More managed care in Washington sets stage for Medicaid expansion

A greater percentage of Washington state's Medicaid population is being moved into managed care, most likely beginning with the Supplemental Security Income (SSI) population. "We will be going out with an RFP next year, for a start date of early 2012," reports MaryAnne Lindeblad, assistant secretary of the state's Department of Social and Health Services.

Currently, about 60% of the state's Medicaid population is in managed care. This will be expanded to more than 85%. "We will look at ways to support innovation within our contracts," explains Ms. Lindeblad. "The capacity of health plans will be looked at, and also innovative payment plans that they will use for providers, to support the concept of health homes. We are going to come at it from that direction, too."

A joint procurement exercise is currently under way for the state's Basic Health program, a state-sponsored program providing low-cost health care coverage through private health plans. "We are doing this in conjunction with our Basic Health plan, to look at creating that continuum of health plans for low-income populations," says Ms. Lindeblad.

The managed care expansion is also setting the stage for the upcoming Medicaid expansion. "Our vision is to develop the RFP in such a way that it helps us to identify the partners that we want to do business with for 2014," explains Ms. Lindeblad. "Payment reform is an underpinning of that. We really want to help our health plans look at ways of being innovative."

The managed care expansion is being looked at as a vehicle for better care coordination. "We've had success with our Healthy Options population. We want to expand that into other populations," Ms. Lindeblad says. "It's a way to implement the health home medical concept, as opposed to a fee-for-service approach."

The department is looking for health plans that can offer some innovative approaches. This might mean building accountable care organizations or other kinds of accountable delivery systems. "We are looking at how we can hold the health care system more accountable for the services that we buy," explains Ms. Lindeblad.

Current fiscal challenges

Meanwhile, the sustainability of the existing Medicaid program is in question. The state's governor has asked the department to engage in a reduction exercise for the remainder of the fiscal year, in the area of a 6% reduction. This would total $112.8 million in across-the-board cuts. For the next biennium, a 10% reduction above current projections is being called for.

Cuts in many optional benefits will begin on Jan. 1, 2011, although several will require legislative action during the 2011 session. Those cuts would take effect in March 2011. The cuts include a $39.4 million savings by placing limits on adult pharmacy services, $8.3 million from adult dental services, and $3.3 million for interpreter services.

Conceivably, some non-Medicaid programs will need to be eliminated. "Under national health reform, those individuals would be in Medicaid tomorrow," says Roger Gantz, policy director for Washington Medicaid. "We are in a dual process of having to build a new system for 2014, while simultaneously having to strategically reduce the existing health system for low-income individuals today."

Some targeted rate reductions were made during the last fiscal year. "We are also in the process of seeking an 1115 demonstration waiver to be able to sustain several of our key state-only medical programs like the Basic Health program," says Mr. Gantz. "That combination, plus tax increases, allowed us not to have made any material benefit design reductions."

The problem is that all of the near-term options to reduce costs have already been implemented. While there are potential cost savings from health homes or other quality initiatives, these won't be seen in the short term.

"The reality of better coordination of care is bending a cost curve or trend, as opposed to actual savings on the short term," says Ms. Lindeblad. "Perhaps we will see that on a long-term basis, but we cannot bank on it in terms of balancing the budget."

While the Medicaid program is seeing an increase in total expenditures, this isn't on a per-capita basis. The real cost driver has been on the caseload side of the equation.

For the next two years, a significant increase is expected in coverage for children, through the Apple Health for Kids program. By the end of the next biennium, 45% of all children in the state will be covered by Apple Health. "This is good news and bad news," says Mr. Gantz. "More children will be getting health coverage, but the question is, are we really going to see a dent in children's insurance rates? We don't know the answer to that, because that growth could be coming from a degradation in the employer-sponsored market."

An increase in the Temporary Assistance for Needy Families (TANF) population is expected to continue for the next biennium. "We are seeing a steady growth in coverage for the elderly and disabled in the 3% to 4% range. That will continue in the next biennium," says Mr. Gantz. "So, nothing is going down. Everything is going up."

An independent analysis of health care reform's impact on Washington state is under way. Two big concerns are takeup rates and adverse selection, with high-utilizers expected to come on to the program first. "But in general, we think the uninsured population that is out there is lower than our existing Medicaid population," says Mr. Gantz.

Opportunities on horizon

The governor is calling for continued efforts to improve efficiency in the health care system, across all state purchasing. This includes not only the Medicaid program, but also purchasing for public employees.

Legislation passed in 2008 gives incentives for reducing emergency department use and hospitalizations. "Clearly, health reform complements those efforts. Certainly, they are in philosophical sync," says Mr. Gantz. "We are also being asked to continue to improve efficiencies in the purchasing of prescription drugs."

An all-payer database will require some up-front investment that won't be recouped until several years out, he says. "The governor understands that and is willing to commit some front-end investment to do that," says Mr. Gantz. "But quite frankly, that investment doesn't compare to that of a complete new Medicaid eligibility system. The dollar amounts are appreciably different."

Washington has a multipayer workgroup, which has been meeting for the past year, including the major insurers, Medicaid, and the Health Alliance. "This group has put together some options around the different payment mechanisms for medical homes," says Ms. Lindeblad. "We are going to be piloting that. We are in the middle of making the choice of which practices are going to be allowed to participate."

In addition to changing the structure of how payments are made to health homes, a set of performance expectations is being developed. These strategies will strengthen the use of the state's Preferred Drug List and increase the use of generic utilization. "We are starting that effort now. In order to accomplish that, our state might need to seek additional waivers," adds Mr. Gantz.

Systems challenges

A major concern is having the necessary infrastructure in place to comply with the requirements of health reform. "There are two basic pieces to that," says Mr. Gantz. "One is delivery system capacity. Our view is that managed care expansion is going to be a vehicle to help develop that network capacity."

The other concern is systems capacity, particularly in the Information Technology arena and the state-level Health Insurance Exchanges (HIEs) that will allow individuals to purchase coverage. "The big piece around that is coordination of eligibility with the Medicaid program, vis-a-vis the exchange," says Mr. Gantz. "The set of expectations that exist there are all very laudable and all very desirable — and all present some very interesting challenges."

The state intends to use its $1 million planning grant to determine what functionality the exchange needs to have, and what functionality Medicaid needs to have, according to Gantz. An initial assessment is being done of the Medicaid eligibility systems capacity.

"What it may lead to is a decision for whether we will build the Medicaid functionality required by health care reform off our existing Medicaid system, or a new system," says Mr. Gantz. "Given the time constraints, the foregone conclusion is probably going to be building off our existing system. But we still have to go through that process of asking those questions and attempting to answer them."

Another challenge involves building a continuum of care between Medicaid and the entities operating the HIEs, which will be certified health plans. "This is one of the more interesting challenges in all of this," says Mr. Gantz. "We are beginning the conversations with health plans about the possibility to operate in both a Medicaid environment and a health exchange environment, as beneficiaries move between Medicaid and the exchange."

This continuum would ensure that when an individual loses Medicaid eligibility, he or she doesn't "fall off a cliff" with providers or plans. "We have to talk more about what that continuity strategy would actually look like," says Ms. Lindeblad.

Contact Mr. Gantz at (360) 725-1880 or gantzrp@dshs.wa.gov and Ms. Lindeblad at (360) 725-1630 or lindem@dshs.wa.gov.