfare to work so that beneficiaries did not "face a cliff in eligibility when they earned a few dollars." State officials also argued that improved access to health insurance would provide a greater incentive to work. Under the current system, individuals may not want to work because they will lose Medicaid coverage if their income increases too much. State officials also believed that greater continuity of coverage was needed in order to maximize the cost savings and health benefits of managed care.

Other components of the plan were extremely controversial, with national advocacy groups strongly criticizing the proposal.¹² Probably the most contentious element of the plan, especially within the context of the national Medicaid debate in 1995 and 1996, was the elimination of the legal entitlement to Medicaid. Philosophically consistent with what was being proposed for cash welfare and with congressional proposals to convert Medicaid into a block grant, the W-2 Health Plan sought to give the state more flexibility and make budgeting more certain. However, opponents contended that ending the entitlement raised the possibility that some low-income individuals would meet the financial eligibility criteria for Medicaid but would not receive services because funding had run out.¹³ In such circumstances, critics charged that otherwise eligible persons would be simply out of luck.

Although it was an ideological lightning rod for all sides in the debate, some Wisconsin observers contended that eliminating the entitlement to health care would have had little practical importance. State officials argued that the Medicaid program was fully funded and that they did not anticipate having to terminate coverage for any groups other than those specifically included in their proposal.

An additional point of controversy was that some persons and services currently covered by Medicaid, including some mandatory services and groups, would no longer be included in Medicaid. The Wisconsin Legislative Fiscal Bureau estimated that approximately 30 percent of the families receiving Medicaid under the existing system would lose eligibility, roughly offsetting the number of people who would gain coverage.¹⁴ State officials defended these choices by noting that health care rationing for the low-income population already existed; what was being proposed, they contended, was merely a different form of rationing.¹⁵

Also losing coverage would have been individuals in families where employers offered health coverage of any type and offered to pay at least half the cost.¹⁶ This requirement was designed to address the so-called crowd-out issue, by which individuals drop their private health insurance coverage in order to obtain free Medicaid coverage. But opponents noted that 50 percent of the cost of a comparable health plan would be about $180 to $200 a month, an amount that would be unaffordable for most low-wage workers. After one year, an employer offer of any health insurance, even with no employer contribution, would have made an individual ineligible for the W-2 Health Plan. Neither of these provisions would apply to pregnant women or children under age 12.

Moreover, under current law, states may not impose premiums on low-income Medicaid beneficiaries, but under W-2, every participant would have been required to pay premiums, even children and pregnant women. These premiums would have started at $20 per month for families with incomes below 160 percent of the FPL and then would have risen to $143 per month for families at 200 percent of the FPL. Proponents defended the premiums as nominal relative to what most people pay and saw this requirement as mirroring the world of work, where almost everyone has to pay premiums to get health insurance. On the other hand, opponents contended that the premiums, especially for the lowest-income population, would impose financial hardships, and as a result some people might not sign up for health insurance. Advocates for the low-income population were also concerned that these premiums would come on top of substantially increased copayments for child care services.

Finally, the W-2 Health Plan would have reduced covered benefits for the nonelderly, nondisabled population by eliminating coverage for over-the-counter medications that are prescribed by physicians (other than insulin); trimming home health services, skilled nursing facilities, and alcohol and drug treatment services; and eliminating the requirement that all medically appropriate services required as a result of a problem uncovered during a child's health screen must be covered. Proponents argued that these changes would make the W-2 Health Plan more similar to conventional health insurance coverage that working people have. Opponents insisted that the Medicaid population often had health needs that were not met by normal health insurance plans, and that it was unfair to reduce services to the lowest-income groups in the population.

Separation of Medicaid and W-2

When federal law abolished the AFDC program and created the TANF program, it broke the automatic linkage between cash assistance and Medicaid eligibility. Federal law requires states to maintain their AFDC eligibility standards for the purpose of determining Medicaid eligibility. Because the cash welfare changes in Wisconsin are so significant, the separation of eligibility for W-2 and Medicaid has been a major problem for Wisconsin. State policymakers contend that the two programs do not fit together very well any longer and that eligibility has become even more complicated than it was previously— some people are eligible for W-2 but not for Medicaid (e. g., as a result of the more liberal asset standard and allowing beneficiaries to keep more income), while others are eligible for Medicaid but not for W-2 (e. g., there is a 60-day residence requirement for W-2). As a result, the state's computer system for eligibility has required a dramatic overhaul, and some people were dropped from the Medicaid rolls who may have retained eligibility.

Immigration Changes

The national welfare reform legislation enacted in 1996, as amended by the Balanced Budget Act of 1997, restricted immigrants' eligibility for a wide range of benefits, including Medicaid. Before welfare reform, legal noncitizens were eligible for Medicaid on the same basis as citizens. The new law bars immigrants arriving after passage of the law (August 22, 1996) from receiving Medicaid for at least their first five years in the country. It also gives states the option of providing Medicaid to immigrants already in the United States and to new immigrants following the federal five-year bar.

Wisconsin has chosen to continue providing Medicaid benefits to legal immigrants in the United States as of the passage of the law. The state will also extend Medicaid benefits to new immigrants after the federal five-year bar, but the state will not use its own funds to provide Medicaid for legal immigrants during the bar, as a few other states have done. These immigrants, however, are eligible to receive benefits under the state's General Assistance Medical Program.

BadgerCare

Although Wisconsin officials were upset by the federal government's rejection of their W-2 Health Plan waiver request, state policymakers remained committed to many principles of the health plan. During 1997, four factors changed to give impetus to a revised waiver application called BadgerCare.¹⁷ First, the inclusion of the State Children's Health Insurance Program in the federal Balanced Budget Act of 1997 provided the state with the financial opportunity to draw down additional federal dollars at a much higher match rate than Medicaid (more than 71 percent under S-CHIP, compared with about 59 percent under Medicaid). In 1998, Wisconsin will be eligible for $38.7 million in federal S-CHIP funds.

Second, state officials are very concerned about the drop in Medicaid enrollment (described above) and believe that the current gap between W-2 and Medicaid eligibility standards is adding to the problem. Third, the decline in W-2 and Medicaid enrollment, combined with the state's extremely strong economy, has given state officials fiscal room to be more expansive than they were in the original W-2 Health Plan. Finally, state officials remain philosophically committed to addressing the need for health care for low-income working families, including, but not limited to, those who move from welfare to work. In May 1998, the Health Care Financing Administration approved a small portion of the state's proposal, extending coverage to 15-to 18-year-olds whose families have incomes at or below the FPL. This will allow coverage of 2,000 teenagers, only a fraction of the 22,700 children and 26,100 uninsured parents that Wisconsin had proposed to insure. Reportedly, federal health officials informed the state that they had no legal authority to issue the waivers necessary to implement Wisconsin's experimental program.

As outlined by the state, BadgerCare would be very much like the W-2 Health Plan, but without the "sharp edges" and cutbacks that doomed the earlier plan. Unlike the original W-2 plan, BadgerCare is purely expansionary, without any cutbacks in eligibility or services for people currently eligible for Medicaid. Under the proposal, Medicaid would be extended to children and adults in families with income below 185 percent of the FPL who do not have access to heavily subsidized health insurance (80 percent contribution by employers). Finally, by imposing only a modest premium (no more than 3.5 percent of income) for families above 150 percent of the FPL, the state limits the financial burden on lower-income working families while guarding against crowd-out.¹⁸ The legal entitlement would remain, all current eligibility groups would be retained, and covered services (including the Early and Periodic Screening, Detection, and Treatment program) would not be reduced.

At least from the federal perspective, however, the financing components of the proposal are controversial, and BadgerCare was denied in August 1998, pending revisions. Although the S-CHIP program was designed principally for expanding health insurance for children, Wisconsin proposes to use part of its federal funds to increase coverage for adults. Wisconsin also asks to use the premium payments by some beneficiaries as part of the state match.

Other Programs for the Uninsured

Unlike many states, Wisconsin operates three relatively small programs designed to provide health care for individuals not eligible for Medicaid: the County Relief Block Grant program, the Health Insurance Risk-Sharing Plan, and WisconCare.

County Relief Block Grant Program¹⁹

Wisconsin has a small general relief medical program that funds health services for low-income people not eligible for Medicaid, primarily able-bodied adults without children who have lived in Wisconsin at least 60 days. Until passage of Wisconsin Act 27 in 1995, counties were required to operate a general relief program for both cash and medical care. Responding in part to resentment by counties over what they perceived as an unfunded mandate (i. e., the state required them to operate a General Assistance program but did not provide them adequate funds to do so), Governor Thompson proposed eliminating the program. This proposal was controversial, especially in Milwaukee, where a significant number of uninsured received the bulk of the funds. As a compromise, the legislature converted the program into an optional block grant (technically, a capped matching program) and cut state funding from $27.9 million in 1995 to $19.6 million in 1996.²⁰ In Milwaukee County, the funds may be used only for health services; in other counties, funds can be used for cash assistance as long as medical care is also provided. Although they constitute only a minority of the population, most counties also provide cash assistance. In 1997, approximately 26,000 persons were enrolled.²¹

Under the revised program, Milwaukee County receives the lion's share of state funds—$ 16.6 million— leaving only $2 million for the remaining 71 counties. The block grant is an important source of funding for uncompensated health care in Milwaukee. Approximately 60 percent of the block grant funding in Milwaukee County is federal revenue provided through Medicaid DSH and non-DSH supplemental payments to hospitals; the other 40 percent is state general-purpose revenue. All of the money provided in the other counties is state general-purpose revenue. Counties must match state-provided funds at a rate of 55 percent in Milwaukee and 50 percent in the other counties for medical care (60 percent for nonmedical benefits).

Health Insurance Risk-Sharing Plan

Wisconsin's Health Insurance Risk-Sharing Plan (HIRSP), established in 1980, is one of the country's oldest high-risk pools. The program provides coverage for medically uninsurable persons under age 65 through two plans, a comprehensive benefits package and a Medicare wraparound product for the disabled under 65. In order to join the pool, applicants must meet one of five requirements. They must have (1) been denied other insurance coverage; (2) experienced an increase in insurance premiums of at least 50 percent upon renewal; (3) been quoted a premium for a new policy that is 50 percent above the standard rate for individual coverage; (4) experienced a substantial decrease in benefits; or (5) had a qualifying medical condition (e. g., HIV or permanent disability). Enrollment in HIRSP grew to nearly 13,000 members by 1992 but declined to 8,100 by December 1996. Plan officials link the decline to small group insurance reform, HIRSP premium increases, and new Medicare supplemental policies available in the private market.²² Wisconsin will use the HIRSP as the insurer of last resort as required by the federal Health Insurance Portability and Affordability Act of 1996 (HIPAA).²³

HIRSP is funded by a combination of participant premiums, assessments on all insurers in the state (based on their total volume of Wisconsin business), provider discounts on reimbursement paid under the program, and state general-purpose revenue. Historically, HIRSP was also funded in part by penalties on insurers for each person who enrolled because of insurer decisions, but this provision was repealed in 1997. Unlike most other high-risk pools, HIRSP offers subsidies to help low-income participants pay premiums and deductibles. The pool's method of setting enrollee premiums is also unusual: Premiums are set to cover 60 percent of the projected costs of HIRSP, and shortfalls are financed by insurer assessments of costs. However, in 1995, premiums covered only 51.4 percent of HIRSP costs. As the plan's costs climbed, insurer payments increased to almost $30 million in 1995, a 49 percent increase over 1994.²⁴

HIRSP has experienced increasing costs per enrollee (from roughly $1,500 in 1988 to more than $5,000 in 1995) and rising premiums (a 148 percent increase between 1990 and 1995), which boost the possibility of adverse selection and further cost and premium increases.²⁵ In response to criticisms of the program's mounting costs, the governor's 1997– 1999 biennial budget bill proposed several reforms, most of which were passed. First, legislation was enacted to try to ensure that premiums accounted for 60 percent of expenditures. Second, administration of HIRSP was moved from the Office of the Commissioner of Insurance to the Department of Health and Family Services, largely to capitalize on Medicaid expertise in running health insurance programs. Third, Governor Thompson proposed that HIRSP pay its network providers the Medicaid fee-for-service rates, which are as much as 10 percent lower than HIRSP's rates, which are already discounted by 10 percent. The reduction in fees was designed to extract a de facto contribution to the costs of HIRSP from providers, without increasing costs for participants or insurers. This provision was rejected by the legislature, but HIRSP was authorized to cut provider fees in order to control costs. Fourth, the governor proposed that the state recover the costs of subsidies provided to HIRSP enrollees from their estates after death. This measure was also rejected by the legislature.

WisconCare

WisconCare is a small program that provides limited outpatient primary care and inpatient maternity and delivery services to eligible individuals in 17 counties with high unemployment rates.²⁶ Recipients must be ineligible for Medicaid and private health insurance, be unemployed or underemployed, and have low incomes. There is no asset test. The program serves approximately 1,500 persons a year. WisconCare is operated with revenue from hospital assessments and volunteer services of providers.

Insurance Reforms

While Medicaid and other public programs are extremely important in financing health care for the low-income population in Wisconsin, about a third of families with incomes below 150 percent of the FPL were covered by private insurance, almost as many as were covered by Medicaid.²⁷ Health insurance coverage sponsored by small employers in Wisconsin is significantly above the national average.²⁸ The state enacted small-group insurance reforms in 1991 and 1992 based largely on the model law proposed by the National Association of Insurance Commissioners (seetable 6), but it is not known what the effect of these changes has been. Reforms were not enacted because of any crisis, and further changes are not a high priority. Wisconsin is one of 21 states that instituted insurance reform for small groups but not for individuals (possibly because insurers already contribute millions to facilitate individual coverage through HIRSP and because the state's Medicaid eligibility standards are relatively generous). Most provisions of the 1991 and 1992 laws are requirements for insurers who participate in the small-group market, but insurers are not required to do so; other requirements set standards for employers. Additional changes— including groupto-individual portability, limitations on preexisting condition exclusions, guaranteed issue, and guaranteed renewability for group plans— were enacted as part of 1995 Wisconsin Act 289. Thus, only modest changes were required in 1997 to bring the state into compliance with HIPAA.

Insurer Requirements

Small-group reforms enacted in 1992 in Wisconsin include guaranteed issue and guaranteed renewability. Guaranteed issue means that insurers (including HMOs) must provide the small-employer plan to all small groups that request it, whether the insurer has covered them in a previous policy period or not.²⁹ The insurer may not deny coverage because of the group's past utilization or current health status (although there are exceptions for fraud, etc.). These small-employer health plans are developed by each insurer according to guidelines of the Office of the Commissioner of Insurance, which specify benefits, copayments, limits on coverage for certain services, coinsurance requirements, and limits on health plan liability.

As part of the 1991–92 reforms (modified by changes passed to conform with HIPAA), Wisconsin also limited the amount of time insurers can exclude preexisting conditions from coverage. New policyholders may be required to wait 12 months for coverage of any condition that was treated or diagnosed in the 6 months before the new policy was issued. Similarly, legislation enacted in 1997 revises previous rules to ensure "portability" of coverage by requiring insurers to credit policyholders with any waiting period for coverage elapsed under a previous policy.

The insurance reforms also imposed rating restrictions to stabilize the year-to-year rate increases groups face and to hold overall premiums to a reasonable level of affordability. In Wisconsin, insurers may vary premiums across groups for differences in benefits design and case characteristics, such as age, sex, geographic location, or type of business. In comparison with other states that have reformed the small-group health insurance market, Wisconsin's rating restrictions are relatively lenient.

Specifically, the restrictions limit the increases or discounts in premiums insurers may make for a group's past claims experience, its current health status, and the duration of the group's coverage with the insurer. These ranges above and below an average rate are called "rate bands." Wisconsin's rate bands limit price differences to 30 percent for claims experience, health status, and duration of coverage. This means that if the average single rate is $100, insurers may not charge more than $130 or less than $70 to groups with similar benefits design and case characteristics.

For policy renewals, insurers may increase premiums only to account for three things: inflation, changes in case characteristics (such as an aging employee population) or benefits design (such as adding a better drug benefit), and changes in experience, health status, and duration of coverage (adjustments cannot exceed 15 percent). These restrictions are meant to prevent insurers from forcing small groups to drop coverage by increasing their premiums to unaffordable levels.

Employer Requirements

Wisconsin's small-group insurance reforms apply to firms with between 2 and 25 workers. Employers who meet certain requirements are eligible for insurance with premiums that are regulated by the state and may (but are not required to) purchase small-employer health plans with limited benefits. To participate in these special plans, employers must cover at least half of their employees (with a minimum of two), depending on the group's size. Employers also must contribute at least half the premium for single coverage or 40 percent of the family premium for each eligible worker. Under the minimum standard for eligibility, employees must work at least 30 hours a week for half of the employer's annual business weeks.³⁰

Financing and Delivery System

Health care is financed and delivered in different ways in every state. In Wisconsin, as in other states, the structure of the insurance and provider markets— including the level of HMO penetration, the supply of physicians, and consolidation among hospitals— affects access to, prices for, and quality of health care for low-income and other consumers.

Interacting with provider and insurance markets are state Medicaid policies. Medicaid disproportionate share payments, Boren amendment policy, and managed care have all shaped how health care services are delivered to Medicaid beneficiaries. Another Medicaid policy with important effects on the financing and delivery system is managed care, which Wisconsin has recently implemented statewide for the TANF population. This section describes the existing financing and delivery system in Wisconsin and the Medicaid payment policies that affect it.

Wisconsin's Health Care Market: A Thumbnail Sketch

Providers, health plans, and large buyers all seem to be getting what they want in Wisconsin. A buoyant economy has led to high insurance coverage as well as a strong competition among insurers and, hence, generally affordable insurance rates. Insurers and hospitals are both financially stable. Buyers have successfully demanded high quality from HMOs and simultaneously pressured them for lower rates. As one respondent put it, Wisconsin is proof that "markets work."

Some individual consumers, however, face physician shortages, and insurance premium rates in the individual market are perhaps higher than need be. And despite a high comfort level with HMOs among almost all respondents, there are still calls in the legislature for greater consumer protection. Finally, while most providers have typically participated in multiple networks, they may be moving toward more exclusive contracting. If exclusive contracting became widespread, the state's delicate balance of market power among providers, health plans, and buyers might shift, which in turn could alter the current success of health care markets in Wisconsin.

Health Plans

Wisconsin is a mature managed care market, with 27 percent of the state population enrolled in HMOs as of January 1996. Across counties, however, HMO penetration varies widely, from a high of 55 percent in Dane County (where Madison is located) to lows of 0 and 1 percent in 9 of the 72 counties.³¹ There are 24 HMOs operating in the state. Preferred provider organizations (PPOs) enrolled an estimated 11.2 percent of the population in 1994, a fairly low percentage compared with the U. S. average of 17.3 percent.³²

HMO growth. HMO penetration has risen slowly but consistently after doubling in 1984 and again in 1985. This growth was at least in part a result of state actions, which may have given HMOs a head start over other forms of managed care. First, the state's Department of Employee Trust Funds (DETF) encouraged state employees to move into HMOs in 1983, and the number of HMOs serving the state increased from 13 to 20 within a year. In 1984, the Medicaid managed care demonstration further fueled the growth of HMOs.

Managed care regulation. Wisconsin has solvency and consumer protection requirements comparable to those of many other states. HMO quality regulation by the Office of the Commissioner of Insurance (OCI) is limited, but both DETF and the Department of Health and Family Services (DHFS) require plans to report measures of quality outcomes.

Many respondents noted a relative absence of quality problems in Wisconsin and linked it to provider ownership. According to the OCI, some 20 of the 24 HMOs in the state are provider-owned and -run. Another explanation for the high quality of HMOs is that they are required by Wisconsin state statute to be licensed insurance companies. Wisconsin is the only state with this requirement, which allows the state to require HMOs to have the financial resources and management structure equivalent to other insurers to ensure that plans are run effectively.

Competition and financial health. Respondents agreed that the insurance market is highly competitive. Two signs of strong competition among insurers are that each insurer's market share is low (all but one below 10 percent) and medical loss ratios are fairly high, around 90 percent for group insurance.³³ While group purchasers are getting a good deal in Wisconsin, individual purchasers face high premiums relative to claims payouts (with loss ratios around 66 percent).³⁴

Increased competition among insurers may have constrained profits in the industry. While 1993 through 1995 were very profitable insurance years in Wisconsin, 1996 was less lucrative. OCI officials pointed to increased competition, inflation, and the fact that reductions in hospital length of stay no longer provide a source of savings. Even so, HMO financial health remains good, according to OCI officials.

Provider markets. Of Wisconsin's 72 counties, 63 have hospitals, but most have fewer than four.³⁵ Hospital occupancy rates average only 53 percent, a sign of continuing excess bed capacity in the state.³⁶ While hospital systems are present in many markets, they almost never own a majority of the hospitals in any locality. Hospitals tend to participate in all the networks serving their catchment area.

The vast majority of hospitals in Wisconsin are private nonprofit facilities. There are only two for-profit general hospitals in the state and only three purely public general hospitals, two county and one city.³⁷Over the past few years, Wisconsin public hospitals have been closing as county governments tighten budgets. Particularly noteworthy is the 1995 closure of Milwaukee County's public hospital, previously the largest provider of charity care in the state.

Financially, hospitals are doing well despite a decline in inpatient use, largely because of increasing outpatient use. The average profit margin for general hospitals statewide was 5 percent in 1995.³⁸Rural and independent hospitals, however, have shown weaker financial status. Industry officials said hospitals are still providing charity care largely without difficulty, principally because of the state's low uninsurance rate. Uncompensated care burdens for Wisconsin hospitals averaged only 2.3 percent of nongovernment patient revenue in FY 1995.³⁹A large share of Wisconsin's uncompensated care is provided by Milwaukee hospitals— 40 percent in 1996.

The physician market in Wisconsin is dominated by large group practices. The State Medical Society (SMS) estimated that about 60 percent of Wisconsin physicians are in group practice, and the number in solo practice is declining rapidly. Several of the group practices, like the Marshfield Clinic, have 400 or more doctors. Physician participation in managed care is high, reflecting the fact that most HMOs in the state are physician-led or -owned. Staff at the SMS reported that physicians have few complaints about commercial HMO payment rates, and they are reasonably content with HMOs overall.

Many areas in Wisconsin suffer from physician undersupply. Almost 70 percent of Wisconsin counties, including Milwaukee, are whole or partial Health Professional Shortage Areas (HPSAs), compared with 56 percent nationally. Wisconsin has gone to great lengths to address the scarcity of providers: It increased Medicaid reimbursement in under-served areas, encouraged the use of foreign physicians, established an Office of Rural Health Programs, and created loan assistance programs for physicians, nurses, and physician extenders.

The role of large purchasers. Large purchasers in Wisconsin have encouraged the spread of managed care in the state and have had some success negotiating lower premiums and quality reporting. The largest purchaser of health care in Wisconsin is the state government, which contracts with HMOs to provide services to state employees and Medicaid clients. For many years, the state has used its buying power to obtain cost containment through reliance on HMOs and to force health plans to report quality measures. The Department of Employee Trust Funds reduced its health care costs by offering several health plans to state employees and paying 105 percent of the lowest plan premium or 90 percent of the indemnity option, whichever is lower. By 1996, 83 percent of the 209,000 people covered by the state trust funds were enrolled in HMOs.⁴⁰The state has also used its buying power to encourage HMOs to serve rural areas through the Medicaid program.

Private health purchasing coalitions in Wisconsin have had some success in achieving lower health care costs through negotiation. As many as 10 coalitions operate in the state, ranging in size from 7,000 to 57,000 employees. One coalition was able to limit annual premium increases to 5 percent.⁴¹

Market developments. Two important market developments portend a possible trend toward exclusivity in HMO contracts with providers in Wisconsin. First, a landmark antitrust decision, the Marshfield Clinic case, set the precedent that in rural areas, health care monopolies may be "natural" and therefore acceptable. It also held that HMOs are not a separate market from other forms of insurance. Thus it is difficult to show that HMO consolidation is anticompetitive in any situation, if other types of insurance are also available. Another important development was that Aurora Health Systems, a large multi-hospital network, terminated a long-standing contract with PrimeCare, the largest HMO in the state, in October 1996. Although traditionally all hospitals have contracted with all plans, Aurora rebelled when PrimeCare imposed a 25 percent reduction in payment rates. Enrollees in PrimeCare can no longer use Aurora providers. In the short run, this episode will likely increase provider leverage in dealing with health plans. In the long run, providers may align with a smaller number of networks, possibly leading to segmentation of the insurance market.

Medicaid Disproportionate Share Hospital Payments and Other Supplemental Payment Programs

By federal law, state Medicaid programs are required to "take into account the situation of hospitals that serve a disproportionate number of low-income patients with special needs" when determining payment rates for inpatient hospital care. This requirement is referred to as the Medicaid DSH payment adjustment. Beginning in the early 1990s, several states began to use the DSH program as a way to leverage additional federal Medicaid matching dollars while incurring limited state expenses. As a result, Medicaid DSH expenditures skyrocketed in the early part of the decade. Wisconsin, however, was one of several states that did not aggressively maximize the Medicaid DSH program. Although the state did not expand its DSH program, Wisconsin has recently established several Medicaid supplemental payment programs for providers; the programs operate somewhat the way the Medicaid DSH program does.

The Medicaid DSH Program

Because Wisconsin did not maximize the DSH program, DSH is not a prominent Medicaid expenditures item in the state. Under federal rules, Wisconsin is categorized as a low-DSH state that had about a $12 million DSH allotment in 1996, which accounted for less than 1 percent of the state's total Medicaid spending in that year. Wisconsin operates two DSH programs. One was established in 1986 and currently has a funding level (state and federal) of about $6 million. Under this program, described by state officials as a "true" DSH program, payments are funded with state general funds and a federal Medicaid match (like any other Medicaid expenditure). These payments are issued as an add-on to regular Medicaid inpatient payment rates.⁴²

Wisconsin's other DSH program began in 1993, when the state started making Medicaid DSH payments to county-owned hospitals that provided "significant" services to General Assistance patients. In 1996, two Milwaukee hospitals received about $6 million in DSH payments under this program, sometimes referred to as the GA DSH program.

While state policymakers discussed the notion of using DSH more aggressively, they decided that the DSH financing mechanism was in conflict with Wisconsin's history of conservative budgeting. Even the state hospital association was against getting more involved in the DSH program because it felt that the federal government would eventually curtail DSH spending and, in the end, the state and hospitals would be left worse off.

Medicaid Provider Supplemental Payments

While Wisconsin did not take full advantage of the DSH financing mechanism, the state has recently developed several Medicaid provider supplemental payment programs that function like some DSH programs. In 1996, Wisconsin spent significantly more on Medicaid supplemental payments to qualified providers (hospitals and other providers) than on DSH. The payments are reported as regular Medicaid expenditures, not as DSH payments. As such, they are not counted against Wisconsin's federal DSH allotment or against any hospital-specific DSH caps.

The supplemental payments are targeted primarily to publicly owned hospitals and nursing homes, including state, county, and municipal facilities. The state's share of the supplemental payments is funded with intergovernmental transfers provided by facilities receiving the additional payments. For example, under its county federal financial participation (FFP) program, Wisconsin makes Medicaid supplemental payments to county-and municipality-run nursing homes with operating costs that are not fully covered by Medicaid reimbursement. State officials acknowledged that they cannot continue to expand the program, because they are approaching the "Medicare upper payment limit." In short, the Medicare upper payment limit is an HCFA regulation that states cannot pay more in the aggregate for Medicaid inpatient care or long-term care services than what would have been paid under the Medicare program.

Boren Amendment Issues and Medicaid Provider Payment Generosity⁴³

Until recently, state Medicaid programs were required to pay hospitals and nursing facilities rates that were "reasonable and adequate" to meet the costs of "efficiently and economically operated" facilities. This requirement was known as the Boren amendment. Beginning in the early 1990s, providers in several states began to use the Boren amendment as a means of getting courts to review the adequacy of Medicaid payment rates. In some instances, providers were successful in their lawsuits, and courts ordered states to raise Medicaid reimbursement rates. Moreover, providers were sometimes successful in securing rate increases by threatening to file a lawsuit. In recent years, the amendment had become a highly controversial issue among state policymakers, and many sought its repeal. Several Boren payment provisions were recently eliminated with the passage of the federal 1997 Balanced Budget Act.

When the research team visited Wisconsin in April 1997, the Balanced Budget Act had not been passed, and the state was still operating under Boren amendment payment requirements. While the Wisconsin Medicaid agency never had a Boren lawsuit filed against it, state officials maintained they had actively tried to avoid such a suit by expressly taking into account Boren regulations when setting provider reimbursement rates. Specifically, the state had determined that a "Boren nursing home" or "Boren hospital" was a median-cost facility, and Medicaid rates were set to be just above the median, sometimes referred to as the Boren mark.

Although the Boren amendment provisions were a major consideration when setting Medicaid rates, state officials acknowledged that providers were sometimes not satisfied with rates and that this has caused some tension. They mentioned hospitals in particular as being unhappy about rates. Officials also admitted that the state's increased reliance on managed care has allowed them to skirt the Boren issue somewhat for hospitals because health plans, not the state, pay the hospitals.

Like many other states, Wisconsin wanted the Boren amendment repealed. Officials stated they would likely "constrain" growth of Medicaid reimbursement rates, especially for nursing homes, if Boren were eliminated. Interestingly, some advocacy groups also wanted Boren repealed. Groups representing disabled and aging consumers as well as community-based long-term care providers (e. g., home care providers) believed that the Boren amendment had been a convenient excuse for the state to continue putting Medicaid funds into nursing home care rather than community-based long-term care services. The repeal of Boren eliminates this excuse, according to advocates, who hope the playing field between nursing homes and community-based care becomes level.

Medicaid Managed Care

Wisconsin's history with Medicaid managed care dates back to the early 1980s. In 1984, the state was one of the first to implement an HMO-based managed care program for selected Medicaid groups. Under a freedom of choice (Section 1915( b)) waiver authority, Wisconsin mandated HMO enrollment of AFDC recipients in Milwaukee and Dane Counties. Between 1984 and 1994, the demonstration was expanded to other urban counties, including Eau Claire, Waukesha, and Kenosha Counties. Beginning in 1992, the demonstration was expanded to include Healthy Start recipients— Wisconsin's poverty-related Medicaid group.

In 1996 Wisconsin initiated a statewide expansion of the HMO Medicaid program that was completed in mid-1997. As of May 1998, the fully implemented program served nearly 190,000 recipients, up from the 150,000 Medicaid clients it served just before the expansion.

The HMO program was initiated largely as a cost-saving measure; however, increasing access to and choice of providers was another major force behind the program, as well as improving the quality of care. According to state documents, the Medicaid HMO program saved the state more than $100 million in the past decade, and the Wisconsin Department of Health and Social Services said that expanding the program would allow Wisconsin to "move forward with property tax relief." State officials also view managed care as a way to improve quality of care and bring Medicaid clients into the mainstream of health care providers.

Not all Wisconsin counties have mandatory HMO enrollment. Enrollment is mandated only in those ZIP codes where two or more HMOs are available. In ZIP codes where only one HMO is available, enrollment is voluntary. In ZIP codes where no HMO is participating, clients remain in fee-for-service Medicaid. Among Wisconsin's 72 counties, 46 have completely mandatory enrollment, and the rest will have some other combination of managed care and/or fee-for-service delivery systems.

When asked why the state waited to expand the HMO program until now, officials suggested a variety of reasons. One was that when Wisconsin started the program more than 12 years ago, managed care was a new concept and largely untested in the state, which is no longer the case. Another reason was that providers had resisted managed care back in the 1980s when the HMO program was started, but as managed care has become more prevalent in the state, this resistance has eroded. Yet another factor was that most of the expansion areas are rural and generally lack a well-developed HMO infrastructure. Thus the Medicaid program would precede the private HMO market, introducing the added complexities of HMO network formation.

In general, there does not seem to be a lot of controversy surrounding Medicaid managed care. Respondents indicated that, historically, the quality of HMO care has been high and plans generally have been responsive to consumers. One HMO issue was centered around client enrollment in expansion counties. As the new counties were brought into the HMO program, auto-assignment of clients who do not choose an HMO was high in some areas, as much as 60 percent. However, statewide the average assignment rate falls between 35 and 40 percent, according to state officials. In addition, some respondents expressed concerns that in voluntary counties— that is, counties with only one HMO— materials sent by the state to beneficiaries gave the false impression that they had to enroll in an HMO. State officials felt that the enrollment materials were balanced and that they were not going to "discourage" Medicaid clients from enrolling in managed care. Moreover, they did not want to develop materials that might cast a negative light on HMOs.

Plan Participation in Medicaid Managed Care

Among the 24 licensed HMOs in the state, 18 contract with the state to provide Medicaid managed care services. State officials said that they have not had trouble getting HMOs to participate in urban or rural areas. While no new HMOs were formed in response to the recent statewide expansion, several HMOs moved into new service areas. Most of the contracting HMOs serve commercial populations as well.

HMO Capitation Rates

HMO capitation rates vary by geographic area in the state. For the five original managed care counties— Milwaukee, Waukesha, Dane, Kenosha, and Eau Claire— county-specific rates are used. Remaining counties— that is, those counties that started mandatory HMO enrollment in 1996— are divided up into nine regions for which region-specific rates are used. For the regions, the state Medicaid agency estimated what the average cost of providing Medicaid services on a fee-for-service basis had been. Then it adjusted for inflation and any legislative changes that would have affected costs. The estimated cost was then discounted by 8 percent. Then a statewide median rate was calculated. Those areas that fell below the median were paid the median rate, making the effective discount rate in the expansion area 4 percent rather than 8 percent. Eventually, after some experience is gained in the expansion areas, the state may merge capitation rates for the five original counties with those for the expansion counties. With a few exceptions, HMOs are required to cover the same benefits as Medicaid fee-for-service.

Delivering Health Care to the Uninsured and Low-Income Population

State and Local Public Health Programs

Historically, state and local public health programs have not played a major role in Wisconsin's health care safety net. According to state officials, Wisconsin's public health programs have primarily focused on traditional public health activities, including health training promotion and prevention as well as technical assistance to providers. Unlike many public health agencies around the nation, Wisconsin's public health agency has not become heavily involved in the support or delivery of primary health services. Similarly, local health departments (LHDs) in Wisconsin for the most part have not become heavily involved in direct delivery of health care services and instead have targeted their efforts on core public health functions. There are about 100 LHDs in Wisconsin, and each of the state's 72 counties has at least one.

At the time of our visit, the agency responsible for overseeing state public health activities was the Bureau of Public Health, administratively housed in the Department of Health and Family Services' Division of Health, which also runs Wisconsin's Medicaid program. However, in 1998 legislation was enacted that will split public health from Medicaid and create two divisions: the Division of Public Health and the Division of Health Care Financing.

There have been a few initiatives involving Medicaid and public health. A prominent one is the prenatal care coordination services program, which began in the early 1990s as a pilot project aimed at providing case management services to high-risk pregnant women. This started as a public health effort and now is a formal statewide Medicaid benefit that provides services to about 4,000 women each year.

Reflecting the fact that Wisconsin's public health programs have focused largely on core functions, the state dedicates limited general-fund dollars to support public health activities. Moreover, in recent years, state allocations to public health have eroded. For example, between 1994 and 1996 the state cut the primary health care services grant program (which goes to LHDs to support primary health care services) from $750,000 to $250,000. The grant program was completely eliminated in the 1997–99 biennium budget. In addition, other state public health funds have also been reduced in recent years, including supplemental state funding for the Women, Infants, and Children (WIC) program and support for immunization delivery.

In lieu of state dollars, Wisconsin relies heavily on federal funds (such as WIC, Medicaid, and the Maternal and Child Health Block Grant) to support public health initiatives. In one respondent's words, "The future of public health funding looks good in Wisconsin provided that the federal money keeps coming." Counties also use local revenues to support public health programs.

Like many other states, beginning in the 1980s Wisconsin sought to leverage Medicaid dollars to support public health programs. For example, some maternal and child health services that had previously been paid for with state public health dollars are now paid for by Medicaid. While Wisconsin has obtained Medicaid funding for some public health programs, it has not been as aggressive as some other states in using this mechanism.

Because of the relatively circumscribed mission of public health in the state, the expansion of Medicaid managed care has been less of an issue in Wisconsin than in other states. State public health officials seemed to be supportive of managed care and felt that public health could find a role in the new environment. At the same time, state officials acknowledged that the reaction to Medicaid managed care has been mixed at the local level and that there has been tension between LHDs and HMOs. Although HMOs are not required to contract with LHDs— which lobbied vigorously for this requirement— they are "encouraged" to do so. Indeed, specific language in the Medicaid contract highlights the potential role LHDs can play in managed care.

The Health Care Safety Net: Milwaukee

To assess the impact of state policy and market changes on the local safety net, the research team visited Milwaukee County, home of the largest city in the state. Milwaukee is not representative of the state; rather, it is plagued by problems that are almost unheard of in the rest of Wisconsin. The poverty rate is the eighth highest in the state,⁴⁴and as many as 20,000 homeless persons live in Milwaukee. The city's uninsurance rate was 8 percent in 1995, compared with 4 percent for other metropolitan areas in Wisconsin.⁴⁵The county also has high percentages of teen pregnancies and sexually transmitted diseases. Milwaukee County hospitals accounted for almost 40 percent of the state's charity care, excluding bad debt.⁴⁶

The safety net in Milwaukee comprises two public health authorities with separate missions, several private nonprofit hospitals, three federally qualified health centers (FQHCs), and other clinics for the poor. The key safety net programs are Medicaid and the General Assistance Medical Program (GAMP), which provides the majority of local, state, and federal funds for care for the uninsured.

Milwaukee County and City Health Departments

Milwaukee County's Health-Related Programs office operates the General Assistance Medical Program, among others. Until January 1996, it also ran the city's only public hospital. The other health authority in Milwaukee is the Milwaukee City Health Department (MCHD), which delivers public health services to poor residents through three city-operated clinics. Its public health nurses provide school health services, home visits to high-risk patients, and services in clinics.

Hospitals

Until the end of 1995, the county-owned John L. Doyne Hospital served as Milwaukee's primary source of care for the uninsured and for persons eligible for GAMP. The GAMP budget in Milwaukee was around $40 million annually, most of which went directly to Doyne. Because GAMP eligibility was determined when patients presented for hospital care, Doyne often provided free care to patients who later proved ineligible for GAMP. For these patients, Doyne Hospital accrued average uncompensated care costs near 10 percent of total charges, according to former Doyne managers. Froedtert Memorial Lutheran Hospital took responsibility for GAMP-eligible patients (and funding) and many of the other uninsured when Doyne closed.

The other general hospital in Milwaukee that serves large numbers of the uninsured is Sinai Samaritan Medical Center, which recorded the greatest share of charity care statewide, at 8.2 percent of nongovernment revenue in FY 1995.⁴⁷In consideration of its care for the poor, Sinai Samaritan receives government funding support from several sources. It is the only hospital in the state that qualifies for a special Medicaid payment of $4.7 million a year as an Essential Access City Hospital (EACH). Like other hospitals, Sinai also receives Medicaid DSH payments, of $250,000 a year in this case. The size of its charity care burden is likely because it is the only hospital in downtown Milwaukee, and it is located within the state's only urban federal Health Professional Shortage Area. Under HPSA rules, Sinai receives a 20 percent bonus for treating HPSA Medicaid patients.⁴⁸Even with EACH, DSH, and HPSA payments, Sinai's costs for serving Medicaid clients are not being met, according to hospital officials. However, without the special payments, officials said, Sinai would be forced to close or move out of the city.

Community Health Centers

Milwaukee also has three FQHCs, including the Sixteenth Street Community Health Center, the Rainbow Community Health Center, and Milwaukee Health Services, Inc. Milwaukee's FQHCs are faring well under Medicaid managed care. All three FQHCs have contracts with all of the relevant HMOs serving Milwaukee Medicaid clients. Further, the FQHCs are quite stable financially, largely because they receive cost-based reimbursement under Medicaid managed care to supplement HMO payments. As part of the first FQHC cost-based reimbursement agreement in the country, the state makes "wraparound" reconciliation payments to FQHCs that contract with HMOs serving the Medicaid population. That is, the state pays the difference between the FQHC's costs and what managed care plans pay the FQHC. These reconciliation payments began in 1990 and were approximately twice the Medicaid payments the clinics had expected.⁴⁹This influx of capital allowed the FQHCs to build facilities, to add staff and services, and to expand care for the uninsured. With these improvements and service expansions, the clinics now assert that funding just meets expenses, without surplus.

The three FQHCs formed an alliance, Milwaukee Choice, Inc., in 1996 to develop joint services that would benefit all of them, such as an urgent care/extended hours clinic and a dental professional organization. Eventually, they hope to contract collectively on a risk basis with managed care organizations for Medicaid, commercial, and possibly GAMP enrollees.

Issues Facing the Safety Net

Medicaid managed care is not the major influence on safety net providers in Milwaukee, as it is for communities in some other states. Because capitated Medicaid managed care has been in effect in Milwaukee for more than 12 years, nearly all traditional Medicaid providers have adapted. Instead, three recent developments act as more important sources of pressure on the Milwaukee safety net: the closing of the county public hospital, changes in GAMP, and the start of welfare reform.

Closure of the public hospital. The closure of a public hospital is often regarded as a disaster by advocates for the poor and by neighboring hospitals. Despite its role as the primary provider of care for GAMP-eligible and uninsured patients in Milwaukee, however, when Doyne closed there was virtually no public discussion. Some of this relative calm may have been because everyone expected that Froedtert would assume Doyne's former role in the market.

The former manager at Doyne cites several reasons for the hospital's closure. One reason was that the public hospital was handicapped by the financial burden of its staffing arrangement with the Medical College of Wisconsin, which had high costs because of its training programs and faculty salaries. Furthermore, Doyne had few managed care contracts and did not win the primary care business of the HMOs. Instead, it served mostly as the provider for high-cost services and thus could not make a profit on its managed care contracts.

In addition, the county government, which oversaw the hospital, often had interests that conflicted with Doyne's. Cost-cutting efforts, like outsourcing maintenance, were squelched because they hurt other county departments, according to former hospital administrators. Finally, the county located a buyer for Doyne with relative ease. Froedtert Memorial Lutheran Hospital bought Doyne for only $4 million, plus lease of the associated land.

The closing of Doyne Hospital likely changed the uncompensated care distribution across Milwaukee hospitals in fiscal years 1996 and 1997. Froedtert's burden increased substantially, as expected. Its number of uninsured patients increased from 3 percent in 1995 to 5 percent in 1996, with uncompensated care rising from $9 million in 1995 to $26 million in 1996 (or 7 percent of gross charges). Officials at Froedtert also said that other hospitals have begun to complain about increases in uncompensated care since Doyne's closure.

GAMP changes. Another issue facing the safety net was the statewide restructuring of GAMP. The 1995–97 state budget act converted the state's mandatory general relief program into an optional county block grant program, effective January 1, 1996. As a result of this change in state law and the decision to close the hospital, Milwaukee County had to redesign its GAMP. Two new philosophies emerged: (1) that GAMP patients and funding should be spread among a larger number of hospitals, and (2) that primary care should be available to GAMP-eligible patients to reduce hospital use and improve health outcomes. The county negotiated an agreement with Froedtert to remain the main provider for GAMP during 1996 and 1997, for a total of $30 million annually, slightly less than Doyne had received. Another $5 million was reserved for other community hospitals to offset the costs of treating GAMP-eligible patients.

Out of Froedtert's GAMP funds, $1 million was allocated to the development of a pilot program, the Community-Based Primary Care Network, which allowed the city's three FQHCs, a health clinic, a nurse-managed program, and the Froedtert/Medical College of Wisconsin Clinics, to bill the county for primary care services rendered to GAMP-eligible patients. By April 1997, the clinics were billing GAMP for services provided to 2,100 patients.

Implementation of welfare reform. The state implemented Pay for Performance, a pilot welfare reform program, in Milwaukee in July 1996. Some working Pay for Performance participants are still eligible for Medicaid, but they may not realize it. Nearly all the interviewees mentioned that Medicaid HMO enrollment in Milwaukee County declined from 110,404 in August 1996 to

Respondents at MCHD believed that the city's rate of uninsured has risen as a result of Pay for Performance, based on anecdotal reports. They worried about the financial impact that increasing numbers of uninsured clients have on the city's public health clinics. In addition, Sinai Samaritan noted an increase in uncompensated care from $1.26 million in the first quarter of 1996 to $4 million in the first quarter of 1997, which it attributes primarily to people losing Medicaid benefits.

The Future

Because the county's two-year contract with Froedtert Hospital to provide GAMP services ended in December 1997, the county was forced to decide GAMP's fate for 1998 and beyond. To be implemented in April 1998, the new GAMP will no longer rely on a preferred hospital provider but will instead use the FQHCs and other clinics as the foundation of the system. The clinics will spread GAMP-eligible patients among all the hospitals in the county for inpatient care, according to their current referral patterns. Funding for two years was approved at $36.6 million (consistent with prior years). The state's chief concern about the new plan, according to county respondents, is the clinics' capacity to handle the increased patient load and duties associated with the new GAMP system. So far, clinics have served only about half of the 7,000 GAMP-eligible patients assigned to them under the pilot program. How the clinics will fare if more eligibles begin to use the services regularly will be an important issue to monitor.

Long-Term Care for the Elderly and Younger People with Disabilities

Long-term care for the elderly and younger people with disabilities is a critical component of Wisconsin's involvement in health care and plays a major role in the Medicaid program. Compared with some other states, Wisconsin places long-term care very high on its political agenda. Although its delivery system for the elderly historically has been dominated by nursing homes and intermediate care facilities for the mentally retarded (ICF/MRs) (less so for inpatient mental health facilities), Wisconsin is a national leader in innovative home and community-based services. In addition, state officials recently proposed, and— following strong criticism— quickly withdrew, a comprehensive long-term care "redesign" that would have integrated some acute and long-term care services for individuals across the age spectrum by enrolling people with disabilities in managed care organizations. In May 1998, the Wisconsin Department of Health and Family Services unveiled a much-revised proposal, which focuses on the integration of only long-term care services and is more consumer-oriented.

Long-term care policy in Wisconsin is forged in an environment characterized by politically powerful counties and interest groups representing both providers and consumers. Political conflict centers on the balance between institutional and home and community-based services. Because of the extent to which counties control long-term care funds, local officials have significant influence over decisions about policy and resource allocations. The result is substantial geographic variation in long-term care services.

Background

Long-term care is fiscally important in Wisconsin, with expenditures accounting for more than half of Medicaid spending, a percentage that is much higher than the national average (seetable 3). In 1995, Wisconsin spent $1.3 billion on long-term care, about 60 percent of which was for the elderly and 40 percent for younger people with disabilities (table 7). Between 1990 and 1995, the overall rate of increase in Medicaid long-term care expenditures has closely mirrored the national experience. In addition to Medicaid, there is a relatively large state-funded program of home and community-based services for people of all ages and a "community aids" program that finances a range of long-term care and social services. The total amount distributed to counties as "community aids" in 1997 was $303 million, including federal funds.

Compared with local governments in most states, counties in Wisconsin have considerable authority over long-term care for the elderly, physically disabled, developmentally disabled, and mentally ill and have primary responsibility for planning, financing, and sometimes providing long-term care directly, including administration of Medicaid waiver programs.⁵⁰In addition, the state uses intergovernmental transfers from the counties to help fund long-term care services and is continuing to seek ways to use county funds to obtain federal Medicaid dollars.⁵¹

Wisconsin has a very large supply of long-term care providers, especially nursing homes and other institutional providers. In 1995, Wisconsin had 48,332 nursing home beds, or 212 beds per 1,000 elderly age 75 and over, which is 59 percent higher than the national average and among the highest ratios in the nation. Observers speculate that this large supply is because the cold weather makes home care difficult during the winter; the Scandinavian heritage of the population mirrors the high institutionalization rates in Norway, Finland, and, until recently, Sweden; or the current financing system is historically biased in its limited funding of home care. The state also had a high ratio (per 1,000 elderly 75 and over) of nonmedical residential beds (mostly so-called community-based residential facilities) but a slightly smaller ratio of home health agencies, compared with the country as a whole.⁵²

Wisconsin's ICF/MR services include three state-operated facilities, 17 private institutions, and 23 nursing homes (most of them county facilities). In 1995, Wisconsin ranked fifth among the states in the number of developmentally disabled persons per capita living in institutions.⁵³For mental health services, the state operates two psychiatric facilities with a total of about 600 beds, and several counties also run their own psychiatric hospitals. With county facilities added in, Wisconsin ranked 38th in psychiatric inpatient beds per capita.

Long-Term Care for Elderly People

In recent years, Wisconsin has implemented several initiatives directed at long-term care for the elderly, including shifting expenditures to Medicare and the private sector, expanding home and community-based services and integrating acute and long-term care services, and trimming Medicaid nursing home rates and limiting the supply of nursing homes.

Medicare Maximization and Private-Sector Initiatives

Wisconsin has actively sought to reduce Medicaid long-term care expenditures by increasing Medicare and private spending. The state has aggressively pursued Medicare maximization in home health by requiring home health agencies to bill Medicare first and retrospectively auditing payments to home health agencies. According to some observers, these audits have presented considerable problems for home health agencies, especially because of potential Medicare penalties for incorrect billing, the retrospective review of services, and the inability to submit older bills to Medicare. The combination of Medicare maximization, alleged low Medicaid payment rates, and the home health industry's view that the Thompson administration was biased toward institutional care has strained relations between home care providers and the state.

As required by federal rules, Wisconsin operates an estate recovery program that collects Medicaid expenditures from the estates of deceased recipients by placing liens on the homes of individuals. Although some questioned the program's potential for success, estate recovery has increased considerably in recent years: from $471,271 in 1991–92 to $9,711,562 in 1995–96, more than 1 percent of Medicaid nursing home expenditures, making Wisconsin's program one of the country's most effective.

Wisconsin supports the idea of private long-term care insurance and has adopted modest efforts to promote it. Private long-term care insurance is offered to state employees, and insurance regulations attempt to strike a balance between consumer protection and recognition that long-term care insurance is an evolving product. Wisconsin was one of the first states to amend its insurance regulations to facilitate the sale of long-term care policies that would qualify for federal income tax deductions. However, a proposal in the late 1980s that would have allowed people who purchased state-approved private long-term care insurance policies to keep more of their assets and still qualify for Medicaid nursing home benefits was never implemented. In part, this reflected disagreements within state government about how large a role public financing should play in long-term care for the elderly and whether it was appropriate to encourage private long-term care insurance.

Reorganizing the Long-Term Care Delivery System

Wisconsin is strongly committed to reforming the long-term care delivery system through expanding home and community-based services and is experimenting with integrating acute and long-term care through managed care.

Home and community-based services. Although Wisconsin spends most Medicaid long-term care dollars for the elderly on institutional care, the state has been characterized as having a "high" commitment to home and community-based services.⁵⁴

Among advocates for the elderly and younger persons with disabilities, the crown jewel of Wisconsin's disability programs is the Community Options Program, a program that has received a great deal of national recognition for its flexible and client-centered approach to noninstitutional services. COP is authorized to pay for nontraditional services such as construction of a wheelchair ramp at the client's home or minimal payments to neighbors or family members to perform chores. Some respondents noted that COP is not as flexible as it used to be because Wisconsin's very tight labor market makes it difficult to recruit home care workers. The popular COP, begun in 1982 with state revenue, has convinced many in Wisconsin that home and community-based services are a feasible and cost-effective alternative to institutional services in Wisconsin.

Beginning in 1987, Wisconsin shifted much of COP into the Medicaid program by establishing two Medicaid home and community-based waiver programs for older people and younger persons with disabilities: the COP-Waiver (COP-W) and the Community Integration Program (CIP II). Each placement in the smaller CIP II requires the closure of a nursing facility bed. Although home and community-based service programs have been expanding rapidly, a long waiting list for enrollment exists in most counties (8,834 persons on January 1, 1996).⁵⁵Table 8 summarizes Wisconsin's expenditures on various home care programs, number of people served, and cost per user. The DHFS oversees COP and CIP operations and funding, but administration of the program occurs primarily at the level of the county. In each county, a lead agency (e. g., the social services department) serves as the single point of entry to the program and provides assessment, care planning, and case management.

Importantly, COP is sold to the legislature as a cost-saving initiative, a contention that is disputed strongly by the nursing home industry. A recent analysis by the Wisconsin Legislative Fiscal Bureau concluded that waiver services for the elderly were a less expensive alternative to nursing home care on an individual basis.⁵⁶However, analyses by the Wisconsin Office of Strategic Finance⁵⁷and Sager and Arling⁵⁸concluded that the Medicaid nursing home population is considerably more impaired than the home and community-based services waiver population.

During the 1980s, the proportion of home and community-based long-term care used by the elderly declined because of the low turnover rate among the younger disabled population enrolled in COP. This decline upset elderly advocacy groups, who believed that the elderly were politically responsible for the increased funding for noninstitutional services and that it was inequitable for them not to obtain a "fair" share of the slots. In response, the state established a "significant proportions" allocation, which required that a majority of the slots be reserved for the elderly. At least 57.0 percent of the COP slots are reserved for the elderly, 14.0 percent for the developmentally disabled, and 6.6 percent each for persons with physical disabilities and chronic mental illness. The remaining 15.8 percent is allocated according to county preferences.

Another development has been the rapid expansion of nonmedical, long-term care residential facilities, including assisted living facilities (ALFs) and community-based residential facilities (CBRFs). Both ALFs and CBRFs are largely private pay, which has led some observers to contend that middle-class individuals exhaust their resources in these facilities and then apply to nursing homes as Medicaid beneficiaries. Surprisingly, CBRFs are subject to more extensive regulations than ALFs, even though ALFs can serve far more severely disabled residents.

Managed care and long-term care. As part of Wisconsin's general strategy of increasing the use of managed care, the state is debating adding long-term care to the range of services covered through capitation. Wisconsin currently serves approximately 400 severely disabled elderly through the HCFA-sponsored Program for All-Inclusive Care for the Elderly (PACE) demonstrations in Milwaukee and Dane Counties. These demonstrations make capitated payments to organizations that provide a comprehensive range of acute and long-term care services to a population of mostly Medicaid recipients. In addition, the state is experimenting with a variant of the PACE model that does not require individuals to change doctors or to attend an adult day health program.

In May 1997, the Department of Health and Family Services proposed to redesign the long-term care system across the age spectrum by relying on managed care and a single capitated payment to integrate acute and long-term care. The redesign also would have created county-level resource centers to provide a single point of access for information and counseling and access to services. While state officials insisted that they were motivated by a desire to provide better care and to rationalize the system, some advocates for the elderly and disabled suspected that the potential for cost savings was the primary motivating factor.

The proposal, however, was withdrawn in June 1997 in response to heavy criticism from elderly and disability advocacy groups and county representatives. Opponents of the redesign were critical of the state's reliance on managed care organizations to meet the long-term care needs of individuals. Specifically, opponents of the redesign felt that HMOs in Wisconsin had little experience or skill with the elderly or with long-term care and that a capitated payment for acute and long-term care would have a negative impact on consumer-directed long-term care. It was feared that long-term care would become too medicalized and that institutional care would be favored over home and community-based services. The state was also criticized for not having enough data to set capitation rates accurately or fairly. Counties were concerned that the initiative would reduce their traditional role in long-term care.

As part of his state of the state address in January 1998, Governor Thompson announced that the state was developing a new long-term care proposal, which he called Family Care. In May 1998, the Department of Health and Family Services released a detailed draft proposal for review.⁵⁹This ambitious plan emphasizes consumer choice and empowerment, relies heavily on the counties to administer the program, promises expanded services, and seeks to integrate long-term care services. After a number of public forums and demonstrations of the basic concepts, proponents hope that the legislature will enact the new plan in 1999. Federal Medicaid waivers will be needed to implement this proposal.

The two central agencies in the long-term care redesign are Aging and Disability Resource Centers and Care Management Organizations (CMOs). Located in each county, the Aging and Disability Resource Centers will provide one-stop shopping for information and assistance to help people connect with all kinds of services, benefits, and community resources for long-term care. Resource centers will also conduct pre-admission screening for residential care and enroll individuals in CMOs. Counties are likely to operate these resource centers.

Funding for a wide range of long-term care programs will be consolidated to fund a flexible benefit managed by the CMOs. Unlike the earlier proposal, this plan does not attempt to integrate acute and long-term care services. The CMOs will receive a fixed capitation amount each month for each person who voluntarily enrolls; there will be two funding amounts that will vary by level of disability. Individuals who do not enroll in CMOs will continue to receive the current range of services in the Medicaid fee-for-service system but will not be eligible for the new flexible benefit. The CMOs will be responsible for providing or arranging an extremely wide range of long-term care services designed to meet the needs and desires of individual consumers. Despite current waiting lists for COP services, individuals needing comprehensive services will be guaranteed to receive them "promptly." Enrollment in CMOs will be open to everyone regardless of financial status, although not everyone will receive a public subsidy. Counties may sponsor CMOs if they desire. A key question is whether this plan will meet the budget neutrality requirements necessary to obtain federal Medicaid waivers.

Traditional Cost-Containment Strategies

While Wisconsin has actively pursued other initiatives, the state has also sought to control long-term care expenditures through more traditional means, such as trimming Medicaid provider payment rates and imposing a moratorium on new nursing home construction.

Medicaid reimbursement and the Boren amendment. Like many states, Wisconsin aims to control its Medicaid spending by controlling its reimbursement rates. The nursing home reimbursement level was $85 per day in 1995 (right at the U. S. average) and is calculated on a prospective, facility-specific basis. Up until recently, the state allowed direct-care costs up to 110 percent of the median, but the Thompson administration and the legislature lowered this ceiling to 103 percent of the median during the 1997 legislative session. During that same session, home health service rates were raised by 2 percent, the first rate increase since FY 1992–93.

It is unclear what impact the repeal of the federal Boren amendment, which set standards for Medicaid nursing home reimbursement rates, will have. Politically, the nursing home industry is a major force in the state and has been closely linked with the current state administration. While some felt that the state would continue its downward pressure on reimbursement rates, others believed that the political strength of nursing homes would prevent further reductions in rates. Advocacy groups for the elderly believed that the Boren amendment was a "fig leaf" that provided an excuse for the governor to give the nursing homes what they wanted, and they supported repeal of federal standards as a way of freeing the state to reallocate funding to home care.

Controlling nursing home supply. Although Wisconsin has had a moratorium on new construction of nursing homes since 1980, the state still has more nursing home beds per 1,000 elderly ages 75 and older than most states. Occupancy rates have softened slightly in recent years, and the moratorium is not actively opposed by the nursing home industry. There is no moratorium for nonmedical, long-term care residential facilities such as ALFs and CBRFs, which have expanded substantially in recent years.

Long-Term Care for Younger People with Disabilities

In meeting the long-term care needs of its developmentally disabled and mentally ill populations, Wisconsin, like most states, has increasingly emphasized community-based care over institutional care. While the state is far ahead of most states in minimizing the use of institutions for its mentally ill population, progress has been somewhat slower in developing long-term care alternatives for persons with developmental disabilities.

Services for People with Developmental Disabilities

Although the formal policy of the state is to deliver as many services as possible in the community, some observers argue that resources for the developmentally disabled population are concentrated inappropriately in institutional care. Approximately 70 percent of public spending for persons with developmental disabilities is for institutional care, and 30 percent is for home and community-based services. Medicaid is an extremely important source of funding for both services.

Despite criticism from advocacy groups, the census in the state ICF/MRs for the mentally retarded has declined from 2,058 in 1985 to 1,148 in 1996.⁶⁰As the census has declined, facilities have become increasingly expensive, with the Medicaid reimbursement rate topping $300 per day. High costs are attributed to federal requirements (such as staff/client ratios), inefficient physical plants, and high disability levels among remaining clients. In recent years, only five to six clients per year have been admitted to the state ICF/MRs, and about 75 to 100 people have been deinstitutionalized annually. Although advocacy groups would prefer to close the institutions, the state employees union and some older parents of disabled children have exerted enough pressure to keep facilities open. In order to create an incentive for deinstitutionalization, counties are required to pay 10 percent of the cost of care in state ICF/MRs for residents who, according to an independent assessment, can be served in the community. DHFS had not collected any revenue under this provision because of county appeals.⁶¹Complicating deinstitutionalization efforts are the numerous private ICF/MRs and county facilities, which have little incentive to reduce the number of people they serve. Private facilities are paid by Medicaid on a prospective payment basis; their rates are much lower than those of state facilities.

Wisconsin has relied heavily on Medicaid home and community-based waivers to place or maintain developmentally and physically disabled clients in noninstitutional settings. Although most waiver clients initially were relocated from institutions, the majority now are diverted to the waiver program before being admitted to an institution. For example, the Community Integration Program (CIP) IA and IB provides services to those people relocated from state and nonstate ICF/MRs, respectively, to community settings. As a condition of the Medicaid waiver, the vacated bed must be closed within a year of placement.⁶²

Mental Health

Wisconsin has achieved notable success in keeping its mentally ill population in the community. To some extent, its success is attributed to the fact that Wisconsin never established a large state-run system of psychiatric facilities, in part because counties historically have had substantial responsibility for the mentally ill.⁶³Only 32 percent of state mental health dollars were expended on psychiatric hospitals in 1993, compared with a national average of 53 percent.⁶⁴Institutional care declined from 40 percent of public mental health spending in 1992 to 29 percent in 1995, but many clients who previously were served in psychiatric hospitals are now living in alternative residential settings rather than in private homes.⁶⁵

Wisconsin has received national recognition for its community mental health programming. The state is pushing aggressively to meet the needs of mentally ill persons through consumer and family-directed care that takes place in noninstitutional settings.⁶⁶Planned service expansions include case management, mobile crisis intervention, respite care, vocational services, and specialized housing. Institutions are envisioned as serving as back-up units to provide acute, short-term care for those in community programs.⁶⁷Wisconsin's Medicaid program also funds the Community Support Program for the chronically mentally ill, with services including case management, psychiatric services, medication, group therapy, and employment-related skill training.

Challenges for the Future

By almost any standard, Wisconsin's health care system is in good shape. The state has one of the lowest uninsured rates in the nation, largely because of broad employer-sponsored insurance. In addition, the state sponsors a Medicaid program with extensive eligibility and service coverage. Providers, health plans, and large purchasers of health care seem to be generally satisfied with the Wisconsin health care market. Both insurers and hospitals are financially stable and physicians are in high demand. Poor quality of care or rapidly escalating health insurance premiums do not seem to be a problem.

Wisconsin's well-functioning health care system is further strengthened by the state's robust economy. State officials anticipate that the economy will continue to grow and will remain strong in the near future. While this forecast is generally good for health programs, there are state policy priorities that may put some pressure on the state budget to contain spending in other areas, such as Medicaid. Most important is Wisconsin's property tax relief effort, which has consumed a large share of the state's revenue growth in recent years. This effort is expected to continue for the next few years and to have important budgetary implications for health programs.

Although Wisconsin's health care system has a sound foundation, the state will need to address a host of health policy issues over the next several years. Perhaps the state's primary challenge is how to resolve the separation between the state's major welfare reform initiative, Wisconsin Works (W-2), and Medicaid eligibility. Currently, the two programs do not fit together well, making eligibility rules even more complicated than before— some people are eligible for W-2 but not for Medicaid and vice versa. Moreover, dramatically falling caseloads for W-2 have had spillover effects, causing the Medicaid rolls to fall as well, raising concern that the number of uninsured may be rising. To counter this Medicaid enrollment trend, the state wants to use the mostly federally funded State Children's Health Insurance Program (S-CHIP) to expand Medicaid eligibility for adults as well as children, but federal approval to do so has been denied pending revisions in the state's proposal.

Wisconsin's Medicaid managed care program is operating smoothly, unlike those in some other states. The state, however, will need to address some matters. For example, several areas of the state still do not have mandatory managed care enrollment. On a long-term basis, Wisconsin— like most other states— faces the challenge of figuring out a way to enroll the disabled and elderly populations in managed care.

The state may also face some health care market issues in the near future. Although the market in Wisconsin appears to be functioning very well at present, any shift in the current balance of power among key actors could jeopardize the successful performance of the market. For example, the growth in larger group practices and integrated networks indicates greater physician power in the future. Moreover, there are indications that hospital systems may move away from contracting with all plans to more exclusive plan contracting. If exclusive networks and reduced provider overlap across plan networks become more typical in Wisconsin's future, health plans will become much more distinct than they are currently, which could cause a shift in the distribution of enrollees among plans. One or a few health care plans could eventually develop a substantial market share, as opposed to the broader distribution of enrollees among plans that is currently seen in Wisconsin. This possibility could have long-term implications for provider power vis-à-vis health plans and for buyer power as well.

The financial viability of the safety net system in Milwaukee is another potential problem the state will likely face in the future. On an immediate basis, many are optimistic that care for the uninsured and General Assistance clients will improve, largely because of the new focus on community-based delivery of primary care that the state is currently implementing. However, on a long-term basis, there is great concern about the effects of welfare reform and its expected reduction in Medicaid rolls. Further declines in Medicaid enrollment could have major implications for the financial health of safety net providers.

Beyond these issues, several respondents also believed that the Milwaukee County Commissioners' commitment to continued funding for the General Assistance population indefinitely is tenuous, particularly in light of the closure of Milwaukee's only public hospital last year. Without local funding, state and federal matching funds would also disappear. If this happened, the future of Milwaukee's General Assistance Medical Program would rest on the shoulders of the city's health clinics.

In the area of long-term care, Wisconsin faces two major issues. First, can the state continue to redirect its resources away from institutional care and toward home and community-based services? Wisconsin has already made a fairly large commitment to home and community-based services in nominal terms, but the vast majority of expenditures are still spent on nursing homes and intermediate care facilities for the mentally retarded. Second, can long-term care services be better coordinated and, if so, can they be integrated with acute care services? The ambitious redesign proposal put forth by the Department of Health and Family Services, which would have consolidated acute and long-term care services in managed care organizations, was clearly too much too soon and was withdrawn after its introduction. More recently, the state has unveiled an equally ambitious but more narrowly focused plan to coordinate long-term care services. Designing the new system, obtaining the necessary federal waivers, and implementing the proposal will be a major challenge.

In sum, Wisconsin currently faces its future on a solid footing, but like many other states, it will have to meet these health care challenges while it continues its efforts to reduce the welfare state and to promote personal responsibility.

Notes

APPENDIX
List of People Interviewed

Tables

Table 1. State Characteristics

Table 2. Wisconsin Spending by Category, 1990 and 1995
($ in Millions)

Table 3. Medicaid Expenditures by Eligibility Group and Type of Service, Wisconsin and United States (Expenditures in Millions)

Table 4. Medicaid Expenditures per Enrollee by Eligibility Group, Wisconsin and United States

Table 5. Medicaid Enrollment by Eligibility Group, Wisconsin and United States (Enrollment in Thousands)

Table 6. Wisconsin Small-Group Insurance Reforms

Table 7. Medicaid Long-Term Care Expenditures by Eligibility Group, Wisconsin and United States (Expenditures in Millions)

Table 8. Wisconsin Home and Community-Based Service Programs, 1995

About the Authors

Teresa A. Coughlin is a senior research associate at the Urban Institute's Health Policy Center, where her research focuses on Medicaid and other health care programs for low-income populations. She is the author of a book on Medicaid and several articles on health care. Most recently, her work has centered on issues of state health care reform, Medicaid managed care, and Medicaid disproportionate share hospital programs.

Joshua M. Wiener is a principal research associate at the Urban Institute's Health Policy Center, where he specializes in research on Medicaid, long-term care, and health care for the elderly. Before coming to the Urban Institute, he did research and policy analysis for the Brookings Institution, the Health Care Financing Administration, the Commonwealth of Massachusetts, the state of New York, and the city of New York.

Jill A. Marsteller is a research associate with the Health Policy Center of the Urban Institute. She has investigated the changing organization of delivery and financing systems and the spread of managed care organizations. Her most recent work has addressed health insurance reform and market competition issues. She came to the Urban Institute after working in Employee Benefits Research for KPMG Peat Marwick in Washington, DC.

David G. Stevenson is a research associate at the Urban Institute's Health Policy Center. His research has centered on aging, disability, and long-term care. Mr. Stevenson's previous research focused on access to health care for people with disabilities and the cost-effectiveness of clinical preventive services.

Susan Wallin is a research associate in the Urban Institute's Health Policy Center. Previously she served as an analyst for the Physician Payment Review Commission. Her research has centered on access to care for low-income populations, including issues of health professional maldistribution, Medicaid managed care, and public health departments.

Debra J. Lipson, currently a health policy consultant in Geneva, Switzerland, at the World Health Organization, continues her work on projects related to safety net providers. She was formerly associate director of the Alpha Center, where she managed research studies on state and local health care reform, with an emphasis on the financing and organization of health services for the poor and uninsured.

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