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Study Voices Definite Doubts About Strategies to Control Medicaid Costs

By John Reichard, CQ HealthBeat Editor

October 3, 2006 -- Two new strategies for controlling Medicaid costs could undermine the health of Medicaid beneficiaries, warns a recent analysis by George Washington University Health Policy Department Chair Sara Rosenbaum.

The strategies "ultimately may lead to serious gaps in coverage and care, the loss of participating plans and providers, and undermine rather than advance population health status," Rosenbaum cautioned.

However, the head of the federal Medicaid program said Tuesday that state flexibility to reshape benefits will improve rather than harm quality. And a congressional GOP aide warned that blocking the strategies could harm rather than protect beneficiaries.

Known as "limited-benefit" and "defined-contribution" arrangements, the strategies would not apply to all Medicaid beneficiaries in states that use them. They would most affect families with children among the various populations covered by Medicaid, Rosenbaum noted in the report, which was supported by a grant to the university from the health insurance lobby America's Health Insurance Plans (AHIP).

Department of Health and Human Services Secretary Michael O. Leavitt has urged an overhaul of Medicaid based in part on the argument that it's better to give a larger number of people "Chevrolet" benefits rather than a smaller number "Cadillac" coverage.

Part of the argument for the strategies is that there are relatively healthy populations in Medicaid, such as families with children, for whom extensive benefits are not necessary. But the study challenges that premise. "The great majority of children and half of all adults who are enrolled in Medicaid and who have serious functional health limitations may in fact be members of the 'healthy' Medicaid population at whom coverage reduction initiatives may be targeted," the GWU analysis said.

"Cost-management tools that may be appropriate for a middle-class employed population must be approached with extreme care in the case of Medicaid-enrolled children and adults," said Rosenbaum in a statement released with the study.

Florida has received the green light for "defined-contribution" revisions in its Medicaid program, which means the state will pay a flat per capita amount for the cost of health coverage instead of paying whatever it costs to deliver care under a guaranteed set of benefits. That latter approach is known as a defined-benefits arrangement and is traditional in Medicaid and Medicare.

Oklahoma and South Carolina have proposed revisions similar to Florida's, according to the study.

The study uses the term "limited-benefit" coverage to mean a health plan whose coverage is more narrow than traditional Medicaid. A budget savings measure (PL 109-171) signed into law in February makes it easier for states to adopt these arrangements. Idaho, Kentucky, and West Virginia were among the first states to take advantage of these new powers in enrolling low-income children and their parents in health plans.

While proponents say the strategies mimic coverage commonplace in the commercial sector, "Medicaid's primary function is to provide a safety net for those who are most in need," Rosenbaum said.

The issue of the suitability of such coverage for a larger proportion of the Medicaid population could become more prominent later this year with the release of recommendations by the Bush administration's Medicaid Commission for long-term changes to the program. Some observers say the commission might endorse wider use of benefit packages for Medicaid along the lines of those used in the State Children's Health Insurance Program (SCHIP), which in turn are based on employer-sponsored benefits.

While Democrats have complained about the growing use of private health plans in federally funded health care programs, Rosenbaum said Medicaid's unique patient population does not rule out the use of these plans.

"Many states contract with health plans to insure coverage and manage patient care, and these organizations have shown to be effective, particularly in experienced states that have a long history of managed care collaboration and that use actuarially sound rate structures," she said.

"The challenge facing Medicaid purchasers is to maintain a comprehensive approach to coverage design while incentivizing participating plans and providers to seek efficiencies," Rosenbaum concluded.

The study is a flashing yellow light that states should move cautiously in revising their Medicaid programs, AHIP President Karen Ignagni said Sept. 13. "Comprehensive Medicaid health plans, when appropriately funded, have the ability to improve the quality of care being delivered to beneficiaries," she said. States should build on tools used by the plans such as prevention, care coordination, and disease management programs, she said.

"The idea that Medicaid must continue to provide a limitless benefit regardless of the population described is unrealistic," the GOP aide said in response to the study. "States should be allowed to carefully move forward with alternative packages. Efforts to shut them down before they even begin jeopardize coverage for Medicaid beneficiaries as states face difficult budget choices. Remember, states can drop populations if they feel that is the only way to balance their budgets," the aide said.

"There were lots of folks who didn't want to give states flexibility when SCHIP was created and they were proven wrong," added Dennis Smith, director of the Center for Medicaid and State Operations at the Centers for Medicare and Medicaid Services.

"Two-thirds of Medicaid spending occurs because states have made choices to serve individuals beyond what the federal law requires them to do," he said. "States are designing programs that will improve quality, access, and health outcomes. Medicaid should keep pace with the people it serves, not merely maintain old, outdated models that favor institutions rather than individuals."

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