July 1997

Reflections on the FY 1997–98 Community Health Budget

by Lisa D. Baragar

Health professionals and policymakers are heaving a collective sigh of relief now that the budget season has come to a close. House Bill 4306—making appropriations to the Michigan Department of Community Health (MDCH) for FY 1997–98, which begins October 1—awaits the governor’s signature, and those most concerned with its passage are assessing it. "Generally, we’re pretty happy with the FY 1998 Community Health budget," states Christine Shearer, chief of state government affairs for the Michigan State Medical Society (MSMS). Susan Garcia, deputy director of the Michigan Association of Health Plans (MAHP), shares this opinion and adds, "I was impressed by the level of bipartisanship that occurred and the work done in committees to reach a good compromise."

The fruit of policymakers’ efforts on behalf of community health totals $7.2 billion (23 percent of all state funds and an increase over the current year of 6.4 percent); the portion coming from the state general fund is $2.5 billion (29 percent of all state general funds and a 1.5 percent increase over the current year figure). As passed by the legislature, the appropriation exceeds the governor’s proposed MDCH budget by approximately 3 percent in both total and general fund monies.

Despite the cooperation and agreement involved in passing HB 4306, it was not all smooth sailing; there was considerable controversy along the way. This article examines some of the more contentious issues: Medicaid managed care (MMC), the Healthy Michigan Fund (HMF), and Governor Engler’s proposed closure of three mental health facilities.

Medicaid Managed-Care

One of the major influences on both the current and upcoming community health budgets is the state’s move to enroll all Medicaid recipients in capitated managed care. State officials adopted this strategy in 1996 after estimating that it could generate multimillion-dollar savings and improve recipient health care. The MDCH estimates that at current cost and caseload growth rates, the price of providing health care to Medicaid recipients will equal 30 percent of the state’s total annual appropriations by the year 2000 (at $4.6 billion, it currently equals 15 percent). "Policymakers had to [opt for managed care]," says Dennis Paradis, executive director of the Michigan Association of Osteopathic Physicians. "Medicaid has been eating the budget alive." State officials argue that reducing costs by moving to MMC is preferable to cutting benefits or limiting eligibility.

The initiative began with the current year (FY 1996–97) budget, which authorized the move to MMC first in five southeast Michigan counties and then the balance of the state.

The FY 1997–98 budget, Ms. Garcia believes, takes another step forward by requiring that health plans deemed qualified (through the state bid process) to provide capitated MMC engage in certain activities, among them providing continual care, obtaining independent performance evaluation, and reporting certain data to the state; she points out that these provisions are the same as those currently in place for Michigan HMOs. The new budget bill also prohibits the state from imposing mandatory MMC enrollment unless at least two qualified health plans provide the services in each geographic region; this guarantees that enrollees have a choice.

There also are provisions that lock recipients into a qualified health plan for six months but allow them to change health plans for any reason within the initial 30 days of enrollment. Ms. Shearer reports that the MSMS supports this measure and also the provision that allows the state to contract for provision of capitated Medicaid managed care with provider-sponsored organizations (public or private providers or groups of affiliated providers organized to deliver a spectrum of health care services under contract to purchasers) and other networks. "Before," she explains, "the state was permitted to contract only with licensed health maintenance organizations [HMOs]."

Although the state medical society generally is satisfied with HB 4306, Ms. Shearer notes that one disappointing aspect of the bill is that it does not increase the rates at which physicians are reimbursed for providing care to Medicaid recipients. She points out that policymakers have not raised Michigan’s reimbursement rates—the 10th lowest in the nation—since 1991. She maintains that "Physicians are due for an increase."

Ms. Garcia says that the state association of health plans also believes that the budget falls short in some areas, particularly on the issue of Medicaid enrollment brokers. "Last year the state mandated that HMOs end direct marketing to recipients . . . and promised that a new ‘enrollment broker’ process would replace direct marketing on July 1." She points out that the new process will not be in place until October, and this means that right now HMOs are losing money because they are not permitted to market to new Medicaid recipients in the hope of replacing those who leave the HMOs—for one reason or another—at a rate of 3 percent a month.

The MAHP is working with legislators and the MDCH to amend the current budget, to give HMOs that already are qualified to provide MMC services a temporary 5 percent increase in their capitated rate; the purpose is to offset partially HMOs losses until the enrollment broker process is in place.

Healthy Michigan Fund

Also at issue in resolving the FY 1997–98 MDCH budget was restoration of full funding to the Healthy Michigan Fund. According to Geralyn Lasher, communications administrator for the MDCH, one of the original purposes of the HMF was to stop people from smoking, and because the fund’s appropriations stem entirely from tobacco tax revenue, "if people stop smoking, the HMF loses revenue; this is the way it is supposed to be."

The current budget allocates $34.8 million for the HMF. For 1997–98, however, the administration had projected that tobacco tax revenue would decline (due to the decrease in tobacco use) and recommended that only $33.3 million be appropriated. This spawned a wave of protest from anti-tobacco groups and eventually resulted in the HMF being funded at the full amount.

Mr. Paradis commented that the state osteopathic association had been "surprised that the governor’s recommendation included a reduction of the HMF funds and is delighted that the legislature chose to replace them."

Mental Health Facilities

One of Governor Engler’s budget recommendations was the closure of three Michigan psychiatric hospitals—the Detroit Psychiatric Institute, Clinton Valley (in Pontiac), and Pheasant Ridge (in Kalamazoo). He and the MDCH believe the facilities to be over staffed and underutilized; for example, at Pheasant Ridge, the most extreme case, there is an employee/patient ratio of 36:0—the facility has no patients. The closure was agreed to in spirit by the legislature, and the 1997–98 budget includes no state general funds for the institutions; however, in a move seen by some as motivated by partisan politics, the allocations for federal and local funds for the hospitals have been left intact. This means that if the governor wishes the facilities to close, he will have to veto the federal and local allocations; indications are that he will do so.

Ms. Lasher, speaking for the MDCH, explains that "If the governor does not veto the provisions, local community mental health boards will have to foot the bill—$67 million—[for the state General Fund portion] to keep the facilities open."

Such a veto will increase public awareness, acrimony, and possibly litigation concerning the closures (two organizations already have filed suit to stop state employees at the facilities from being laid off). Many observers, including Mr. Paradis, consider the debate over the closure of the facilities to be political in nature. "Still, we think the administration is doing the right thing," he says.

Conclusion

Health professionals and observers seem to be of the opinion that by and large, the MDCH budget addresses most of their concerns. The collective viewpoint probably best is summed up by Ms. Garcia’s statement that ". . . this year’s budget and policy reflect a positive direction for the state." About everyone is happy that the budget season is over: One person commented, "I think it’s time for a vacation."