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Perspectives

PERSPECTIVE

Real Health Plans Manage Care

Abstract

 
The public sector might seem to be an appealing growth opportunity to commercial insurers confronted by stalled private-sector coverage expansion, but whether these insurers have the means and motivation to deliver value to Medicare and Medicaid is unproven. State Medicaid purchasers in particular have found alternative sources for care management and have sound reasons to question whether industry-leading commercial insurers will be responsive to their needs.

The extraordinary run-up in stock prices for these firms—at the same time they have reduced their imprint on delivery systems in the name of lost negotiating leverage, reduced provider intrusiveness, or consumer directedness—provides compelling evidence that the purchaser revolution that spawned the managed care era is well behind us. In fairness, timidity and lack of support from purchasers contributed to this and left plans in unsustainable positions they prudently chose not to sustain. So bringing forth benefit buy-down, increased copayments and deductibles, and self-directed care have been shrewd, lucrative responses. The fact that the lucre is coming from the private employers who left them hanging out to dry reveals a certain poetic justice.

Is Privatization Enough?

Top Is Privatization Enough? Who Is Selling What... Care Management Matters NOTES

 
Robinson underscores that the impulse toward privatization via health plan contracting among policymakers remains strong—so strong that at the federal level it seems to be privatization at any price under the Medicare Prescription Drug, Improvement, and Modernization Act (MMA). How else could one explain that the fastest-growing Medicare Advantage (MA) product is the unmanaged private fee-for-service plan whose only distinctive feature is its private status and whose growth is largely attributable to the peculiarities of what is artfully called "geographic arbitrage"? Of course, profiting from differences between geographically diverse payment rates and cost of care delivery has a long history in Medicare managed care. But expanding the range of private product options to include unmanaged models sets Medicare on a course to converge with the diminished management found in the commercial health insurance sector. It is hardly surprising that the next step is renewed efforts to promote medical savings accounts (MSAs) and high-deductible policies for Medicare beneficiaries to align options with that burgeoning part of the commercial insurance market.²

Medicaid also is acting on the rhetoric of consumer direction with pilot programs to offer limited benefits, promote personal accountability, and encourage desired behavior to earn benefit enhancements. However, Medicaid, for the most part, continues to pursue conventional models of managed care, including full-risk health maintenance organization (HMO) products, from the limited set of vendors that still sell them. Although transformation of product offerings in the industry gets little attention from Robinson, it has had a large bearing on what plans have been interested in the Medicaid market.

Medicaid agencies have spent the past decade adapting to a changing managed care market.³ Most multiline firms in Medicaid in the mid-1990s left after a few disappointing years because of callous or careless purchasing behavior by states, or because of plans’ unwillingness to make needed accommodations for Medicaid’s distinctively different populations, purchasing specifications, and provider networks. With low payment rates and limited provider participation that made it the mother of all preferred provider organizations (PPOs), Medicaid deprived plans of price-discounting opportunities they secured in the commercial sector through accumulation of lives and leverage. Adding Medicaid members and including providers who served them brought little additive negotiating leverage to commercial networks. Moreover, paying providers differential rates for their Medicaid and commercial memberships created added friction.

In later years, as commercial plans responded to consumer backlash and provider pushback, product configurations changed, and appetites for care management waned. Networks expanded, primary care gatekeeping receded, preauthorization and other utilization management techniques fell into disrepute, and cost sharing came into vogue. But Medicaid programs continued to rely on relatively narrow provider networks, to value the virtues of a medical home embedded in the gatekeeper concept, and to remain committed to traditional methods of utilization management because of the infeasibility of shifting to demand-side mechanisms like cost sharing. It was hardly surprising that Medicaid sought and found its health plans in different quarters from the erstwhile managed care firms that were returning to their commercial insurance roots.

Who Is Selling What Medicaid Is Buying?

Top Is Privatization Enough? Who Is Selling What... Care Management Matters NOTES

 
The composition of the Medicaid managed care market is distinct, with a disproportionate number of provider-affiliated plans and a growing investor-owned Medicaid specialty firm sector. The provider plans, although historically weak, have gained improvement in size, sophistication, and financial stability, led particularly by plans sponsored by federally qualified health centers and some safety-net systems. Some failed or sold out to investor-owned firms, but that has meant that survivors are stronger, more mature, and more independent of their provider sponsors.

The four specialized firms that have completed stock offerings have generally thrived and now play key roles in many states. They have grown rapidly—each has more than a million lives—and diversified across enough states to buffer themselves from crises in single states. Their scale, cross-state experience, access to capital, investment in infrastructure, and mobility make them attractive to states as contracting partners. In several instances where they have gone head to head with multiline firms in competitive procurements, specialized firms have enjoyed striking success.

The role played by major national and regional firms, including independent Blues, has been even more limited than Robinson’s data suggest. Only two firms have more than a million lives, and only three operate in more than three states. WellPoint and United have displayed strong commitments to Medicaid, with somewhat different outcomes. WellPoint has enjoyed considerable success, especially in California, despite its reputation for wariness toward public-sector business, because of strong product-line leadership. This leadership is now active in trying to use the expanded WellPoint/Anthem platform to launch Medicaid programs in new markets. United’s experience has been less successful, witnessing limited organic growth since sharply increasing its Medicaid enrollment through the costly acquisition of the specialty firm Ameri-choice in 2002. It is instructive, as Robinson points out, that both firms operate their Medicaid products as either separate business units (WellPoint) or subsidiaries (United), which underscores how differently they view Medicaid from their other business lines. But beyond these two firms there is limited evidence that other national and regional firms have strong desires to enter or reenter the Medicaid market.

Care Management Matters

Top Is Privatization Enough? Who Is Selling What... Care Management Matters NOTES

 
There is little reason for Medicaid agencies to use managed care contracting simply to pursue privatization. Despite assertions of cost savings, given the rate increases needed to keep plans participating in markets, states today seem less likely to underinvest (save money) in Medicaid than they could have in a purely fee-for-service environment. Moreover, since states are ostensibly required by law to pay plans "actuarially sound" rates, Medicaid agencies correspondingly can and do demand a measure of care management in return for those rates. In states with mature programs, contracting terms and monitoring have become much more demanding, and rate increases may be tied directly to achievement of care improvement and other performance targets. Such conditions of participation might not be appealing to firms with little inclination toward performance accountability.

More importantly, although the preponderance of enrollees in Medicaid managed care to date have been low-income women and children, states are now asking their plans to manage care for far more needy and costly disabled and chronically ill beneficiaries. With only about 15 percent of all Medicaid spending under capitated arrangements, despite the more than 60 percent of beneficiaries in managed care, this population is the next frontier for health plans in the Medicaid market.⁴ Notably, stock analysts who follow the Medicaid market welcome this opportunity for substantial increases in "top line" (revenue) growth, and specialized plans themselves contend that they are ready and able to meet the needs of the states and this higher-risk population. It is not yet clear whether they or the provider-affiliated plans in Medicaid can serve this population successfully on a large scale. But both segments are far more prepared to take on this challenge than the commercial insurance firms whose arsenals of care management have been dismantled or were never up to the task.

Editor's Notes

 
Bob Hurley (rhurley{at}hsc.vcu.edu) is an associate professor in the Department of Health Administration, Virginia Commonwealth University, in Richmond.

NOTES

Top Is Privatization Enough? Who Is Selling What... Care Management Matters NOTES

 

1. J.C. Robinson, "The Commercial Health Insurance Industry in an Era of Eroding Employer Coverage," Health Affairs 25, no. 6 (2006): 1475–1486.[Abstract/Free Full Text]
2. Centers for Medicare and Medicaid Services, "CMS Announces Steps to Improve Access to Consumer-directed Health Plans in Medicare," Press Release, 10 July 2006, http://www.cms.hhs.gov/apps/media/press/release.asp?Counter=1894 (accessed 21 August 2006).
3. R.E. Hurley and D.A. Draper, "Medicaid Confronts a Changing Managed Care Marketplace," Health Care Financing Review 24, no. 1 (2002): 11–25[Medline]; and D.A. Draper, R.E. Hurley, and A.C. Short, "Medicaid Managed Care: The Last Bastion of the HMO?" Health Affairs 23, no. 2 (2004): 155–167.[Abstract/Free Full Text]
4. Lewin Group, "Medicaid Capitation Expansion’s Potential Costs Savings," Report prepared for the Association of Community Affiliated Plans, 18 April 2006, http://www.ahcahp.org/publications/working%20papers.asp (accessed 21 August 2006).

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