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Note: This report is available in its entirety in the Portable Document Format (PDF).
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
Since the late 1990s, Michigan has expanded and implemented changes in its publicly funded health care programs by creating a new health care program for children, implementing a relatively generous prescription drug program for its senior residents, and expanding Medicaid managed care. For most of this period, Michigan had the financial resources to support these efforts.
Fewer adults and children lived in poverty in Michigan than in the nation as a whole in the late 1990s. And employer-sponsored health insurance played a larger role in health care coverage for Michigan's low-income population than in the rest of the country. Only 7 percent of the state's children and 11 percent of its adults were uninsured, compared with roughly 13 percent of children and 16 percent of adults nationally.
However, by the fall of 2001, the state's economy began deteriorating, due in part to the terrorist attacks of September 11. The resulting projected revenue shortfalls are likely to affect state health programs, including Medicaid, because Michigan is considering serious budget cuts.
Health care consumes a significant portion of the state's budget; Michigan's total spending (including federal aid) on Medicaid in state fiscal year 2000 was estimated at 18 percent of the budget. During the late 1990s Michigan undertook a shift from fee-for-service delivery of health care services to a system dominated by health maintenance organizations (HMOs) in an effort to contain Medicaid costs. The transition to managed care was somewhat controversial because of complaints about low Medicaid payment rates; the state responded by raising payment rates and altering the competitive bidding process for Medicaid HMO contracts. The state also takes its role as a purchaser of services quite seriously; it has improved its HMO quality assurance measures and has commissioned several recent studies of beneficiaries' experiences with managed care. While Medicaid cost increases have moderated under managed care, state officials worry about growth in pharmaceutical expenditures, which currently absorb 15 percent of the Medicaid budget and are increasing more rapidly than any other service.
Although Medicaid is the primary source of public health care coverage, the state has three other major sources of health care coverage: the State Children's Health Insurance Program (SCHIP), indigent care programs financed largely by Medicaid disproportionate share hospital and upper payment limit strategies, and the Elder Prescription Insurance Coverage (EPIC) program. The State Children's Health Insurance Program, which Michigan began in 1998, is a new source of coverage for children. Using SCHIP funds, the state expanded Medicaid to include children ages 16 through 18 in families with incomes up to 150 percent of the federal poverty level (FPL). Another SCHIP program—MIChild—covers children through age 18 with family incomes between 150 and 200 percent of FPL. Medicaid was not the major focus of expansion under SCHIP because such an expansion would have created a new entitlement and policymakers wanted to give children access to a program resembling mainstream health insurance. The state relies on HMOs and the Blue Cross Blue Shield preferred provider organization (PPO) network to deliver services to MIChild enrollees.
Medicaid disproportionate share hospital (DSH) and upper payment limit (UPL) strategies are another significant source of funds for health care programs, amounting to over $1 billion a year. In Michigan, three such programs exist: (1) Disproportionate Share Payments to Public Hospitals; (2) Long-Term Care Adjuster Payments to County Medical Facilities and Hospital Long-Term Care Units; and (3) Outpatient Adjuster Payments to Public Hospitals.
Michigan is among those states implementing a prescription drug coverage program for its older citizens. The new program replaces two others that relied on tax credits and vouchers. In 2001, Michigan began enrolling people age 65 and over in the Elder Prescription Insurance Coverage program, which receives funding from state general revenues and tobacco settlement funds. This program will provide pharmaceutical assistance to persons age 65 and older with incomes below 200 percent of FPL. Beneficiaries will pay a sliding-scale premium to enroll in EPIC.
Michigan has two large Medicaid home and community services programs and several much smaller state-funded programs that provide services to qualified persons with disabilities. The MI Choice Waiver for the Elderly and Disabled provides a range of home care agency-based services to about 14,000 people who would otherwise be eligible for nursing home care. The Medicaid Home Help program (an optional personal care service), which began in the 1970s, provides personal care services using a consumer-directed model, where most beneficiaries hire and fire individual workers.
As in its acute health care programs, Michigan has increasingly used managed care principles to reform its programs for people with disabilities. The system for Medicaid beneficiaries who are aged or disabled is beginning a transition to managed care, and those with developmental disabilities or behavioral health problems are already served by managed care plans.
The Michigan Department of Community Health (MDCH) in 2001 created a new administrative entity—the Long-Term Care Initiative—to coordinate all long-term care programs serving older persons and younger adults with physical disabilities, including the Medicaid MI Choice Waiver and the Home Help program. The Initiative is also responsible for developing and implementing a new, comprehensive long-term care system based on models designed to contain costs through capitated payment and to offer more choice to beneficiaries.
In 1998, Michigan moved to person-centered planning for persons with developmental disabilities and to managed care for both persons with developmental disabilities and those with mental health conditions because the state and consumer advocates wanted more flexibility for participants than was possible under the old fee-for-service system. In 1998, Michigan received approval for a Medicaid waiver to establish a statewide Medicaid managed care program for long-term recipients of mental health, substance abuse, and developmental disability services. The Department of Community Health contracts with local or regional Community Mental Health Service Programs (CMHSPs) to manage and provide Medicaid mental health, substance abuse, and developmental disability services and supports under a prepaid, shared-risk arrangement.
These findings about changes in the health care system for people with low incomes in Michigan build upon a previous case study conducted in 1997.1 The purpose of this second study is to examine how Michigan and other states have responded to both federal constraints and state flexibility since the late 1990s. Constraints have included funding limitations such as restrictions on the use of the Medicaid disproportionate share hospital and upper payment limit strategies. Flexibility has included expanded use of Medicaid waivers and the availability of new funding such as the State Children's Health Insurance Program. To conduct a comprehensive examination of Michigan's reactions to the constraints and flexibility, we explored five topics. First, how have the political and fiscal circumstances of the state changed over the last several years? Second, how has the state changed its public or private health insurance coverage? Third, how have Medicaid managed care and other acute care issues changed? Fourth, how are states responding to pressures to expand home- and community-based services for persons with disabilities? Fifth, what other issues are prominent? Information contained in this Michigan site visit report comes from interviews conducted in the summer of 2001, a literature review, and reports available from the state; written sources are cited in endnotes.
Notes from this section of the report
1. Lipson, Debra, Michael Birnbaum, Susan Wall, Marilyn Moon, Stephen Norton. 1997. Health Policy for Low-Income People in Michigan. Washington, D.C.: The Urban Institute.
Note: This report is available in its entirety in the Portable Document Format (PDF).
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