You asked for a brief summary of the Department of Social Services' (DSS) proposal to make the ConnPACE program part of Medicaid and expand the pool of eligible participants. You also wanted to know if any other states are running their prescription assistance programs under an 1115 waiver. You specifically mentioned Vermont.

SUMMARY

Connecticut's ConnPACE 1115 demonstration waiver proposal, which DSS recently sent to the legislature for its approval, provides the federal government with a blueprint of how the state will offer prescription drug coverage to more elderly and disabled individuals and not cost the state or federal government any more money than they would pay to maintain the health of these additional people without the waiver.

In essence, the waiver will change ConnPACE from a state-funds-only program to a Medicaid coverage group (prescription drugs only), eligible for a 50% federal match. And it will be open to people with incomes up to 300% of the federal poverty level (FPL), instead of the current, lower limits. Enrollees will still have co-insurance requirements which rise somewhat for people at higher income levels.

Caseload estimates based on the 300% of FPL income limit are unclear. Table A-8 of the waiver proposal (see copy attached) projects caseload increases in the first year alone of an additional 30,000 people. But page 71 of the FY 02-03 Governor's Mid-Term Budget Adjustments (attached) provides a more conservative estimate of 11,200 additional enrollees. Notwithstanding this expansion, the waiver proposal contends that the state will actually save almost $ 30 million in Medicaid costs (and over $ 1 billion in federal Medicare costs) by preventing Medicaid-covered institutionalization and delaying non-institutional or "community" Medicaid for these individuals.

Only one state, Illinois, is presently authorized to run a pharmacy assistance program similar to Connecticut's proposal, using an 1115 demonstration waiver. Just recently the state received federal approval to offer Medicaid coverage for prescriptions to seniors with incomes up to 200% of the FPL with no asset test. Like Connecticut' s proposal, the Illinois waiver program will move thousands of people from a strictly state-funded program to a federal-state program. The state expects to serve as many as 250,000 people in its program, which is scheduled to begin in October 2002.

Vermont has an 1115 waiver for its pharmacy program, but it differs considerably from Connecticut's and Illinois' proposals by offering enrollees only a discount, not a full drug benefit. Moreover, a U. S appeals court recently struck down the enabling law, holding that the state had exceeded its authority in requiring drug manufacturers to pay rebates when neither the state nor federal governments made corollary Medicaid payments. (See copy of OLR report 2001-R-0535 for a summary of the program and court decision. )

CONNECTICUT'S 1115 PROPOSAL

Background

Section 22 of PA 00-2, JSS directed DSS to expand the ConnPACE program in two phases. The first expansion, for which state funds were appropriated, increases the income limits to $ 20,000 and $ 27,100 for single and married applicants, respectively, on April 1, 2002. The second expansion raises the limits again, to 300% of the federal poverty level (currently $ 25,800 and $ 34,800) on July 1, 2002, but only if DSS first receives a waiver for federal financial participation (i. e. , Medicaid). It is estimated that an additional 12, 100 people will be eligible to enroll when the April 1 limits go into effect.

ConnPACE 1115 Eligibility

In response to the legislative directive, DSS has put together a proposal for a Medicaid waiver. Under this proposal, enrollees will pay the existing $ 25 ConnPACE registration fee. In addition, they must pay the pharmacist a co-payment for every drug dispensed. For enrollees with incomes up to 233% of the federal poverty level, the co-payment remains the same as it is under the current ConnPACE program, $ 12. But for enrollees with incomes between 233% and 300% of the FPL, the co-payment rises to $ 20. (A voluntary mail-order program will also be available as an altenative. )

As it does under the current ConnPACE and Medicaid programs, DSS will continue to pay to the pharmacist the remainder of a prescription's cost based on the Medicaid drug reimbursement schedule. The state will also negotiate with drug manufacturers to bring in more rebate revenues, which they must provide as a condition of providing drugs to Medicaid recipients.

What the Program Will Not Provide

The waiver program, like the present ConnPACE program, will not cover certain drugs. The major uncovered drugs include diet pills, smoking cessation gum, contraceptives, antihistamines, experimental drugs, drugs that the Food and Drug Administration has determined to be ineffective, drugs prescribed for cosmetic purposes, cough preparations, anti-obesity drugs, multi-vitamin combinations, vaccines that are available free of charge, and most over-the-counter drugs. Certain other drugs may also be unavailable if a drug manufacturer decides not to participate in the rebate program.

What the State Must Show to Get Federal Approval

In general, states wishing to experiment with their Medicaid programs must be able to show the federal government that any such experiment will be "budget neutral. " This means that any increases in Medicaid costs associated with the experiment must be offset by at least the same amount in Medicaid savings.

In its proposal, DSS contends that the costs of offering Medicaid coverage for prescriptions drugs only (as opposed to full Medicaid coverage) to additional individuals will be more than offset by savings in

two main areas of the Medicaid budget: long term care services, which includes both nursing home and home and community-based services, and community Medicaid. For the former, the savings would be realized by a reduced need for long-term care services given the greater availability of prescription drug coverage.

Likewise, community Medicaid costs would be saved, DSS suggests, as people's ability to "spend-down" excess medical costs would be delayed. This would occur because enrollees would not be able to count the state's share of prescription expenses towards their spend-down amount as they presently can under the ConnPACE program. Instead, they could apply only their co-payments and registration fee. (People who are in the "spend-down" category of Medicaid can qualify for assistance by spending down their income that exceeds the program's income limits on paid and unpaid medical bills. )

The federal government also requires states to show a commitment to "maintain" the state funding that was provided before the waiver. Hence, DSS indicates that state funding for people with incomes up to 233% of the FPL (including people eligible for the expansion on or after April 1) will continue and will serve as the state's maintenance payment.

While the federal government does not allow states to factor savings to the Medicare budget in an 1115 budget neutrality test, DSS includes in its proposal projected savings in that program as well, given the prescription expansion. One would assume that the savings would come mostly from reduced hospitalizations and short-term nursing home stays, both of which Medicare currently covers.

The proposal provides a very detailed analysis of how all of these anticipated savings will more than offset the expansion's costs.

ILLINOIS' PRESCRIPTION ASSISTANCE PROGRAM--SENIORX

On January 28, 2002, the federal Centers for Medicare and Medicaid Services (CMS) (the federal agency that grants the waivers) approved Illinois' request to run an 1115 demonstration for its prescription drug assistance program, to be called SenioRx Care. It is expected to be under way on October 1, 2002. Most of the people currently enrolled in the state's existing pharmacy assistance program will be moved into this new program.

Existing Coverage

Like Connecticut, Illinois has run a state-funded pharmacy assistance "Circuit Breaker" program for 15 years, but this program is much more limited than ConnPACE. It currently provides chronic and catastrophic drugs to elderly and disabled people with incomes up to $ 21,218 for single applicants and $ 28,480 for married couples. The program covers prescription drugs used for treating heart and blood pressure problems, diabetes, arthritis, Alzheimer's, Parkinson's, cancer, glaucoma, lung disease and other smoking related illnesses, and osteoporosis.

Coverage costs depend on income. For applicants with annual incomes up to $ 8,590 or $ 11, 610, for single and married participants, respectively, the annual cost is $ 5 and there are no co-payments. Higher income participants pay a $ 25 annual registration fee and $ 3 for every prescription. Once prescription costs reach $ 2,000 in a given year, participants must pay 20% of any additional drugs' costs, on top of the $ 3 co-payment.

In addition to state appropriations, program costs are paid with Tobacco Settlement funds.

Waiver Program-SenioRx

Most, but not all people in the Circuit Breaker program will be moved into the SenioRx program, which is available to people aged 65 and over with incomes up to 200% of the FPL. Younger people with disabilities and seniors with higher incomes will continue to receive benefits under the state-funded program. (The state originally requested that the income limits rise to 250% of the FPL but CMS did not approve it. )

The program's structure is virtually identical to the Circuit Breaker's. Once someone enrolls, he remains eligible for 12 months. And the cost-sharing requirements (registration fee and co-payments) are the same. But unlike the limited scope of drugs available under the former program, SenioRx will provide all drugs currently available to the state's other Medicaid coverage groups. While not unlimited (the state uses a formulary), certain drugs not currently available, but that seniors typically need, will now be subsidized. These include gastrointestinal, anti-anxiety, antihistamine, and anti-depressant therapies.

Although the state will not require them to do so, people with Medicare supplements or other insurance that provides prescription assistance will be given the option to receive $ 25 rebate checks each month to offset their out-of-pocket expenses. Illinois Department of Public Aid's Andrew Kane suggests that as many as 23 % of the target population have some type of employer sponsored pension plan that offers prescription coverage.

Although we have not seen the actual waiver document, Kane indicates that the state is making a case to the federal government similar to Connecticut when showing Medicaid budget neutrality. Namely, that the program will "deflect" people from more costly institutional care. And the state, like Connecticut, expects to offset program costs significantly by taking in much more in drug manufacturer rebates for enrollees.

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