Medicaid Managed Care in the Balance Amid Failed Health Proposal

Stay ahead of developments in federal and state health care law, regulation and transactions with timely, expert news and analysis.

By Victoria Pelham

The debate over Medicaid’s financing may still have long-term effects on the future of managed care and delivery systems, despite the demise March 24 of an Obamacare repeal bill that would have overhauled how the federal health program is funded.

The GOP’s proposal would have ended the federal match for the $550 billion safety-net program and instead implemented per-enrollee spending limits, with the option of lump-sum grants to states that would have been locked in for 10 years. The Congressional Budget Office had estimated the original bill would strip $880 billion from Medicaid over the next decade.

Medicaid experts, as well as industry officials and investors, had been closely watching how an overhaul would have slowed efforts already in progress to move health care from a fee-for-service system to one that’s more value-based, integrated and efficient.

With conservative leadership in HHS Secretary Tom Price and CMS Administrator Seema Verma at the helm promising increased freedoms for states to handle their own programs, the conversation will likely push forward despite the bill’s demise.

Delivery Innovation

“Medicaid is the biggest insurer and source of financing for this form of delivery system reform; if it’s suddenly destabilized, it’s not just coverage destabilized, it’s care system delivery,” Sara Rosenbaum, health policy professor at George Washington University and chairwoman of the congressional Medicaid advisers’ group, said.

“One of the paradoxes in all of this is that proponents of reform legislation have kept emphasizing that this should be about care and not about coverage—and they seem to be willfully ignorant of what it takes in the way of good financing to get to good care,” she told Bloomberg BNA before the GOP legislation was pulled.

Medicaid, the federal health insurance program for the poor and disabled, has seen drastic shifts in how it is run since its 1965 inception.

More than 76 percent of Medicaid beneficiaries are covered today under managed care plans, according to the Medicaid and CHIP Payment and Access Commission, allowing private firms to keep better track of their enrollees’ health outcomes and data. They often contract for specific services such as mental health care or case management. Rates are risk-based but must be “actuarially sound” and can include competitive bidding.

The current system can take into account funding changes for things like a Zika outbreak, opioid abuse epidemic or a recession.

And the shifts often include improving information systems and affiliations, which analysts believe are particularly important in safety-net care.

“These large-scale managed care systems depend on a flexible financing arrangement that allows them to be nimble on delivery of care and continually improve delivery of care,” Rosenbaum said.

And that matters for the 74 million people enrolled in Medicaid.

Rosenbaum said states like California, New York and Massachusetts have been leading the way with their programs with options like integrating health and social services.

“They have put their stake in the future of Medicaid in a partnership with the federal government to be able to make the kinds of front-end changes that are needed to achieve the kinds of outcomes that Medicaid wants,” she said. “These are the leading states everybody’s looking to.’'

“If suddenly the terms of agreement are altered to start withdrawing funds from these states, you take the real leaders in integration and care delivery reform and you throw their efforts into an unknown territory,” she said.

At Stake

Medicaid managed care plans had wavered on their thoughts about the GOP bill, the American Health Care Act, until coming out against it March 22.

“When the bill first came out, a lot of folks in the Medicaid space really engaged in a lot of hyperbole,” Jeff Myers, president and CEO of Medicaid Health Plans of America, told Bloomberg BNA. “There really was no way to determine whether the bill when first introduced would have draconian impacts on the Medicaid population.”

But further evaluation led his organization to believe there could be a “dramatic reduction” in enrollees or services.

“This bill has such a large reduction in federal funding that it has a potential of disrupting the Medicaid program and putting our plans at risk [as well as the ability to provide] care to America’s most disadvantaged, the ones we’re contracted to provide care to,” he said March 22 ahead of the scheduled vote.

An analysis from the Commonwealth Fund projected that the repeal-and-replace legislation would have resulted in budget cuts that would have impaired ongoing health-care transformation efforts in California, Massachusetts, New York and Texas. It also would have punished states that have already worked to improve their per-capita costs, the analysis said.

Further, the pressure to scale back services could have reduced provider payments and eased restrictions on reimbursements to managed care plans.

“Under such a scenario, there could be a decline in the number of managed care plans either willing or able to participate in Medicaid,” the report said.


The overhaul would also have placed a burden on safety-net hospitals and providers, industry stakeholders said.

“We know challenges remain to ensuring access to affordable, comprehensive health care coverage for all people,” America’s Essential Hospitals President and CEO Bruce Siegel said in a statement after the bill was withdrawn.

“We urge Congress and the administration to use today’s decision as an opportunity to work on bipartisan solutions to these challenges,” said the group, which represents almost 275 safety-net hospitals.“We look forward to working with policymakers to ensure stability for the insurance marketplace, essential hospitals, and other safety-net providers,” Siegel said March 24. “This can start with averting damaging cuts this year to Medicaid disproportionate share hospital payments and supporting programs that protect care for disadvantaged Americans.”

Though the MHPA did not support the AHCA or its “potentially destabilizing” and ill-timed cuts, Myers said he still supports fundamental Medicaid reform.

“The program doesn’t look like it did 20 years ago,” he said, pointing out its role as a primary health insurer for nearly one in four Americans.

“We think substantive programmatic reform can happen,” he said.

The group remains open to the idea of ceilings on federal Medicaid allotments to states.

Rosenbaum said the AHCA’s changes would have been “the most far-reaching ... in Medicaid’s history.”

Instead, conversations around the program—and issues within it like work requirements, reducing eligibility, easing regulatory burdens and implementing premiums and lock-out periods—will likely continue to swirl, she said.

“These issues in some way are very tangential to the much bigger question of how to best deploy Medicaid resources to lift the quality of care and outcomes of care for a low-income, high-need population; the two sets of imperatives seem to be talking past one another,” Rosenbaum said.

For now, after months of back-and-forth, Medicaid funding remains intact.

To contact the reporter on this story: Victoria Pelham in Washington at

To contact the editor responsible for this story: Brian Broderick at

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Health Care on Bloomberg Law