In less than a year, Florida’s switch to privately managed healthcare for more than 3 million poor, disabled and elderly residents has achieved one of its primary goals: cutting costs for Medicaid, the public health insurance program for low-income people that accounted for roughly one-fifth or about $9.5 billion of state spending last year.
But the savings may be short lived after the private companies that took over insuring Florida’s Medicaid patients asked for a mid-year raise of nearly $400 million, and a 12 percent rate increase starting Sept. 1.
That has state health officials, including Elizabeth Dudek, head of the Agency for Health Care Administration, worried that “the vast majority” of Medicaid savings from the first year could be wiped out if Florida gives in to the insurers’ demands.
State healthcare officials report that early assessments of the program have been positive: The cost per member per month for Floridians on Medicaid has been reduced by slightly more than the 5 percent required under state statute.
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“We were able to achieve that, not by much,” said Justin Senior, Florida’s deputy secretary for Medicaid.
Senior is optimistic that Medicaid managed care, which began as a pilot program in 2006 under then-Gov. Jeb Bush and went statewide in August 2014, can continue to control costs by turning over patients to private companies, mostly health maintenance organizations (HMOs) but also provider service networks (PSNs) organized and operated by a hospital or physicians group.
To manage costs, the state pays HMOs a fixed fee for each patient — called a capitated payment — and the insurers assume the financial risk of providing care for less than that sum. To make that fair, the state pays the HMOs on a “risk-adjusted” basis — meaning insurers get paid more if a patient is seriously ill.
But a few months into their five-year contracts, Florida’s Medicaid HMOs began to bleed money, said Audrey Brown, president of the Florida Association of Health Plans. Medicaid HMOs lost $542.9 million through December 2014 and another $50 million through March 2015, according to unaudited financial reports.
“This is not a sustainable business model,” said Brown, who attributed the health plans’ losses to unforeseen costs for prescription drugs such as high-priced treatments for Hepatitis C, higher-than-expected use of medical services and changes in the state’s payment structure for certain procedures, such as births.
“This is a new program,” she said, “and nobody knew exactly what to expect with the new program.”
Her organization, working on behalf of the HMOs, quickly began lobbying legislators and the state’s healthcare agency for higher monthly payments and the 12 percent rate increase for next year.
That led Dudek to fire off a three-page letter May 21 warning that the immediate raise requested by FAHP, which would have amounted to about $400 million, would erase most of the new program’s savings.
“Bailing out the plans for an unexpected cost undermines one of the cornerstones behind moving the Medicaid program into managed care in the first place,” Dudek wrote.
On Friday, Dudek pushed back on the HMOs in a letter to the CEO of Amerigroup Florida, which manages 335,000 Medicaid patients, warning the insurer that it may be paying hospitals more than maximum rate allowed under state law.
The health plans did not get the mid-year pay raise they wanted, but they are now negotiating with AHCA on rates for the year that starts Sept. 1.
With Florida taxpayers spending $23 billion a year for Medicaid in combined state and federal funds, and about 3.8 million people depending on the program for their care, including 524,000 in Miami-Dade and 256,000 in Broward, the stakes are high.
The state has countered the health plans’ request for a 12 percent raise with a proposed statewide average increase of 6.4 percent, with some plans getting more and others receiving less, depending on their patient populations and the counties where the plans operate.
Senior called the negotiation a “dialogue.”
“We’re going to try to set the rates reasonably and in a collaborative process,’’ he said.
Health policy experts caution that historically states with Medicaid managed care programs have gained a measure of certainty on their costs but few, if any, ever save money, said Julia Paradise, associate director of the nonprofit Kaiser Family Foundation Commission on Medicaid and the Uninsured.
“In the early days, there was the hope that managed care would save money as well as improve access,” she said. “Experience and research suggest that managed care may make state spending more predictable but it doesn’t necessarily yield savings.”
Florida first considered overhauling its Medicaid program in 2005, when Bush proposed managed care as a private-sector solution to the program’s “unsustainable” costs.
Speaking to state lawmakers in Tallahassee that year, Bush presented charts illustrating Medicaid’s spiraling costs. He laced his proposal with promises of less “government-run insurance” and more “flexibility” for patients. It was considered a national model.
A pilot program followed in 2006 in two counties, Broward and Duval. After eight years of experimenting with managed care, Florida received a federal waiver to take managed care statewide. The rollout was completed in summer 2014.
Joan Alker, executive director of the Georgetown University Center for Children and Families, said Florida was misguided to believe that private insurance companies could manage the care of Medicaid patients, among the most vulnerable populations, for less than it costs the state — unless those insurers reduced the amount of care provided.
“This is something I’ve been raising all along since 2005,” she said. “You’re assuming there’s going to be more cost savings because the private market is more efficient. Well, the private market is more expensive than Medicaid. Why would you assume it’s going to provide cost savings unless it cuts back on needed care? This has always been a fundamental concern.”
Another concern is that Florida’s efforts to reform Medicaid may eventually resemble the federal government’s own experiment in managed care with another public health insurance program, Medicare, for those 65 and older.
Since the 1970s, Medicare beneficiaries have had the option to receive their public health insurance benefits through a private health plan, mainly HMOs, rather than through the traditional Medicare program. The program, now called Medicare Advantage, was championed by the late U.S. Sen. Claude Pepper of Florida.
Linda Quick, president of the South Florida Hospital and Healthcare Association, a provider trade group, said when Congress approved the country’s first Medicare managed care organization in South Florida, it was under the condition that the government would pay the managed care companies 95 percent of the average cost of traditional Medicare patients because HMOs were thought to be more efficient.
But over the years, the program’s payment policy shifted from producing savings to focusing on expanded access and extra benefits.
The result? Medicare paid private insurance companies 14 percent more per member, on average, than those in traditional Medicare in 2009, according to the Medicare Payment Advisory Commission, which reports to Congress.
“It would not be a surprise to me if the Medicaid program would likewise find that out,” Quick said.
But Brown, with the Florida Association of Health Plans, said the current dynamic in Florida is that the state is meeting or exceeding its savings estimates on the backs of the health plans’ financial losses.
“People are receiving the healthcare they need,” she said. “They’re getting to the doctor, and that’s a great thing for recipients. However, that’s increasing utilization and driving costs. ... The plans are just asking to be paid for the services they’re providing.”
State officials counter that the HMOs accepted the financial risks, and that most of the insurers received higher monthly payment rates than they proposed in the bidding process, in part because of a statutory requirement that the rates be sufficient to ensure the plans’ financial solvency. Specific cost proposals submitted by HMOs to the state are considered proprietary information and not a public record.
Senior, the state’s deputy secretary for Medicaid, also noted that the HMOs’ early financial difficulties should not carry into future years because they include start-up costs for plans moving into new parts of the state or expanding operations, and other non-recurring expenses, such as allowing patients to continue seeing their doctors and receiving care at out-of-network providers for the first few months of the program.
Also, Senior said, it takes time for HMOs to establish relationships with patients, assess their medical needs and plan their care.
“We're expecting them to achieve savings,’’ Senior said, “by coordinating the care and doing outreach, getting folks into the plans and getting them in early and establishing a relationship with them and a pattern with them that makes economic sense as well as health sense.”
Florida Medicaid by the numbers
Medicaid enrollees in Florida have the option of selecting an HMO or a PSN to manage their care. Depending on where they live, Floridians can choose from up to 10 plans.
A total of 3.808 million Floridians were enrolled in Medicaid as of July 1. About 800,000 of them are not in a managed care plan because they have Medicaid coverage for a limited set of services, or for a limited amount of time, or they are newly eligible for the Medicaid program but have yet to enroll in a plan.
Total Medicaid spending in Florida by state and federal governments
In 2014: $9.549 billion state; $13.562 billion federal = $23.111 billion total
In 2013: $8.509 billion state; $11.823 billion federal = $20.332 billion total
In 2012: $8.340 billion state; $10.929 billion federal = $19.269 billion total
Medicaid as a percentage of state spending
In 2014: 19.6%
In 2013: 21.4%
In 2012: 21.7%
Annual percentage increase in Medicaid spending for state, federal government and combined
From 2013 to 2014: 12.2% state; 14.7% federal; 13.7% combined
From 2012 to 2013: 2% state; 8.2% federal; 5.5% combined
Source: Florida Agency for Health Care Administration; National Association of State Budget Officers, 2014