Last week, the Centers for Medicare and Medicaid Services’ independent Office of the Actuary released its 2014 Actuarial Report on the Financial Outlook for Medicaid.
Unlike previous years, this annual report is making headlines because the actuaries project that for 2014 the newly eligible Medicaid expansion population will have costs greater than the non-newly eligible Medicaid population. Continue on to the next paragraph of the report and the actuaries write that a major contributor to this increased cost projection is that states anticipated and, in their managed care contracts, accounted for high first-year costs for these new beneficiaries.
We will see whether these projections come to bear in the next actuarial report or whether states in fact overestimated these first-year costs, perhaps leading actuaries to expect that the average per beneficiary cost for the expansion population will be less than the non-expansion population in later years.
While we still do not have final figures on how much new Medicaid enrollees spent on medical care in 2014, we do have evidence—including a recent study by Naderah Pourat and coauthors published in the July issue of Health Affairs—that primary care and care coordination can help reduce the initial care costs of Medicaid enrollees entering the health care system for the first time.
After all, evidence suggests newly eligible Medicaid beneficiaries are healthier and less costly than the current Medicaid population. However, when negotiating their managed care contracts, many states estimated that the newly eligible would cost more in the first year than non-newly eligible individuals. This approach was based on the theory that the first newly eligible people to enroll would be those previously locked out of the insurance market, quickly entering the health care system with pent up demand. Additionally, they would be sicker and would require more health care services.
The estimations driven by this theory are essentially based on an adverse selection problem. But it doesn’t have to work that way. Pourat and colleagues show how, several years ago, California found a way to reduce the cost of newly insured Medicaid beneficiaries entering the health care system for the first time: care coordination.
Medicaid Expansion Presents An Opportunity
The stakes of getting this right have rarely been higher. Medicaid’s enrollment has grown by more than 12 million people since the Affordable Care Act’s first open enrollment period. The actuaries estimate that over four million people gained Medicaid coverage through Medicaid expansion in 2014, and many of these people are getting health coverage for the first time.
Studies, including the Oregon Health Insurance Experiment, show that expanding Medicaid coverage, absent care coordination efforts, increases the usage of often costly and ineffective emergency department visits. That phenomenon is not unique to Medicaid — insurance coverage reduces the financial barrier to seeking health care, driving up demand for services in all settings.
Unnecessary use of the emergency department is only a small portion of the costs associated with Medicaid. A vast majority of Medicaid enrollees go to the emergency department for actual emergencies. But, by promoting best practices of primary care adherence and encouraging beneficiaries to use of the right type of care, states like California can help reduce these initial cost increases associated with newly eligible enrollees.
The Medicaid expansion and enrollment increases represent an important opportunity for state and Medicaid managed care plans to actively reduce unneeded emergency department care. To do this, states have used methods ranging from out-of-pocket charges for emergency department trips deemed unnecessary to enrolling people in primary care practices with routine follow- ups.
Health Care Coverage Initiative
In 2005 California began implementing the Health Care Coverage Initiative that essentially acted as a medical home model for newly insured Medicaid beneficiaries in 10 counties around the state and gave enrollees a primary care provider that coordinated the person’s care.
In the initiative’s first two years, patients were not required to adhere to their chosen or designated primary care provider; they could switch providers whenever they wanted. As described in their recent Health Affairs article, Pourat and colleagues found that during this same period, the number of emergency department visits among beneficiaries remained high, attributed primarily to those enrollees who did not adhere to the same primary care provider. But that all changed in the third year when the county began actively requiring patients and providers to redirect care through their primary care provider. They instituted non-payment for visits to non-assigned providers and restricted primary care provider changes.
These policies led to greater adherence to primary care providers and reduced emergency department use and hospitalizations among enrollees who stuck with their primary care physician. While we already knew that greater continuity of care reduces emergency department usage and hospitalizations, this research provides additional evidence on the power of that payment methodology and policy structures to provide that continuity of care for Medicaid enrollees.
Orange County’s dual pronged financial and consumer approach to ensuring Medicaid enrollees seek care through a primary care provider is not the only way to increase primary care adherence and reduce use of the emergency department.
We need to closely study efforts to provide primary care services on nights and weekends and through retail clinics. Many newly eligible individuals have jobs without sick time that restrict their ability to make doctor’s appointments during the work week. But with these new efforts, Medicaid enrollees can get care on evenings or weekends, when many doctors’ offices are closed.
We also need to recognize which efforts have not delivered results. Evidence suggests that copayments and other restrictions on “unnecessary” emergency department visits does not reduce this utilization.
The research is unclear whether the temporary increase in Medicaid primary care payments from January 1, 2013 to December 31, 2014 led to increased utilization of primary care services by Medicaid enrollees. Starting in 2015 some states maintained the payment increases using their own funds, while others allowed the payments to return to earlier levels. This variation will allow researchers to further study the effect of provider payment on care utilization.
We have much to learn from the different approaches states are taking to reduce costs for people entering the health care system for the first time. And these lessons will have lasting relevance. In the years ahead we will continue to see long-term uninsured people entering the system. Care coordination will ensure that continuously insured people receive the right care, while saving money for states and the Medicaid program.