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About the Series
This state update is a product of Assessing the New Federalism, a multiyear project to monitor and assess the devolution of social programs from the federal to the state and local levels. Alan Weil is the project director. The project analyzes changes in income support, social services, and health programs. In collaboration with Child Trends, the project studies child and family well-being.
Recent Changes in Health Policy for Low-Income People received special funding from the Robert Wood Johnson Foundation as part of the Urban Institute's Assessing the New Federalism project. The project received additional financial support from The Annie E. Casey Foundation, the W. K. Kellogg Foundation, The Henry J. Kaiser Family Foundation, The Ford Foundation, The David and Lucile Packard Foundation, The John D. and Catherine T. MacArthur Foundation, the Charles Stewart Mott Foundation, the McKnight Foundation, The Commonwealth Fund, the Stuart Foundation, the Weingart Foundation, the Fund for New Jersey, The Lynde and Harry Bradley Foundation, the Joyce Foundation, and The Rockefeller Foundation.
This state update was prepared for the Assessing the New Federalism project. The views expressed are those of the authors and do not necessarily reflect those of the Urban Institute, its board, its sponsors, or other authors in the series.
Overview
Wisconsin is one of America's leading "laboratories of reform."1 Former Governor Tommy Thompson was a motivating force for change throughout the 1990s, championing policies that favored work and self-reliance. Although health care was not a top priority of the state, Wisconsin implemented some major health care initiatives. BadgerCare, the state's publicly subsidized health program for low-income families with incomes too high to qualify for Medicaid, is often touted as a model for how other states could expand coverage. Wisconsin also has been a national leader in long-term care, especially in the development of flexible home- and community-based services. The latest major initiative is Family Care, which consolidates funding for long-term care through use of care management organizations.
Political and Budgetary Developments
Wisconsin has new political leadership and is facing a very different fiscal environment than it had during the late 1990s. With the departure of Governor Tommy Thompson to head the U.S. Department of Health and Human Services, the new governor is Scott McCallum, a conservative Republican whose priorities are tax reduction and education. The economic slowdown, which has deepened in the aftermath of September 11, has exacerbated a large structural budget deficit and created substantial financial pressures, which the state addressed by relying on a creative repackaging of tobacco settlement funds and vastly expanding its Medicaid intergovernmental transfer program. Despite the financial pressures, Medicaid and other health programs were cut only very slightly in the budget that passed in 2001 and new funds were found to create a new prescription drug assistance program for senior citizens. Falling revenues and increasing expenditures may force budget cuts or postponement of some new initiatives.
Major State-Funded Health Programs for Low-Income People
Wisconsin has one of the lowest rates of uninsurance in the country, due in large part to a very high rate of private insurance coverage, leaving the state with a smaller gap to fill with public programs. Wisconsin's Medicaid program is one of the country's most extensive in terms of covered benefits and eligibility, although it is less than 14 percent of the state budget. Nevertheless, there is strong upward pressure on the Medicaid budget due to increasing enrollment, higher prescription drug costs, and demands for provider rate increases.
A major innovation in Wisconsin has been the implementation of BadgerCare, which is funded through a combination of a Medicaid waiver and a State Children's Health Insurance Program (SCHIP) waiver. In these waivers, the state proposed to cover certain parents through SCHIP rather than Medicaid (and thereby receive a higher federal match), arguing that it would make enrollment of children easier since their parents could benefit as well. The U.S. Department of Health and Human Services ultimately granted the waivers, but the process of obtaining them was politically contentious and difficult. Observers generally viewed BadgerCare as an unqualified success, pointing to rapid enrollment growth and broad public and political support for the program.
Acute Care for the Low-Income Population
Going into the 2001–2003 budget process, Wisconsin policymakers faced intense pressure to provide prescription drug coverage for older people. After considerable political wrangling, the legislature enacted a new program that will be one of the most generous in the country, covering older people with incomes up to 240 percent of the federal poverty level (FPL). An 18-cent increase in the cigarette tax funds the program.
Managed care is well established in Wisconsin, long mandatory for nondisabled, nonelderly Medicaid recipients in much of the state, and now also for BadgerCare. The commercial market is competitive but stable, with little turnover in plans and not much change in market penetration in recent years. State regulation of managed care plans is extensive, but it is generally viewed as preventive rather than a response to current practices. Most commercial health maintenance organizations (HMOs) serve public enrollees, and there are no Medicaid-only plans. HMOs incurred losses in the late 1990s but returned to modest profitability in 2000 after raising commercial premiums and winning substantial rate increases for public programs in negotiations with the state.
Overall, Wisconsin hospitals are operating at a profit, but their margins are down. Modest merger activity has strengthened the bargaining position of hospitals, but has not diminished the industry's historically good relations with HMOs or the state. Hospitals are concerned about short- and long-term staffing problems and Medicare payment rates. Benefiting from the low numbers of uninsured, expenditures for uncompensated care are a small percentage of gross patient revenue.
Wisconsin's Medicaid program has made little use of the disproportionate share hospital (DSH) payments either to increase federal revenues or to provide aid to hospitals with large amounts of uncompensated care. The state has, however, made heavy use of supplemental payments, which are very much like DSH.
Long-Term Care
Long-term care has a high political and policy profile in Wisconsin, partly reflecting that a majority of Medicaid expenditures are for these services. The state has a national reputation for flexible, consumer-directed home- and community-based services in its Community Options Program (COP). The COP program has very long waiting lists, which are politically controversial and may make the state vulnerable to lawsuits resulting from the Supreme Court's Olmstead decision, which established a limited right to noninstitutional services. Most observers, however, believe that the state's substantial homeand community-based programs make them immune from legal problems.
The state's nursing home industry is under substantial stress with a number of facilities in bankruptcy proceedings, falling occupancy rates, facilities closing, and beds being taken out of service. Recruitment and retention of staff is a major problem and quality of care concerns are increasing. The nursing home industry blames low Medicaid reimbursement for its problems and has lobbied hard for rate increases. While it is unclear what the impact of the repeal of federal minimum standards for Medicaid reimbursement of nursing homes has been, the state has tightened reimbursement over the last few years.
To provide the funds for rate increases, the nursing home industry proposed and the governor and legislature agreed to a major restructuring of the state's Medicaid intergovernmental transfer (IGT) program. Under the approved plan, three counties borrow funds from a financial institution and transfer them to the state, which then returns the funds to the counties and certifies the returned funds as Medicaid expenditures for nursing facilities, enabling the state to claim federal matching funds equal to about 60 percent of the amount initially transferred. This new plan could potentially bring $604 million in federal funds to Wisconsin during the 2001–2003 biennium. Virtually all of these funds are slated to be used to increase payments to nursing facilities, particularly facilities that are run by counties. The IGT program is controversial, but even critics of the IGT approach admit that the state does not have any other politically viable options to generate the same level of funding for nursing facilities that the IGT affords.
Motivation
To examine how states have responded to both federal constraints and state flexibility during the last half decade, this study of Wisconsin—along with concurrent studies of 12 other states—examines state priority setting and program operations in health policy affecting the low-income population.2 The past five years have given states new opportunities in health policy for low-income people, yet also put new pressures on policy formulation. Many developments increased state flexibility, including welfare reform and delinking of Medicaid from cash assistance, new funding for children's health insurance coverage in the form of the SCHIP program, repeal of federal minimum standards for nursing home and hospital payments, and increased federal willingness to grant waivers under Medicaid (and now under SCHIP as well). Fiscal capacity also rose—from booming revenues during the long economic expansion of the 1990s and from new tobacco settlement funds.
On the other hand, new pressures on revenues and state policy arose from recent federal economizing under Medicaid and Medicare, notably including cuts in safety net support that was believed to be abused by some states; political pressures for state tax cuts; and, starting in 2001, an economic slowdown. Additional spending pressure arose from political demands to provide coverage for the uninsured, the Supreme Court's Olmstead decision that detailed a right to home- and community-based services under the Americans with Disabilities Act, and rapid growth in pharmaceutical spending. The terrorist attacks of September 11, 2001, accelerated the economic downturn that was already beginning to affect Wisconsin. This deterioration in the economy will likely deepen the fiscal problems that were already beginning to be felt and may increase the budget pressure on Medicaid and other health programs for the low-income population.
This report focuses on developments in health care policy in Wisconsin beginning in the late 1990s through 2001, building on an earlier baseline study.3 Information for this study was obtained from publicly available documents, newspapers, Web sites, and interviews with state officials, provider organizations, consumer advocates, and other stakeholders. The authors conducted in-person interviews in Madison, Wisconsin, in April 2001. Questions were asked using an open-ended interview protocol. To encourage the respondents to speak freely, they were told that they would not be quoted by name.
Notes from this section
1. Barone, Michael, and Grant Ujifusa. 1999. The Almanac of American Politics, 2000. Washington, D.C.: The National Journal Group, Inc., p. 1726.
2. The other 12 states are Alabama, California, Colorado, Florida, Massachusetts, Michigan, Minnesota, Mississippi, New Jersey, New York, Texas, and Washington. The 13 states studied were selected to present a balanced view of state activity and its impact on low-income families. See Kondratas, Anna, Alan Weil, and Naomi Goldstein. 1998. "Assessing the New Federalism: An Introduction." Health Affairs 17(3): 17–24.
3. The prior study was based on interviews conducted during two site visits to Wisconsin in mid-1997 and subsequent telephone interviews. It was somewhat more extensive in scope and contained more historical information. See Coughlin, Teresa A., Joshua M. Wiener, Jill A. Marsteller, David G. Stevenson, Susan Wallin, and Debra J. Lipson. 1998. Health Policy for Low-Income People in Wisconsin. Washington, D.C.: The Urban Institute. Assessing the New Federalism, September.
Note: This report is available in its entirety in the Portable Document Format (PDF).
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