States See a Black Hole, Insurers See a Gold Mine

Because the Supreme Court unexpectedly transformed the mandatory Medicaid expansion to an option for states, the question of the hour is: Which states will choose to participate? Not surprisingly, governors who were vocal opponents of the expansion of Medicaid under the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148) argue that the additional costs will stretch their meager resources beyond their limits. Although many of their statements were covered more fully in Tracy Pfeiffer’s recent blog post, it’s worth noting that Florida Governor Rick Scott estimated that opting out of the expansion would save the state $1.9 billion.

At the same time, more for-profit health insurance companies plan to compete for the opportunities to coordinate care for Medicaid beneficiaries, particularly dual eligibles, those entitled to both Medicare and Medicaid. On July 9, 2012, WellPoint, Inc., the nation’s second largest health insurer, agreed to buy Amerigroup, Inc., one of the larger players in Medicaid managed care, for $4.46 billion. The acquisition would boost WellPoint’s Medicaid enrollment to 4.5 million beneficiaries in 19 states. Reuters reported that WellPoint chief executive officer Angela Braly said that the company expected that Medicaid spending on managed care would rise by $100 billion by the end of 2014 even without considering the Medicaid expansion. According to the Kansas City Star, Braly said the expansion of managed care to dual eligibles was “a driving force” for the acquisition.

Because Amerigroup was one of the three managed care companies selected to run the Kansas Medicaid program beginning January 1, 2013, Kansas insurance regulators will review the deal. The state also has appointed a new Medicaid inspector general, who is tasked with holding the insurers accountable.

FierceHealthPayer reported on July 1, 2012 that attorneys for managed care organizations believe the Medicaid expansion presents a very “opportunity-filled landscape” for private insurers with expertise in coordinating care. The “relatively rich” risk-adjusted per capita payments for Medicaid beneficiaries who need coordination allow effective managers to make a “decent return.”

The potential return must be the reason that eight private managed care organizations (MCOs) are in litigation over contracts awarded by the Ohio Department of Jobs and Family Services. Initially, Ohio awarded contracts to five of the 11 bidders, including Aetna and Meridian Health Care, but two other bidders protested the award. When the bids were rescored, the state replaced Aetna and Meridian. Aetna sued, and the contracting process was suspended. The five winning bidders have been allowed to intervene in the suit, and it was expected that two other losing bidders would be granted leave to intervene as well. A hearing on a preliminary injunction is set for July 23rd.

Why would these for-profit entities fight so hard to manage a program that the states consider a black hole? One possible reason is that the governors have overstated the burdens and understated the benefits of the Medicaid expansion. According to the Center for Budget and Policy Priorities (CBPP), Governor Scott’s estimates were wrong because:

  • they were based on incorrect assumptions, including an incorrect federal medical assistance percentage (FMAP) for coverage for targeted low-income children;
  • they did not consider the decreases in state expenditures for uncompensated care and programs funded with state or local dollars that would flow from the patients’ eligibility for Medicaid;
  • they incorrectly stated that individuals who had previously been eligible but never enrolled were excluded from the projections by the Congressional Budget Office, the Urban Institute and others;
  • they included costs that are required by other provisions of PPACA, such as the temporary increase in the rates paid to primary care physicians and improvements to the enrollment systems.

However, there are other possibilities that should be considered. The managed care fiasco in Kentucky demonstrates that the MCOs may overestimate profits and underestimate costs. They also rely on increased, risk-adjusted per capita payments that may not have been estimated accurately or might not be approved. And some profits could flow from delayed payment of claims, denial of authorizations, creative accounting or other less than laudable conduct discussed in past posts.