Capping Medicaid Costs

Florida and Kentucky are custom-tailoring the benefits package in an effort to make fiscal sense of the program.
March 2006
Penelope Lemov
By Penelope Lemov  |  correspondent
Penelope Lemov is a GOVERNING correspondent. She was GOVERNING's health columnist and was senior editor for several award-winning features.

The times they are a-changin'.

Twelve years ago, Tennessee won a waiver from the Clinton administration to include everyone close to or below the poverty line in its Medicaid program. TennCare was a radical experiment at the time: It put all beneficiaries into managed care and left it to the plans to provide enrollees with the full array of benefits. The program was successful in that it eventually served 25 percent of the population. At the same time, however, it nearly broke the state's fiscal back. Governor Phil Bredesen pulled the plug on it in 2005.

Today, with health care inflation having pushed costs to dizzying new heights, the Bush administration has different ideas about the kind of Medicaid reform it wants to encourage. Adding millions of near-poor people to the roles is not necessarily at the top of the list. Rather, the Centers for Medicare and Medicaid Services seems to favor waivers that cap the costs of the programs--thus shifting the risk of overruns onto the states and removing the federal government as its partner-in- pain when the economy sours and more people are eligible for coverage.

A few states are taking this new, if controversial, path to making Medicaid sustainable. Given that spending on the program has grown to around 13 percent of state general fund spending and continues to climb, something radically different seems worth trying.

At the core of several capping waivers is a humpty-dumpty sort of approach. To keep costs under control, the benefit package is being broken apart and all the state's horses and all the state's men and women are putting it back together again--but in a very different way. No longer do all enrollees automatically qualify for the full range of Medicaid benefits. Instead, they are each assigned a particular benefit package based on their health, age or condition. In addition, co-pays are being increased or added and so are other fees.

Florida's pilot waiver uses vouchers to define the package. Medicaid recipients in two counties are being steered into the market to purchase insurance coverage--most of the plans will be managed-care programs developed with the encouragement, if not the aid, of the state. The managed-care company will provide preventive services, something most Florida Medicaid patients don't currently have access to. But the robustness of the benefit package--what will be covered, what won't--will be tied to the premium the beneficiary pays, and the premium amount the beneficiary holds in her hand will be determined by the state based on the recipient's health status.

In Kentucky, a newly issued waiver will allow the state to divide Medicaid beneficiaries into four categories and automatically enroll them in a health plan that provides the benefits and assesses co-pays and fees suitable to their category: healthy adults who need basic medical services; those who need nursing home care; disabled adults at risk for institutionalization; and children (Kentucky's State Children's Health Insurance Program is being folded into the waiver). In addition, enrollees with specific diseases will be able to earn credits to buy additional health care services or pay for co-pays by participating in health-promoting practices.

Kentucky likes to say it is bidding farewell to one-size-fits-all coverage, and there is a certain amount of common sense in custom- tailoring benefit packages. In the private sector, most of us pick and choose a plan based on how much coverage we think we'll need--and are willing to pay for.

The Kentucky and Florida approaches mirror the private sector and its employer-based insurance in other ways: Employers are cutting back on benefits and shifting more health care costs to their employees. Of course, a key difference is that, in the private sector, the insured patient has a job that, for the most part, pays a living wage or better, and the additional costs don't necessarily spell the difference between getting care or waiting until it is a full-blown emergency.

The Kentucky and Florida programs are what the laboratories of democracy are all about: experimenting with something that seems to make sense and seeing if it actually does. Of course, TennCare made sense, but the political will to keep it afloat faded. When it came to raising taxes or dumping TennCare, it was a no-brainer. This latest round of health care "revolutions" may fare better fiscally and politically. But it is "wait and see" on whether the plans will compromise the health of their beneficiaries.