South Carolina Plans Tailored Medicaid

Published October 1, 2005

In June, the state of South Carolina requested permission from the U.S. Centers for Medicare and Medicaid Services (CMS) to restructure the state’s Medicaid program from an open-ended entitlement into a defined contribution system similar to health plans in the private market. South Carolina Gov. Mark Sanford (R) planned and submitted the proposal (excerpted in “South Carolina Medicaid Choice” on pages 10-11 of this issue of Health Care News), and the governor’s office expects a response in the coming months, most likely in 2006.

To pay health insurance premiums or purchase care directly, most of the state’s 850,000 Medicaid recipients would have access to a personal health account similar to the new Health Savings Accounts (HSAs) that became available to workers with private health coverage in 2004. So-called “dual-eligibles,” who qualify for both Medicaid and Medicare coverage, and foster care children would not receive personal health accounts.

Benefits Would Remain Same

Under Sanford’s plan, the amount the state would contribute toward each enrollee’s care would vary according to the beneficiary’s age, sex, and physical condition, but on average would be about what the state now pays under fee-for-service plans. Enrollees would receive sufficient funds to purchase approved health plans equivalent to their current coverage.

Although the program is not expected to demonstrate savings in the state budget immediately, backers of the plan hope competition among health plans will slow the growth in spending and provide better care for those depending on Medicaid for health coverage.

“The fiscal benefits of the creation of a real marketplace in Medicaid will compound over time as productivity in this market increases,” said Michael Bond, a Cleveland State University finance professor who assisted in developing the plan. “The resulting efficiencies will allow Medicaid to become sustainable in the state’s future budgets.”

Plan Offers Choice, Competition

Under the proposed plan, participating South Carolina health plans will compete for Medicaid beneficiaries’ business the way they compete for private employers’ business. Approved plans will include a range of products including managed care and preferred provider (PPO) networks.

A new offering will be primary care case management networks. Primary care case management is a system of managed care used by state Medicaid agencies in which a primary care provider is responsible for approving and monitoring the care of enrolled Medicaid beneficiaries, typically for a small monthly case management fee in addition to fee-for-service reimbursement for treatment.

According to the South Carolina Health and Human Services Department, primary care case management networks will be required to offer the same service packages as offered today, and managed care organizations and PPOs will have to cover all mandatory Medicaid services, pharmacy benefits, and durable medical equipment. The benefit package for children will have to cover both mandatory and optional Medicaid services, including early screening, diagnostic, and treatment benefits.

Counselors Will Guide Enrollees

Of course, Medicaid enrollees are not used to having such a wide range of options and benefits. To help them select the health care that best suits their needs, the state will provide enrollment counselors to guide them through the process. Should an enrollee decide to change plans, the counselor will help him or her find an appropriate new one. Beneficiaries wishing to opt back into traditional Medicaid will be permitted to do so.

Under the proposal, called Healthy Connections, beneficiaries will have four options from which to choose:

(1) private insurance through a managed care organization (MCO)–a health care provider or group of medical service providers who contract to provide a wide variety of health care services to enrolled members through participating providers–or preferred provider organization (PPO);

(2) medical home networks, in which the beneficiary would use the entire personal health account to join a primary medical practice that cares for the patient;

(3) group insurance opt-out, in which the beneficiary would use the Personal Health Account (PHA) to purchase coverage outside of SC Medicaid; a recipient who is employed could use the PHA to purchase coverage from his or her employer; or

(4) self-directed care. To qualify for this option and encourage responsible use of appropriate preventive services, individuals will be required to have stable health expenses and access to a “medical home,” a primary care provider who will guide them with their health care needs.

Freedom, Responsibility Offered

Benefits will be different under each option, allowing beneficiaries, guided by enrollment counselors, to purchase plans tailored to their specific needs. Proponents hope patients will view their health accounts the same way they do their cash, comparing prices and becoming better consumers.

According to Robert Kerr, director of South Carolina’s Department of Health and Human Services, “Our proposal will provide models so we can see what works best for the Medicaid population. We’re giving individuals choices so they can pick the best plan for themselves.”

If South Carolina beneficiaries control their own Medicaid funds, they will command greater respect and better care from providers, changing the structure of the 40-year-old program. “People with Medicaid will become owners of their health care, and they’ll become involved. That dynamic is not present in Medicaid today,” Kerr says.

“The governor believes allowing Medicaid recipients to take ownership of their own health care will reign in costs, create market-based incentives, and help them to become more cost-conscious consumers,” said Sanford spokesperson Joel Sawyer.

Devon Herrick, Ph.D. ([email protected]) is a health economist and senior fellow with the National Center for Policy Analysis.