Is Privatizing Medicaid a Smart Move?

Governors in both parties want businesses to manage coverage in their states. They shouldn’t be so hasty.

Rick Scott, the Republican candidate for Florida' governor, and his wife, Ann,  as Scott continues his Unity Tour in Miami, Tuesday, Aug. 31, 2010. (AP Photo/J Pat Carter)
National Journal
Margot Sanger Katz
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Margot Sanger-Katz
Feb. 28, 2013, 3:10 p.m.

Rick Scott figured out how to make ac­qui­es­cence look like vic­tory. When the Flor­ida gov­ernor an­nounced last week that he would join the Af­ford­able Care Act’s Medi­caid ex­pan­sion, re­vers­ing his pre­vi­ous po­s­i­tion, he said he had agreed in ex­change for a sought-after waiver from the feds. This al­low­ance would let his state move more of its Medi­caid pa­tients in­to private health plans. But the scheme is not such a rare coup. It’s already the dom­in­ant Medi­caid mod­el around the coun­try. And it’s not the un­qual­i­fied boon gov­ernors think it is.

States began ex­per­i­ment­ing with what’s called Medi­caid Man­aged Care in the 1980s. Un­der this mod­el, the state pays in­sur­ance com­pan­ies a fixed cost to cov­er its pa­tients, who get a choice of private health plans. A 1997 law stream­lined the ap­plic­a­tion pro­cess and led to an ex­plo­sion of new con­tracts. Around the coun­try, 36 states have be­ne­fi­ciar­ies en­rolled in private health plans. Na­tion­wide, 51 per­cent of 60 mil­lion Medi­caid users get their be­ne­fits this way, and an ad­di­tion­al 15 per­cent are en­rolled in private/pub­lic hy­brids. Already, states spend $129 bil­lion on private Medi­caid plans, and the rates keep grow­ing. “It’s been steady and sus­tained,” says Joe Moser, the in­ter­im ex­ec­ut­ive dir­ect­or of Medi­caid Health Plans of Amer­ica, the trade group for the private in­surers, who fore­casts more of the same. “Every­body is go­ing to be do­ing man­aged care,” says Sara Rosen­baum, a pro­fess­or of health policy at George Wash­ing­ton Uni­versity. “Every­body.”

Cham­pi­ons of Medi­caid man­aged care span the ideo­lo­gic­al spec­trum. Red states such as Ten­ness­ee and Texas have em­braced it. So have blue states such as Cali­for­nia and New York, both of which en­roll the ma­jor­ity of their Medi­caid pa­tients in private plans. State of­fi­cials cite two main ra­tionales for con­vert­ing. First, private in­surers can do a bet­ter job of hold­ing down costs. Second, by over­see­ing care for be­ne­fi­ciar­ies, rather than merely pay­ing the bills, they can im­prove its qual­ity. Un­for­tu­nately, no strong evid­ence sup­ports either of these claims.

On costs, a com­pre­hens­ive study that will run this spring in the Journ­al of Policy Ana­lys­is and Man­age­ment looked at the his­tory of privat­iz­a­tion na­tion­wide and found that, over­all, it hasn’t saved money com­pared with tra­di­tion­al Medi­caid. “It’s just kind of taken as a giv­en: “˜Oh, we moved someone to man­aged care; thus we’re go­ing to save money,’ “ says the study’s au­thor, Mark Dug­gan, a pro­fess­or of busi­ness eco­nom­ics and pub­lic policy at Whar­ton. “That is just not true.” He found that some states saved by shift­ing but oth­ers lost. The biggest dif­fer­ence ap­peared to be how well a state’s Medi­caid pro­gram paid doc­tors be­fore the trans­ition. Those that paid well saw more sav­ings, prob­ably be­cause the private plans ne­go­ti­ated lower rates. States and in­dustry have poin­ted to smal­ler stud­ies show­ing pos­it­ive res­ults, but a re­cent sur­vey of the schol­ar­ship from the Robert Wood John­son Found­a­tion de­scribed the peer-re­viewed work on the cost-sav­ing ques­tion as “thin.” It con­cluded that more stud­ies found budget losses than sav­ings.

The data on qual­ity are also mixed. In the­ory, a man­aged-care com­pany should keep pa­tients health­i­er than a gov­ern­ment plan that simply pays whatever med­ic­al bills come in. It would have in­cent­ives to get be­ne­fi­ciar­ies pre­vent­ive care, for ex­ample, to avoid ex­pens­ive hos­pit­al­iz­a­tions. But the nature of Medi­caid, where pa­tients fre­quently cycle in and out of the pro­gram, means such in­vest­ments don’t al­ways pay off for the plans, says Janet Cur­rie, an eco­nom­ics pro­fess­or at Prin­ceton. “If there isn’t con­tinu­ity of care in the plan,” she says, “then the in­cent­ives the plan has for giv­ing good pre­vent­ive care are really re­duced a lot.”

Cur­rie stud­ied preg­nant wo­men in Cali­for­nia and found that those in man­aged care got few­er pren­at­al vis­its and de­livered few­er healthy ba­bies than pa­tients in the tra­di­tion­al Medi­caid pro­gram. One pos­sible ex­plan­a­tion: In its con­tract with man­aged-care com­pan­ies, the state had agreed to pay un­lim­ited ex­tra money in cases where an in­fant re­quired neonat­al in­tens­ive care, leav­ing no fin­an­cial in­cent­ive for in­surers to pre­vent ma­jor com­plic­a­tions. “It’s very hard for the gov­ern­ment not to get ripped off,” Cur­rie says. Con­necti­c­ut, which swam against the cur­rent last year by can­celing its man­aged-care con­tracts and switch­ing back to tra­di­tion­al Medi­caid, said an in­ab­il­ity to get good cost and qual­ity meas­ures was its mo­tiv­a­tion. “The state was not at all sure that the use of the man­aged-care plans was yield­ing an ef­fect­ive means of con­trolling costs,” says Kate McE­voy, the act­ing dir­ect­or of the state’s Health Ser­vices Di­vi­sion.

But those mixed res­ults have done little to dis­suade politi­cians from hop­ing for the best. (The body of re­search doesn’t prove the plans are ne­ces­sar­ily worse; only that they’re not ne­ces­sar­ily bet­ter.) Much of the man­aged-care growth to date has been in the part of Medi­caid that cov­ers poor moth­ers and their chil­dren. That pop­u­la­tion tends to be pretty healthy and un­com­plic­ated. But new­er state plans are ex­pand­ing cov­er­age to sick­er pop­u­la­tions. Scott’s waiver, for ex­ample, will al­low Flor­ida to move nurs­ing-home pa­tients in­to the plans. The Obama ad­min­is­tra­tion is push­ing states to go even fur­ther. In a pi­lot pro­gram be­gun last year, it en­cour­aged states to move the sick­est and most vul­ner­able pa­tients — the ones who use both Medi­care and Medi­caid — to man­aged-care plans that cov­er both pro­grams. Fif­teen states have asked to join up. Even Rick Scott hasn’t asked to privat­ize care for that group.

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