Cost Savings From New York State’s Assumption of Medicaid Administration Remain Uncertain, Rockefeller Institute Study Finds

New research examines reasons for county differences in Medicaid nursing home eligibility denials, and implications for a pending state takeover of administrative responsibilities/costs

Albany, N.Y. — New York State’s planned assumption of county Medicaid administration could reduce taxpayer costs, but significant savings will depend on successful implementation and improved administrative processes, according to a new report from the Rockefeller Institute of Government.

The report, funded by the New York State Health Foundation, examines differences in Medicaid nursing home eligibility denials among counties as an illustration of the challenges the state will face in taking over administration of Medicaid from 57 counties and New York City. The 2010-11 state budget includes legislation requiring the state Health Department to develop a plan for assumption of local Medicaid administrative functions, employees and costs over five years. Overall administrative costs for the state’s Medicaid program total an estimated $1.1 billion this year.

The new report follows on a 2009 Rockefeller Institute paper that found wide variation among counties in the rate of denial for applicants seeking Medicaid nursing facility care. The current study sought to determine the reasons for the variation in denials and whether reducing it might create cost efficiencies.

The study found the following reasons for variation in the Medicaid eligibility determination process for nursing home care:

• Approaches to collecting required eligibility-related paperwork may vary, since it can be a labor-intensive process.
• Some counties accept a wider range of documents than others when processing applications.
• County administrative capacity varies significantly, not only in terms of caseload, but also in terms of the stability and experience of the workforce.
• Counties use different standards for determining when they might investigate a questionable asset transfer. They also vary in their interpretations of assets’ fair market value.
• There is confusion regarding allowable services under what are known as “personal care contracts,” as well as in determining what qualifies as unusual circumstances surrounding asset transfers.
• Counties vary significantly in terms of where and from whom they receive nursing home care applications. For instance, applications may come directly from an applicant’s family, an estate planning attorney, or nursing home.   

Rockefeller Institute researchers recommended the following changes be made to achieve efficiencies statewide:

• Centralizing some of the process for nursing home eligibility, such as annual reviews.
• Automating eligibility processes whenever possible by linking with other databases that contain income and public program eligibility information.
• Improving the process for obtaining asset information from financial institutions.
• Instituting an effective and more efficient quality assurance process.
• Ensuring consistency in policy enforcement when eligibility cases go to fair hearing as well as limiting the number of fair hearing adjournments.  

Medicaid benefits are a much larger share of Medicaid costs than administration, the report notes. Therefore, the study points out that recommended changes to administration that are likely to have the most impact on costs are those that would impact benefits. These changes might include ensuring consistency in policy enforcement regarding eligibility for benefits when cases come to fair hearing, and ensuring a consistent and accurate quality assurance process to guarantee that only those who are truly eligible receive Medicaid benefits.

Report author Courtney Burke, director of the Institute’s Health Policy Research Center, notes in the conclusion “In addition to being diligent in investigating asset transfers for the purpose of reducing Medicaid costs, the state might also consider changing the incentives of the current system so that people are not motivated to shelter their assets in the first place,” Burke writes. “The state might do this by encouraging people to use private resources to fund their long-term care.”

Burke suggests the state could foster the growth of private long-term care insurance; build upon the New York State Partnership for Long-Term Care program, a public-private funding source for long-term care; or be better prepared to take advantage of recently enacted federal legislation, known as the CLASS Act, which will encourage people to set aside savings for their long-term care needs.

In recommending centralizing some Medicaid long-term care administrative functions, the report also acknowledges that it would take years for the state to realize some of the cost savings anticipated through such efforts. In addition, the state would need to address new costs incurred from shifting county-level employees to the state workforce, as required by the new law.

“But given the state’s current fiscal crisis, and its growing long-term debt obligations,” Burke concludes, “there has never been a better time for re-thinking how the state administers its Medicaid program.”

The report, Causes of Variation in County Medicaid Asset Transfer Rates, Opportunities for Administrative Cost Reduction, was written by Burke with assistance from Barbara Stubblebine and Kelly Stengel. For a full copy, visit www.rockinst.org.