Medicaid Reform: Florida, South Carolina Lead the Way

Published August 1, 2005

The nation’s governors agree on at least one thing: They have a problem with Medicaid.

When presenting the National Governors Association’s (NGA) bipartisan Medicaid reform proposal in Washington, Gov. Mike Huckabee (R-AR) said, “Medicaid is a 45 RPM program in an MP3 world.”

Governors Seek Federal Help

Huckabee, vice chairman of the NGA, and Gov. Mark Warner (D-VA), NGA chairman, were looking for federal help when speaking in June before the U.S. Senate Finance Committee and the House Committee on Energy and Commerce.

When the federal budget was passed in April, Congress committed to cutting Medicaid, the federal-state health care program for low-income, disabled, and senior Americans, by $10 billion over the next five years. States are facing up to the need to reform their programs.

The NGA proposal, issued on June 15, seeks federal help in remedying the woes of the over-spent and over-enrolled program by:

  • having Congress grant states more power to establish premiums, deductibles, and co-payments for Medicaid services;
  • decreasing drug costs by requiring pharmaceutical companies to offer higher rebates and give states a better price on bulk drugs for Medicaid recipients;
  • closing loopholes that allow elderly people to hide assets and then qualify for Medicaid long-term care; and
  • instituting legal reforms to protect states from lawsuits over Medicaid reforms they undertake.

Medicaid reformers in several states are not waiting for the federal government to act. Some changes in state Medicaid programs “require a federal waiver, and others do not,” according to Nina Owcharenko, senior policy analyst for health care in the Center for Health Policy Studies at The Heritage Foundation.

“State policymakers should take advantage of the current waiver structure, as cumbersome as it may be, and introduce reform into their programs,” Owcharenko recommends in a June 2005 report, “A Roadmap for Medicaid Reform.”

Florida Moving Forward

Leading the way is Florida, where significant Medicaid reform was adopted in June. “Medicaid is a vital safety net for Florida’s most vulnerable, and it’s time we transformed the program to reflect the needs of patients, rather than the dictates of government,” said Gov. Jeb Bush (R), signing the reform legislation, “Empowered Care,” in June.

According to the Empowered Care Web site, the legislation gives the Florida Agency for Health Care Administration authority to develop a federal waiver requesting permission to phase in Medicaid reform statewide. When the federal Centers for Medicare and Medicaid Services approves the waiver, the plan will go to the Florida legislature for final approval.

Under Florida’s proposal:

  • Private-sector health care provider networks will be allowed to create benefit packages that cater to the needs of Medicaid patients. Participants, with the help of counselors, will choose the plan that best meets their needs;
  • The state will pay provider networks a monthly, risk-adjusted premium per patient;
  • Medicaid participants will be allowed to opt out of Medicaid plans and use their state-paid premium to purchase employer-sponsored insurance;
  • Participants will be able to earn enhanced benefits, to be placed in flexible spending accounts, by participating in healthy practices and making responsible lifestyle choices. These benefits will give participants extra funds with which to purchase health care services not covered by their plan; and
  • Providers will be free to compete for the membership of participants by offering innovative care, convenient networks, and optional services.

Florida’s plan “creates a real marketplace with beneficiaries receiving credits to buy the care they want from several competing providers,” said Mike Bond, a senior fellow in health care policy for The Buckeye Institute for Public Policy Solutions and professor of finance at Cleveland State University. “These are all prepaid plans, which gives the providers a strong incentive to discourage unneeded utilization. Unlike selectively contracted Medicaid HMOs, beneficiaries can switch providers if the plans are not treating them well. Thus, the market will control costs and improve quality.”

South Carolina Reforming

Like Bush, South Carolina Gov. Mark Sanford (R) has championed reform. Sanford’s proposal, called South Carolina Medicaid Choice, was sent to the CMS for federal approval in June.

Under the plan, Medicaid participants would be given personal health accounts to pay for part of their medical expenses, according to the South Carolina state government Web site. Patients would use their accounts to buy health care coverage that could range from a high-deductible insurance plan to a full-service program.

Debit cards also would be distributed to Medicaid recipients to pay deductibles at the hospital, doctor’s office, or pharmacy. In a report to the CMS last year, Sanford pointed out that consumers with debit cards would spend more carefully and look for bargains.

“Gov. Sanford has brilliantly analyzed the roots of the Medicaid problem,” John McClaughry, president of the Ethan Allen Institute in Vermont and once a senior policy advisor in the Reagan White House, said. “He is the first governor to develop a principled, realistic, market-oriented proposal for getting Medicaid out of the fiscal death spiral it’s in in most states.”

Utah Offers Reform Model

In a February 2005 report, Bond cited Utah as undertaking “a revolutionary use of a federal waiver. … Utah uses unexpended federal matching funds for Children’s Health Insurance Programs (CHIPs), reduces benefits for currently eligible Medicaid recipients, and expands eligibility to cover low-income working individuals who do not have coverage.”

The Utah model, called Primary Care Network (PCN) and instituted under former Gov. Michael Leavitt (R), who is now secretary of the U.S. Department of Health and Human Services, “meets the requirements for Health Insurance Flexibility and Accountability (HIFA) waivers of obtaining budget neutrality while expanding eligibility to new populations,” said Bond. He noted Utah balances the expansion in mandated populations with reduction of “mandated benefits and unused federal funds.”

The Utah plan stresses disease management, preventive care, and what might be called outcome-based medicine. For example, providing the right treatment during pregnancy can improve birth weight outcomes and lead to healthier babies who require fewer services and hence lower expenditures.

Benefit Cuts Criticized

Leavitt and others have pointed to Utah PCN as a model for other states, but critics challenge program benefit cuts in areas such as inpatient hospitalization and specialty pharmacy services.

During a January confirmation hearing on Leavitt’s nomination to HHS, Sen. Jay Rockefeller (D-WV) said Medicaid waivers might not prove effective for all states, the Salt Lake Tribune reported.

“I just question whether what you did in Utah sort of says, ‘Well, we can do this in all of America,'” Rockefeller said. “I would suggest to you that in Appalachia and other areas they can’t, and I would urgently hope that you would think about this matter now that you have the entire country’s population very much at your mercy or at your help.”

“The waiver was not intended to show the way for any national approach. It was designed to solve a unique problem,” Leavitt responded. “The entire system of health care in our country is inefficient. We can dramatically improve it,” he said. “We won’t do it by futzing around the edges. We will have to be bold.”

Reform States Should Guide

Policymakers should look to the states that are having success with reform for inspiration and guidance, said J. Robert McClure III, president and CEO of the James Madison Institute in Florida. This spring, McClure said, “Governor Bush and the legislative leadership instituted a free-market pilot program in a couple of counties in Florida.

“Those counties represent both rural and urban areas,” McClure noted. “The state is asking companies to compete for services through a bidding process. The important result is that with some time everyone will be able to study the ‘old’ way of doing Medicaid–which is still in existence in parts of Florida–with this new pilot program. We believe the research will be undeniable that the free-market system will lower costs, improve efficiency, and validate the dignity of the individual.”

Susan Konig ([email protected]) is managing editor of Health Care News.