Consumer Directed Healthcare Rescues Medicaid Part II

By Lisa M. Holland, RN, MBA and Gregory J. Hummer, MD

By far the biggest impact and subduction in the US Healthcare system in the coming years will be felt in the Medicaid sector as it collides with state budgets, swelling recipient ranks, rising costs, big carrier insurers and hapless providers. This $450 billion a year and growing federal cost center is borne totally by the US taxpayer. It is fraught with over utilization, perverse economics and according to the latest FBI report, fraud totaling up to $45 billion a year.

Under PPACA about 16 million Americans will now qualify for Medicaid since the law now allows recipients to enroll at 133% of the poverty income level and they will likely pay nothing for coverage. Under this new reform, individual healthcare accountability and responsibility continues to be further removed and the driver for behavior change becomes irrelevant.

With this new legislation in place, will the swelling ranks of Medicaid topple state governments as many fear? It’s not likely if certain steps are taken now to correct Medicaid’s perverse economics and fraud.

In the past several years federal support has enabled most states to manage their budgets to support the growth in Medicaid to within a slim margin of the cost of living index as adjusted for inflation and increased enrollment. Thus far, states have not been crippled with the increased load but that could change quickly. States’ General Fund monies are desperately needed elsewhere in their budgets.

Overall, state Medicaid programs have done what private insurers have not been so successful at – keeping healthcare expenditures down. That seems to make sense since states do not run these programs to make a profit and wish to keep the impact to their budgets to a minimum. It’s sort of like a big self-funded plan with one giant employer but only the US tax payer picks up the tab whereas health insurance carriers are for profit and literally have no incentive to reduce, constrain or “manage” the costs lower since up until now that industry has been largely a “cost plus” business. Managed care has been around for over 25 years in the private sector and it has not proved effective in reducing cost even after adjustments for inflation. All one has to do is look at the medical inflation rate and premium rate increases verses the cost of living index.

Here are some interesting facts to consider from 2008, US Population 308 million

Medicaid $339 billion Americans covered 50 million 16.2%

Medicare $467 billion 45.2 million 14.7%

Other Federal $ 74 billion 7 million 2.3%

ERISA Self Funding $330 billion 140 million 45.4%

Pvt Insurance $821 billion 38 million 12.4%

NonCovered 27.8 million 9.0%

TOTALS $2.1 Trillion 308 million 100% CDHP Rescues Medicaid, Part I published in CDHC Solutions Magazine (March, 2011) and Healthcare Reform Magazine (April 2011)

Total Cost per recipient/member per year:

Medicaid $ 6,780

Medicare $10,331

Federal $10,571

ERISA $ 2,357 (A clear reason why companies self-fund)

Pvt Insurance $21,605

Since 2008 the total US population has risen by 4.8 million to 312.8 million while

Medicaid expenditures have risen by $111 billion to $450 billion a year representing a 32.7% increase over 2008 (unadjusted for inflation or increased enrollees) and enrollees have risen by over 11 million to include over 61 million Americans or 19.5% of the population representing a 3.3% increase over 2008. An additional 16 million Americans will now be eligible due to PPACA, which would represent a huge 26% increase over current levels. Nearly 25% of America could be on Medicaid.

Currently, the total expenditures per Medicaid recipient total only $7,377 dollars per year up only $597 dollars from 4 years ago. That seems remarkable, especially since during that time medical inflation ran in the double digits each year from 2008 up until 2011/12.

One has to ask the question! What are the States doing right or are they? The federal government only helps with funding, while the States have to actually run the program.

The move now by states to turn over their Medicaid programs to large health insurance carriers in order to “Manage the Care” seems illogical especially since private carrier managed care was and still is a failure. Except for the recent foray into High Deductible Plans (CDHP/HSA) big carrier plans and managed care have done nothing but drive healthcare cost skyward.

CDHP/HSA works because it has sound economics, conforms to a consumer model that drives wellness, decreases utilization and rewards consumer choice and informed spending.

What if, our state governments allowed a full replacement CDHP/HSA model for the approximately 78.6% of Medicaid recipients that use Medicaid for their everyday medical care (acute care). We would exclude the 13 million blind, disabled, nursing care and over 65 recipients (costing $247 billion)

In 2009, the latest statistics show that 65.5% of the 61 million recipients were under capitated care. This may be one of the reasons why the overall average Medicaid per recipient cost is low. Although, Illinois has the lowest rate of “managed care” and that state had the lowest increases in Medicaid expenditures, while Texas has the highest rate of “managed care” and had the highest rate of Medicaid increases.

Capitated care is not necessarily managed care and it is not necessarily good care. A capitated payment system can also be perverse in that it drives profit motive out of reducing, deferring or denying care in order to break even or make a profit. The obvious intent is to keep people healthy and thus avoid health problems and their associated cost. We can surmise that may not be what is happening from health statistics garnered from lower socioeconomic groups, which have some of the worst health behavior statistics. CDHP Rescues Medicaid, Part I published in CDHC Solutions Magazine (March, 2011) and Healthcare Reform Magazine (April 2011)

So, one is left to think that most of this group may be getting short changed with their care. This type of system is also prone to a great deal of fraud. Capitation reminds me of the Dire Straits song; “Money for Nothing”. It is money for nothing in many cases weather care is meted out or not, the provider gets paid. Hopefully, the patient gets a fair shake. But how can they? They have no power in the system. They cannot control who they see, what they spend or seek quality care; nor does the system motivate them to change their behavior. In short their options are non-existent. The economics are perverse. There is some saving grace in that the prices of services are “managed” by volume buying on the part of the states.

What if the Medicaid system still negotiated great rates and could pay doctors cash fast without a lot of administrative cost? What if recipients had control of who they saw and were incentivized for staying healthy by economic rewards? That system exists now and is embodied in the CDHP/HSA movement. The technology now exists for rapid payment without paper, stored value, debit or credit cards. Once again the Web can be leveraged to help solve this vexing problem. New plan design, technology and integrated wellness solutions can eliminate most of the $45 billion in fraud.

Undoubtedly, the future wealth of Americans is their health. So, we ask you, why not implement a form of CDHP/HSA for Medicaid that enables any American to join the Medicaid system and pay a reasonable premium that is financed by a pre-tax payroll deduction. The existing 61 million Medicaid recipients soon to be 78 million are already being financed by tax payers and have few resources and little income. This would allow the existence of choice to chose Medicaid, private insurance and still allow self- funded employers to provide quality care to their employees at the most effective cost by far.

Consistent with choice we should eliminate the restrictions on private insurers regarding MLS rules, grantee issue, premium restrictions and allow market competition. Individuals paying into the Medicaid system and those seeking private carrier single policies should be able to get a tax deduction to subsidize their premium but only up to a certain amount which would equal the premium that would otherwise be paid to the Medicaid plan.

For the 28 million or so Americans without insurance, 16 million will become eligible for Medicaid and likely pay nothing while the other 11 million will continue to opt out of the system, but when ill or injured, they will use medical resources for free. CDHP tax-free contributions yielding tax-free interest could be a powerful incentive for all gainfully employed American, especially the 11 million Americans that currently do not pay into the system. The loss of the tax break would be substantial, thus working as a positive incentive to join in the pool. We don’t need to punish anyone or have draconian penalties. In the end we must face the fact that US tax payers will be on the hook for nearly 25% of the US population’s healthcare costs. So, it is incumbent on all of us to make the system efficient as possible and to provide the positive motivating forces for Medicaid recipients, and our other fellow Americans, to adopt good health behaviors.

If the current track record of CDHP/HSA for saving money holds true then Medicaid should save about $40 billion a year on the $203 billion of acute care expenditures, plus another $40 billion a year in reduced fraud. That is an overall reduction by 17% of the total $450 billion current spend. Of course some of the $80 billion would have to funnel CDHP Rescues Medicaid, Part I published in CDHC Solutions Magazine (March, 2011) and Healthcare Reform Magazine (April 2011)

back to recipients’ HSA to serve as the positive reinforcement for behavior change and to enable choice and spending discretion. Paying people to be healthy is a good idea and it works. It just might be what the doctor ordered.

About Simplicity Health Plans

Cleveland, Ohio - Simplicity Health Plans is the best implementation of a CDHP/HSA. It aligns the interests of the Employer, Employee and the Provider to provide a turn-key, fully integrated Consumer Directed Health Plan. It also delivers a low cost, scalable solution to control claim costs. The Plan fuses unparalleled technology, point of service adjudication, real-time data, and first of its kind anti-fraud controls. Services include an ERISA compliant health plan, HSA administration and banking, medical claims administration, TPA functions, pharmacy, dental & vision, COBRA, stop loss reinsurance, real-time Utilization Review and Case Management, Comparison Shopper, Health & Wellness programs, and a host of on-line tools for Providers, Employers and Members. www.simplicityhealthplan.com

About the Authors

Lisa M. Holland, RN, MBA an accomplished wellness subject matter expert has been in the healthcare industry for over 18 years. Prior to joining Simplicity Health Plans, Lisa held positions for UnitedHealthcare as the National Director for Wellness Strategy and for Aetna, as the dedicated Clinical Program Consultant for the Bank of America. Contact Lisa at (216) 367-3092 or lisaholland@simplicityhealthplans.com

Gregory J. Hummer, M.D., trauma surgeon, trained at the Cleveland Clinic Hospital and is the founder of three successful healthcare companies. Dr. Hummer has spent the last 18 years developing technology to help solve the vexing complexities, out-of-control costs, burdens and inefficiencies with today’s healthcare payment system. He is Chairman and CEO of Simplicity Health Plans. Contact Dr. Hummer at (216) 543-3031 or greghummer@simplicityhealthplans.com .