Strategy 9: Expanding Managed Care

BACK TO REPORT

Description of the Strategy

Many states began experimenting with Medicaid managed care in the 1980s as a way to control rising Medicaid costs and become more actively involved in oversight of care delivered to beneficiaries. Forty-eight states currently have full or partial enrollment of Medicaid beneficiaries in managed care. In 2000, about 56 percent of Medicaid recipients were enrolled in some form of managed care.

The stringency of managed care ranges from "gatekeeping" by primary care providers in a fee-for-service environment (primary care case management-PCCM) to capitated arrangements with managed care organizations (MCOs) in which health plans receive a fixed monthly payment for a set of benefits and contract with a selected network of providers for service delivery. Managed care may help contain costs by changing the type and amount of services provided, managing access to specialists, reducing hospital visits or lengths of stay, and gaining price concessions from providers. Plans may integrate all Medicaid-covered services or may "carve out" particular services (typically, mental health).

The amount of savings to the state depends on the managed care model used, the method used to set rates, and the extent to which health plans are successful in changing service delivery patterns. In areas with provider shortages, loosely managed PCCM may control and coordinate care and establish a "medical home" for patients to seek routine and preventative care, but savings may be slight. PCCM does not lower provider payments, which are paid on a fee-for-service basis. If the state contracts for managed care through an MCO, the health plan often reduces costs by negotiating rate discounts with providers who agree to the rates in exchange for a guaranteed stream of patients. This can work only in a competitive market where a sufficient number of providers are willing to make rate concessions in exchange for the promise of more patients.

Managed care can expand in four ways: changing the type of managed care arrangement, expanding the geographic area served, expanding the population covered, and expanding the types of services covered by managed care. These options can be used separately or be combined to fit the needs of the state.

Change the type of managed care arrangement. Many states offer different managed care options in different parts of the state. Typically, a state may offer an HMO product in urban areas, a PCCM or HMO in suburban areas, and a fee-for-service arrangement in rural areas. Urban or suburban areas with PCCM or fee-for-service programs may be able to convert to HMOs, which can negotiate discounts and exercise more control over the utilization of services. Options are more limited in rural areas, but even regions that cannot sustain managed care still may save by adopting a PCCM arrangement.

Expand the geographic areas. States can encourage MCOs to enter the Medicaid managed care market in new areas. They may require plans to bid statewide or regionally, rather than only on an urban population. States can help traditional caregivers for the poor-public hospitals, clinics and health centers-form plans to serve the Medicaid population.

Expand populations covered by managed care. In some states, specific populations-such as people with disabilities and children with special health care needs-are excluded from managed care. Providers serving these populations are reimbursed on a fee-for-service basis. Although the aged, blind or disabled account for approximately 26 percent of the Medicaid population, they incur about 71 percent of Medicaid costs.(1) Yet, 15 states did not offer managed care to the disabled Medicaid population in 1998 and only six states enrolled more than 75 percent of their disabled Medicaid population in managed care.(2)

States can use several approaches to bring populations into managed care. Individuals with disabilities can be included in the regular Medicaid managed care population or can be in a separate program targeted to the population. States can encourage commercial plans to bid on unfamiliar populations by helping with risk assessment, engaging in risk sharing during a limited transitional period or using risk-adjusted payment methodologies to calculate capitation rates.

Expand services covered by managed care. Medicaid managed care does not necessarily manage all services under Medicaid. Typical carve-out benefits include behavioral health, pharmacy, dental, long-term care and chiropractic. These benefits may be managed in a separate program (e.g., contracting with a separate behavioral managed health organization for mental health services) or may be paid for on a fee-for-service basis. There may be opportunities to save by adding these services to the capitation rates or moving from fee-for-service reimbursements to a managed benefit separate from the regular Medicaid capitation. (See Figure 6 for examples of managing pharmacy benefits.)

Pros and Cons

The pros and cons of Medicaid managed care expansions tend to mirror the arguments made for and against managed care in the private sector.

Pros

Geographic expansion of managed care is an important tool for incremental changes or demonstration programs because it can be done on a less than statewide basis.

Managed care guarantees access to a network of physicians. In traditional fee-for-service Medicaid, the recipient has to find a physician willing to accept Medicaid recipients.

Managed care may encourage efficient and appropriate use of services leading to better coordination and quality for people with high medical needs. Given the high proportion of spending that occurs among people with disabilities, if this lowers costs by a few percentage points, it can make a significant difference in the budgetary bottom line.

Cons

MCOs and providers may not want to participate. If there is a provider shortage, as in many rural areas, MCOs will not be able to negotiate discounts and will not want to enter the market.

In any capitated arrangement, there is a fear that the population may be under-treated. The potential also exists for discontinuity in care if an individual's current medical specialists or therapists are not included in the new physician network.(3)

Enrolling the aged and disabled in Medicaid managed care can be complicated by "dual eligibles," those who are eligible for both Medicaid and Medicare. States cannot manage Medicare spending or service delivery without a Medicare demonstration waiver, and often are challenged by having control over only a limited number of services for dual eligibles.

State Experience

Provider shortages, which limit managed care penetration, are a major reason that Alaska and Wyoming-two of the most rural states-do not have managed care. This also has been a factor in the withdrawal of health plans from Medicare + Choice(4) and state Medicaid programs in northern New England and West Virginia.

Several states have enrolled new populations in managed care. New Mexico, one of six states to enroll more than 75 percent of the disabled population, enrolls all people with disabilities in one of three mainstream capitated plans. Michigan has a mandatory capitated program for all Medicaid recipients and a special voluntary program targeted at children with special health care needs. Washington tried, then abandoned, managed care for people with disabilities. In 1998, Washington moved all people with disabilities from managed care arrangements to fee-for-service after utilization and costs increased and health plans became reluctant to participate in the plan.

States have changed services covered. In the early 1990s, Massachusetts became the first state to implement a comprehensive behavioral managed care program. The shift successfully slowed the growth in behavioral health cost. Carve-outs do not always result in savings. In California's carve-out, efforts to discharge mental health patients from hospitals faster-coupled with inadequate after care-increased rehospitalization. Some states choose to capitate some care and cover more serious conditions in fee-for-service. Hawaii and New York, for example, both use partial carve-outs for more intensive mental health treatment, leaving basic mental health benefits in their standard capitated plans.

Design and Policy Issues

Are providers or managed care organizations willing and able to expand to new geographic areas, manage care for new populations, and/or add services under managed care?

What rates will attract additional managed care plans into the Medicaid market yet guard against adverse selection? It may be difficult to develop rates that attract health plans yet lower costs. Rates must be adjusted for risk. Some Medicaid disability recipients-for example, people who are blind-need very little care, while others need constant specialized care. Basing risk adjustment solely on traditional factors-such as age, gender and geographic area-may not fully account for the financial risk to the insurer. Risk adjustment protects plans that attract more people with disabilities ("adverse selection") from being financially harmed by their willingness to serve a sicker population. A few states use sophisticated risk-adjustment measures based on prior resource use, diagnosis, health status, or some combination of these factors.(5) For example, Michigan uses four diagnostic categories, age and geographic criteria to adjust rates for its Children's Special Health Care Services Program.

How will the state design managed care programs for new populations?

Will the disabled population be placed in "mainstream" Medicaid managed care plans or will they be segregated? Thirty-five states enroll non-elderly people with disabilities into Medicaid through managed care organizations. (See Figure 9.) However, only five states offer programs exclusively for SSI or disabled populations.(6)

Will the program be mandatory or voluntary? Voluntary programs tend to attract individuals with less serious conditions, severely limiting their cost-saving potential.(7)

As managed care is expanded, who will bear the majority of the risk: the state or the managed care plan? How will risk be shared? Will adjustments be made if a plan experiences significant losses or profits? For example, some states establish a risk corridor and any profit or loss outside this corridor is assumed by the state.

What performance mechanisms can be put in place to ensure that people receive access to appropriate care in a timely manner? Vulnerable populations often are the least likely to advocate for themselves within the health care system. For this reason, it is especially important that the state monitor the treatment of these beneficiaries within managed care.

Federal Constraints

The Balanced Budget Act (BBA) of 1997 allows states to mandate enrollment in managed care for some Medicaid recipients without a federal waiver. Certain groups-such as dual eligibles and children with special health care needs-still require a federal waiver for mandatory enrollment in Medicaid managed care. In most cases, individuals subject to mandatory enrollment must be given at least two managed care entity options (or, in rural areas, a choice of at least two providers) and beneficiaries must be permitted to disenroll at any time for cause. Managed care enrollment is not required to be statewide. All benefits listed in the Medicaid state plan must be covered for all eligible recipients, but the benefits offered through the managed care plan are not required to be uniform. Any benefits guaranteed by the Medicaid state plan, but not covered by a Medicaid managed care entity, will be provided by the state on a fee-for-service basis. Expanding managed care to new populations or altering other provisions of Medicaid law may require a federal waiver.

Notes

1 U.S. Department of Health and Human Services, Profile of Medicaid: Chartbook 2000, Health Care Financing Administration, September 2000, accessed on October 16, 2001 at http://www.hcfa.gov/stats/2tchartbk.pdf

2 Kaiser Commission on Medicaid and the Uninsured, Medicaid's Disabled Population and Managed Care (Washington, D.C.: Kaiser Family Foundation, March 2001), accessed on October 16, 2001 at http://www.kff.org/content/2001/2123-02/2123-02.pdf

3 Marsha Regenstein and Stephanie E. Anthony, Medicaid Managed Care for Persons with Disbailities, Assessing the New Federalism, Occasional Paper #11(Washington, D.C.: Urban Institute, August 1998), accessed on October 16, 2001 at http://newfederalism.urban.org/pdf/occa11.pdf

4 Medicare + Choice is the Medicare managed care option.

5 Marsha Regenstein, Christy Schroer, and Jack Meyer, Medicaid Managed Care for Persons with Disabilities: A Closer Look (Washington, D.C.: Kaiser Family Foundation, April 2000), accessed on October 16, 2001 at http://www.kff.org/content/2000/2179/A%20Closer%20Look.pdf

6 Ibid., 11.

7 Marsha Regenstein and Christy Schroer, Medicaid Managed Care for Persons with Disabilities: State Profiles. Economic and Social Research Institute for Kaiser Commission on Medicaid and the Uninsured, Washington, D.C.: December 1998, p.11, accessed on October 16, 2001 at http://www.kff.org/content/archive/2114/Disabilities.PDF

BACK TO REPORT

Strategy 9: Expanding Managed Care

BACK TO REPORT

Description of the Strategy

Pros and Cons

Pros

Cons

State Experience

Design and Policy Issues

Federal Constraints

Read More About It

Notes

BACK TO REPORT