LA's Medicaid proposal superior to providers' preference

As Louisiana tries to get a handle on its biggest ticket item, health care spending on the poor and disabled, it’s imperative that it get it right which means making sure taxpayers and patients’ needs are put before those of managing care, whether they be insurers or providers.

In the past few years, accelerated under Gov. Bobby Jindal’s term, the state has sought to move away from the uncoordinated system that relies on individual providers and the charity hospital system to provide this care. It has resulted in user overutilization often of the least efficient manner of service provision, while users have neglected much more efficient practices such as preventive care.

For lack of a better term, recent reform has gone in the direction of “Florida Plan,” which encourages competition among private providers managed by insurers (either third-party or extensions of providers). The state pays the manager the premium for the Medicaid enrollee which then reimburses the provider. Different plans would offer different mixes of benefits.

In Florida, this idea has been tried in only a few demonstration counties and been hampered by a piecemeal approach as different things have been added incrementally over the past several years, yet cost savings and improved care are beginning to arrive. But its biggest problems have been user education and bureaucratic inefficiency. While the latter is being ironed out, the Medicaid population, perhaps so accustomed of not having to take responsibility of its own care, has been slow to embrace putting effort into plan choice, understanding it, and thereby acting upon incentives for pursuing better preventive care.

An alternative model, for lack of a better term, is the “North Carolina Plan.” Here, state overseen networks of providers are organized on the traditional fee-for-service model that does not control for overutilization. However, primary care physicians are paid an extra fee per month per Medicaid patient that signs up with them as their medical home. Presumably, this would encourage preventive care that would lower inefficient utilization and realizing savings and better outcomes.

Tried out statewide since the late 1990s, this method also has had some successes on these metrics. However, in order for the system to work, it expanded eligibility and ended up exploding in terms of total expenditures and in per-enrollee terms that only recently have been brought under partial control. In other words, it may have saved money over the previous system in terms of the expanded, total population that would have been served, but for the most needy both in terms of resources and medical necessity its costs still did not have sufficient mechanisms present to hold them down – especially vital as North Carolina, Louisiana, and many other states are finding themselves cutting provider rates in response to escalating Medicaid expenditures relative to difficult revenue environments.

The latter plan is preferred by providers because the extra fee is the bird in the hand of revenue they can capture that they don’t know they could get the equivalent from if operating under the former plan in terms of reimbursement from insurers. But Louisiana’s level of economic development and its fiscal capacity is lower than North Carolina’s and just about every other state’s, meaning it cannot afford to expand eligibility requirements to drive the large numbers of people into Medicaid that make these bonus payments so attractive – the fewer enrolled, the less extra revenue per service the providers get. In fact, a similar extra fee program of $3 month recently was terminated by the state because of its ineffectiveness.

Providers naturally want to get as much government money as they can under any reform without any real incentives to control their billings to the state, thus the amount of revenues they collect from taxpayers. Yet it’s feared that the cost containment that insurers would provide would shift too much money away from providers and would impact quality of care in their pursuit of more revenues.

This concern may be allayed by regulation of the medical loss ratio of the insurers (as long as it is not gamed such as in the Democrat-imposed national health care legislation where it is defined to punish insurers). In essence, Louisiana can create a limit on how much administrative costs are paid to insurers, leaving an adequate amount for providers.

Given the fiscal realities of Louisiana and the promise and costs of both models, the Florida model based on a free-market solution for introducing efficiency is the most appropriate for the state. Establishing an appropriate medical loss ratio and placing great emphasis on enrollee education can mitigate its drawbacks. While the statist approach of the North Carolina model may enrich providers while producing equivalent care, it is a luxury the state’s taxpayers cannot afford.