Consumer-driven model would help improve N.C. Medicaid

May 19, 2013

Click here to view and here to listen to Katherine Restrepo discussing this Spotlight report.

RALEIGH — North Carolina could look northwest to Indiana and south to Florida for evidence of how a consumer-driven model would improve the state Medicaid program. A new John Locke Foundation Spotlight report highlights the Indiana and Florida approaches to Medicaid reform.

“We currently live in a Medicaid masquerade, where many unintended consequences of this government entitlement program go unnoticed or are simply ignored,” said report author Katherine Restrepo, JLF Health and Human Services Policy Analyst. “Until North Carolina instills consumer-driven Medicaid principles in its ongoing Medicaid reform, the system cannot be fixed.”

North Carolina’s Medicaid program costs $14 billion a year in state and federal tax dollars. The program regularly exceeds its budget. “North Carolina citizens now face the burden of a $248 million cost overrun, including a recent $135 million increase in the anticipated shortfall that was based on a miscalculation of total federal funding,” Restrepo said.

Restrepo challenges the notion that North Carolina’s existing Medicaid managed care organization, called Community Care of North Carolina, serves as a “gold standard” for Medicaid programs across the country. Two-thirds of North Carolina’s 1.8 million Medicaid enrollees receive care through CCNC.

“Many praise CCNC as an ideal framework, but having just one statewide MCO providing Medicaid services simply does not work,” Restrepo said. “Proponents boast that North Carolina has the slowest-growing Medicaid spending in the country at 3.5 percent. However, costs per enrollee continue to increase rapidly. North Carolina’s costs per enrollee significantly surpass the state’s Southeastern neighbors.”

The report identifies a cause for the spending problem. “CCNC neither carries the weight of accountability nor follows spending limits,” Restrepo said. “This is a big problem.”

Consumer-driven Medicaid is the “prescription pill” to help battle Medicaid’s current ills, Restrepo said. “Consumer-driven Medicaid emphasizes principles of choice, competition, and fiscal responsibility for beneficiaries and providers,” she said. “Patients may choose from a broad menu of services and products. At the same time, competition arises among insurers and providers. As they embrace the principle of choice, offering consumers whichever enhanced services and benefits they wish, consumer-driven Medicaid turns upside down traditional Medicaid’s uniform list of ‘defined benefits.'”

Patients get access to care through “defined contributions,” or block grants distributed by a fixed state fund. “When money is placed in the hands of a patient, it is more likely to be spent wisely, especially when patients must pay for certain health services out-of-pocket. This encourages fiscal responsibility.”

Restrepo also highlights the important role of managed care organizations in overseeing Medicaid benefits. “If properly run, MCOs allow their contracted networks of providers to offer quality preventative health services to patients, yielding positive health outcomes and cost-effectiveness.”

Indiana’s Healthy Indiana Plan and Florida’s Medicaid Cure attract special attention in Restrepo’s report. Both states have “capitalized on consumer-driven Medicaid via multiple health organizations,” she said.

The Indiana plan operates a state-run health savings account, or a block grant designated for discretionary use by recipients in need, Restrepo said. Patients receive an upfront contribution of $1,100 from the state, choose one of three commercial plans, and contribute a monthly sum to the account that cannot exceed 5 percent of total income. The plan offers $500 for preventative services, provides a special plan for patients with pre-existing conditions, and coordinates care among mental and physical health providers.

“Indiana’s health savings account induces conscientious discretion among beneficiaries because health care costs become transparent,” Restrepo said. “Participants are exposed to the full cost of health care services. They are forced to decide if the care is appropriate. Beneficiaries report high satisfaction. Of the 98,000 enrollees, 94 percent say they are pleased with the system, and 99 percent will consider re-enrollment.”

Florida’s Medicaid Cure serves 317,000 people in a five-county pilot program. The state pays a fixed monthly amount to 13 different private health plans with up to 31 customized benefit packages. “Medicaid beneficiaries may ‘vote with their feet,’ choosing a plan and enhanced benefits that best meet their needs,” Restrepo said.

The National Committee for Quality Assurance gives the Florida program high marks. “Counties in the pilot program outperformed nonpilot counties and national health maintenance organizations in many health measures, with significant results in diabetes, mental health, and preventative measures for children and adults,” Restrepo said.

Adopting a Medicaid Cure model could have a major financial impact on North Carolina Medicaid, Restrepo said. “Total projected savings range from $1 billion to $2.6 billion,” she said. “This would equate to savings of 18 percent to 48 percent on related Medicaid spending.”

A consumer-driven approach is critical, Restrepo said. “Fortunately, a prescription pill for a cure to North Carolina’s Medicaid problem exists, if only it will be swallowed,” she said. “It is known as consumer-driven Medicaid reform.”

Katherine Restrepo’s Spotlight report, “Health Care’s New Prescription: The Power to Heal Through Consumer-Driven Medicaid,” is available at the JLF website. For more information, please contact Restrepo at (919) 828-3876 or [email protected]. To arrange an interview, contact Mitch Kokai at (919) 306-8736 or [email protected].