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The Pandemic is Going to Squeeze State Budgets. Here’s How Medicaid Programs Can Respond.

Nationally recognized health policy, finance, and leadership expert Tom Betlach talks about how state Medicaid programs can face the COVID-19 pandemic and a recession while continuing to care for the most vulnerable.

Jessica Weiss contributed to this story.

In early March, as the COVID-19 pandemic threatened to shut down the United States, Tom Betlach received a call from the Arizona Governor’s Office. After 27 years working for the state, including 10 years as Medicaid Director, Betlach had retired in 2019. But when Gov. Ducey asked him to consider coming back to assist during an unprecedented public health and economic crisis as Interim Director of the Arizona Department of Economic Securities, a 7,000 person agency in charge of issuing Pandemic Unemployment Assistance, Betlach didn’t hesitate.

Betlach’s short-term tenure recently ended, marking the third time Betlach served his state during a recession. As Arizona’s Budget Director during the economic downturn of 2001, and later as Medicaid Director during the Great Recession, when the state lost roughly a third of its revenue, Betlach knows firsthand about the difficult tradeoffs states must make in hard times. 

During his tenure, Arizona’s Medicaid program grew to serve 1.9 million people, or more than a quarter of the state’s 7 million residents, with an annual budget of $13 billion. 

Betlach has since returned to his consulting firm, Speire Healthcare Strategies, supporting health care leaders with a variety of strategic and operational opportunities, including as an Arnold Ventures grantee. 

Our team recently spoke to Betlach about the difficulties facing state Medicaid programs during the pandemic, how they can better serve the dual-eligible population and how COVID-19 may transform state health care policy for those with complex needs. 

This interview has been edited for length and clarity.

Arnold Ventures

The pandemic and the ensuing economic crisis have created an unprecedented challenge for state Medicaid programs. Enrollments are surging while budgets are being squeezed. What levers do states have at their disposal during times like this? 

Headshot of Tom Betlach
Tom Betlach

The pandemic was so sudden and all encompassing that policymakers and governors and state agencies have really had to respond in real time to what’s happening, focusing first on short-term needs and then on the implications on state economies and budgets. Laid on top of that is this broader conversation we’re having as a country around social justice and what that means from a policy perspective. This convergence of three very significant issues is really unique.

States are focused on balancing their general fund — this is a simple equation of revenues less expenditures. Revenue is typically what they bring in as sales tax or income tax, and the big public expenditures facing states are Medicaid, education and corrections. When revenues decrease you see states make cuts in those areas in particular, but if states are not careful they miss out on the big picture, especially in health care. 

Medicaid dollars flow out to support providers and the individuals who depend on the program Additionally, Medicaid is a federal-state partnership. States have to put up a certain amount of dollars to receive the federal matching funds that help pay for the program. Reductions in state expenditures result in reductions in federal dollars flowing to the state and these providers, so that’s also an important consideration. 

Most states cover people and services beyond benchmarks set by the federal government, such as providing people with home-based care so they can live in the community, not institutions. These services are commonly some of the first to go during economic downturns, but unlike previous recessions this one is coupled with a public health crisis. States are needing to double-down on the availability of these services, not cut them. And the federal government has recognized this, limiting the kinds of cuts states can make to their Medicaid programs as a condition of receiving additional funds. 

Meanwhile, the number of people enrolling in Medicaid is ballooning — the need is so great. 

All of this is to say, every recession is difficult for states, but this one is particularly challenging for state Medicaid programs. 

States should also take advantage of the flexibility that can exist within the Medicaid payment system to account for changes related to cost and utilization during this time. Hospitals, nursing facilities and group homes have seen significant increases in costs, for instance, while other providers, like day programs, have seen a falloff in utilization. So Medicaid can use these tools to address what’s going on within local communities.

Arnold Ventures

How can and should states balance these tradeoffs within the Medicaid program while still ensuring that the best policies aren’t compromised? 

Headshot of Tom Betlach
Tom Betlach

It’s vitally important that states not lose sight of providing resources to ensure continuity of care for complex populations. We can and will make a bad problem worse if we cannot find a way to help people stay safely in their homes, not in hospitals, and ensure that chronic conditions are well-maintained, and not unnecessarily exacerbated. 

It’s going to be really hard for states to do this by themselves. Federal support is necessary to limit cuts and allow states to put the attention where it needs to be, on keeping people enrolled, safe and healthy. States are already faced with so much uncertainty; they have to make decisions now that will impact their programs so it’s incredibly important they get clarity around what federal resources will be available and how long they’ll be available for. 

Difficult times also present opportunities to change the system for the better, such as for the dual-eligible population, or those both enrolled in Medicaid and the federally-run Medicare program. There are evidenced-based solutions that improve outcomes and potentially reduce costs for this group. CMS has as recently as a few weeks ago said it wants to help states implement these solutions. Medicaid directors really need to be thinking about this. This kind of work is in the best interest of these folks and the best interest of the taxpayer even in the best of times. Right now, we can be talking about improving care, not just making cuts.

Arnold Ventures

Building on that idea of improving care for the so-called dual-eligible population, what has this pandemic revealed about their Medicare and Medicaid coverage? 

Headshot of Tom Betlach
Tom Betlach

First, this population is the most impacted Medicare population outside of people with end-stage renal disease, according to a recent CMS report. This makes sense given all the other trends we’ve heard about this pandemic — they are more racially diverse and disproportionately use nursing homes and other forms of institutional care. 

The way our system is set up only makes it worse. Medicare and Medicaid are incredibly fragmented programs that historically have not coordinated well. And so it’s really been up to states, working with federal partners, to try to come up with strategies to bridge that gap and deal with that fragmentation. Arizona and several other states have taken the lead over the last several years to try to improve coordination and come up with systems of care that are more seamless for individuals.

When you look at the implications of the pandemic on this population, we see how fundamentally flawed it is to have two different programs responsible for a portion of services for these individuals. What we’ve experienced should only result in us redoubling our efforts and coming up with a better delivery system that better serves dual-eligible members. 

Arnold Ventures

What has this pandemic revealed about the way our long-term care safety net program delivers services and supports to the dual eligible population? 

Headshot of Tom Betlach
Tom Betlach

While all policymakers at the state and federal level should be thinking about fundamentally changing how Medicare and Medicaid interact, that shouldn’t stop us from thinking about improving upon services. 

For example, we need to work with managed care plans in both the Medicaid and Medicare space and ensure they’re doing everything they can to support transitions of care and support nursing facilities. States need to recognize the higher costs of that and work with their managed care partners to support nursing facilities, to support dual-eligible members. 

In addition to that, I think it’s important for states to contemplate longer-term strategies around sustainability. One of the most successful transformations in health care has been efforts to keep people in their homes and in the community, versus nursing facilities. And that’s been led by Medicaid. There’s always going to be a need for nursing facilities, and I understand that they play an important role in the continuum of services, but states should be identifying how to continue to reduce the overall need for nursing facility institutionalization, such as through more robust home and community based services. Those types of longer-term strategies are what state Medicaid programs need to be looking at in terms of continuing to bend the cost curve and improve outcomes for some of the more complex populations. 

Telehealth also jumps right to the top of the list. We’ve seen tremendous uptake in use of telehealth over the past few months. We’ve seen individuals that are using telehealth show up more regularly for scheduled appointments and be able to access services. There’s definitely a lot of promise there. So how do we use that moving forward? How do we ensure those delivering telehealth services are keeping to the same level of care as they would within an office setting? In many instances, I think Medicaid programs need to think through how to mitigate issues that arise for populations that may struggle to access telehealth services, like the complex care population.