Gov. Sam Brownback’s administration has blamed the Affordable Care Act for increasing Medicaid costs and adding to the state’s budget hole, but it has also quietly looked to a pharmaceutical rebate made possible by the ACA for help in filling that hole.
When Brownback unveiled his plan to fill the state’s nearly $280 million budget hole through June, it included a $55 million sweep from the Kansas Department of Health and Environment’s fee fund.
The Kansas Health Institute dug into the details last week and discovered the fee fund was a byproduct of the Affordable Care Act, often referred to as “Obamacare,” the president’s signature health reform policy, which Brownback repeatedly railed against on the campaign trail this fall.
“The fee fund is actually money received from the Medicaid pharmacy rebate program. The pharmacy rebate program received a larger rebate than expected, which totals $55 million over two years. This money has already been saved and does not affect providers,” said Sara Belfry, the spokeswoman for KDHE, in an e-mail last week.
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The $55 million, she wrote, is the result of more prescriptions being filled by those on Medicaid and better administration of the program at the state level.
Belfry’s e-mail doesn’t specifically mention the Affordable Care Act or Obamacare. It does reference the managed care organizations, which took over the state’s Medicaid serves when Brownback privatized the program under the KanCare umbrella.
The fact that Brownback, who repeatedly used “Obamacare” as a hammer against Democrat Paul Davis on the campaign trail, has used money available because of ObamaCare to fill the state’s budget deficit has gained national attention.
The budget hole, which grows to $648 million next fiscal year, is the result of lower than expected income tax revenue and projections that the Kansas economy will grow at a slower pace than the nation next year.
LeAnn Bell, a senior policy analyst at the Kansas Health Institute, explained that the Medicaid pharmaceutical rebate program, which requires drug manufacturers to pay a rebate in exchange for Medicaid covering a drug, existed before Obamacare.
However, before that people enrolled in Medicaid managed care programs were not eligible to receive the rebate.
“Even though it was a Medicaid beneficiary…those medications were not eligible for drug rebate, so in those instances neither the state or federal government got rebate dollars back on those drugs,” said Bell, who oversaw the state’s Medicaid pharmaceutical program from 2008 into early 2011.
That changed under Obamacare, she said.
“What the ACA did was make all of those medications dispensed, even to beneficiaries in managed care, also elgibile for drug rebate,” Bell said. “And that was a major change.”
Bell also noted the implementation of that change coincided with the state shifting its Medicaid program to managed care under the KanCare umbrella. “States that didn’t have much much of a managed care population, this would have virtually no effect.”
Budget Director Shawn Sullivan had previously offered money from the pharmaceutical rebate program as part of an estimated $100 million in potential savings the state could use to shore up its budget about five weeks before the election. Sullivan at that time calculated the rebate program would provide an additional $40 million.
The administration did not reference the Affordable Care Act when announcing those projected savings in late September. However, Sullivan has explicitly blamed the ACA for contributing to the state’s budget deficit.
The state’s Medicaid costs for the year are $46 million more than projected in April, which Sullivan blamed primarily on the health insurance premium tax, another component of the ACA.
Sullivan blamed this and the increased costs for K-12 education for causing the state’s budget hole – along with lower than expected revenues – when he announced the governor’s budget cuts last week.
So is the ACA’s overall impact on the state’s budget positive or negative?
Bell said that’s a difficult question to answer with certainty.
She noted that in addition to specific policies like the rebate program there is also the broader impact of the law. The ACA has produced a woodwork effect, which has caused more people to apply for Medicaid even in states like Kansas that haven’t expanded the program, resulting in both an increase in the number of people insured and in the cost to the state.
“Whether it’s a net gain or a net loss, it’s something that people are going to be studying for a long time about the impact of the ACA on Medicaid budgets,” Bell said. “Definitely there are little policies, little parts of the law, like this rebate part, that are helping. But I think it’s a little early to answer.”
Sullivan said that in the long run the ACA will cost the state more than it will save.
"The health insurer's premium tax is set to cost the state $124 million between now and the upcoming two-year budget cycle,” Sullivan said in an e-mail. “The drug rebate program existed prior to the ACA. The excess balance in the KDHE fee fund from the drug rebate program that we are proposing to transfer in fiscal year 2015 is partly from the ACA expanding the program, but also from higher pharmacy utilization in KanCare and better utilization of the program by the MCOs (managed care organizations).”
“The excess balance that was generated over the last two years in a one-time savings and is trumped by health insurers premium tax and also the large cost associated from the so called 'woodwork effect' of the ACA that has caused the Medicaid rolls to expand by thousands,” he added.