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Doing Medicaid Reform Right

Yesterday on Twitter I had a small discussion with the New York Times‘ Ross Douthat about an aside he had in a recent piece about Medicaid. Douthat was skeptical about governors consenting to Paul Ryan’s Medicaid cuts in the block grant program, while I argued that in fact many governors, Republicans and Democrat, would happily trade flat funding in order to get flexibility from Washington.

One of the reasons for that bipartisan undercurrent of agreement on the need for flexibility, rather than just throwing money at an already broken entitlement system, is that we now have examples of policy approaches beyond simply managed care to lower Medicaid costs and increase the quality of care. Chief among these examples is Florida’s pilot program, which you can read about here. 

Here’s the story, in brief: a little more than six years ago, then Gov. Jeb Bush established a pilot program in five big counties in Florida with a total overhaul of Medicaid. (This plan has actually been endorsed by some key Obama administration HHS officials, so it’s not some instance of right-wing extremism.) The population involved is quite large, roughly 300k people on Medicaid – bigger than the total programs in 17 states. The program has received a wealth of attention from policy wonks but little mainstream coverage, in part because Gov. Crist never touted it, as it wasn’t his program. Thankfully, that’s beginning to change, and the Foundation for Government Accountability is beginning to highlight the successes of the program.

Under the pilot program, Medicaid recipients are given the choice of a wide variety of plans created by multiple insurers. The insurers are allowed to escape the vast majority of mandates on coverage, and instead just have to meet an actuarial value for the plan. This allows the state to keep costs flat while giving the insurers an incentive to create more tailored plans depending on need. You also have risk-adjusted capitated rates – or in non-insurer speak, you allow for better matching of payment to risk, so this doesn’t warp the incentives for insurers to make them avoid sick people. Instead, they’re rewarded for making sick people well.

Medicaid recipients get to choose among a dozen different plans with different offerings – one hospital, multiple, HIV-positive, etc. The plans are competing on benefits, copays, and provider networks, even above traditional Medicaid FFS. There’s a default plan, but the engagement is huge – 70% of recipients in the pilot choose a plan other than the default. (This is because, as Jeb was fond of saying, they’re poor, not stupid.) Early engagement in this form has a side benefit, too: it makes them more likely to seek care earlier, as opposed to waiting til they need to go to the emergency room. Patients also get access to seven extra services not covered by any other Medicaid program (over the counter medication, dental, vision, etc.) They also have a cash incentive for healthy behavior, including quitting smoking, of up to $125 per person/per year – 64% of people in the program do it.

The outcome, according to the Florida Agency for Health Care Administration, is 64% better health vs. managed care, with 83% higher satisfaction from those in the program. And they’ve saved money, too: Florida is currently saving roughly $118 million a year on Medicaid in the five counties, with better outcomes for the people in it. The state will be approved soon for a statewide expansion of the program, and expects to save almost a billion dollars per year.

The problem, of course, is that the pilot only exists thanks to the whim of HHS. States currently have to go back and beg every five years for an extension of their waiver. Deval Patrick, for instance, did this for Romneycare—he was overbudget, so he extracted another $4.3 billion from you the taxpayer for it, thanks to Senators Kennedy and Kerry, and HHS Sec. Mike Leavitt.  States will always have an incentive to expand coverage and socialize costs until we reorder the system into one where they have to choose. Block grants – either the pure or partial variety – would allow for massive improvements in this broken program. Here’s the Republican Study Committee’s plan on that score. But what states do with that money and freedom is what really matters. In sum: Florida is the best example we have, and perhaps the most replicable, for how statewide reforms should look going forward. Throwing money at the problem won’t fix it. Medicaid needs reform. It needs to return to its original purpose: covering the poorest of the poor, the sickest of the sick. That’s a true safety net.

  1. Rob Long
    C

    There’s not an honest governor in America — R or D — who doesn’t want flexibility in  the form of block grants, along with the cover of a national leader selling the changes to the American people.  What they don’t want, I don’t think, is to be rowing all by themselves.  Which is what they’re doing now.  Big states, especially.  

  2. Mendel

    Thanks for bringing us up to speed on this Ben – we lose sight of actual examples far too quickly in our “narrative” driven media world (I certainly knew nothing about the program).

    Having browsed some of the report, though, I do have a question: can you explain the differences (espeically in funding) between HMOs and provider service networks (PSNs)?  It appears that there was a big shift in enrollment from the former to the latter in the middle of the test phase, and that costs per patient have been rising steeply since then.

  3. Smokedaddy

    One of my first jobs out of college some 25 years ago was working as a Health Plan sales rep, working our Medi-Cal neighborhoods to sign up MediCal (Medicaid outside Cali) to our health plan. The truth was, at that time, was that there were a lot of benefits to the taxpayer and the Health plan, but not so much for the recipients, at least as all too many perceived it. Especially in the inner cities where doctor offices & pharmacies had a pretty good racket going with MediCal moms being in the habit of taking their Medical stickers to see the doctor or Emergency room at the drop of the hat. But this plan looks like its a better deal for all concerned with regards to the incentives. The risk adjustment issue is key, I think. And will ultimately be dependent on Medicaid fairly and competently assigning a correct capitation rate, which can be tough to do sometimes, medicine being what it is. Still, this sounds very promising with the devil in the details.