Blues Plans Are Staying in Medicaid Despite Concerns About State Budgets and Likely Changes

Blues Plans Are Staying in Medicaid Despite Concerns About State Budgets and Likely Changes at the Federal Level

Reprinted from The AIS Report on Blue Cross and Blue Shield Plans, a hard-hitting independent monthly newsletter on business strategies, products and markets, mergers and alliances, and financing of BC/BS plans.

By Jill Brown, Managing Editor, (), July 28, 2009

Even as they continue to participate in state Medicaid programs, some Blue Cross and Blue Shield plans are wary of federal health care reform proposals calling for significant Medicaid expansion. Some question states’ ability to scale up programs to meet sharp increases in enrollment. Others are concerned that states will be forced to take on an unsustainably large share of expenses, even as Medicaid programs struggle with how to cover existing members in the face of declining tax revenues and growing numbers of qualifying beneficiaries.

“As a not-for-profit local company, we think serving this population is one of our missions,” says Brian Burns, senior vice president of health care services at Blue Cross and Blue Shield of Kansas City, which last month was awarded a contract renewal to serve the Missouri HealthNet Medicaid program. And “with health care reform, we are expecting an uptick in membership,” he tells The AIS Report. The Kansas City Blues plan has 28,000 Medicaid members, according to AIS’s Directory of Health Plans: 2009.

“We initially heard 500% of the federal poverty level [FPL],” Burns tells The AIS Report, or about $108,000 for a family of four, he says. “Then they were talking about 400%.…That’s still, for a family of four, an annual income in the mid $80s.” More recently, Medicaid expansion proposals have been more modest. The House Ways and Means, Energy and Commerce, and Education and Labor committees last month jointly proposed expanding Medicaid eligibility to 133% of the FPL, while the Senate Health, Education, Labor and Pensions Committee called for setting eligibility at 150% of the FPL.

“The clarity will come a little more in focus in a month or two, as Washington, D.C., tries to figure out what the poverty-level requirements will be for eligibility,” Burns says. But no matter what FPL level ultimately is agreed upon, “I think we will get more than our fair share [of membership], mainly because of the Cross and Shield [trademarks].”

However, even as federal legislators debate ways to expand the program, states are struggling to pay for existing benefits. Despite receiving stimulus funds from the American Recovery and Reinvestment Act (ARRA), nearly every state has seen deteriorating financial conditions during fiscal year 2009, according to a June 2009 report from the National Governors Association and the National Association of State Budget Officers. More than half of states had negative budget growth in fiscal 2009, and governors’ recommended fiscal 2010 budgets averaged a 2.5% decrease in general fund spending.

“The real issue is going to be in a few years, when stimulus dollars are, in effect, sunsetted,” says Kevin Hayden, president of WellPoint, Inc.’s state-sponsored business division, who served as secretary of the Wisconsin Department of Health and Family Services before joining WellPoint in April 2008.

ARRA helped many states maintain Medicaid funding. In New Jersey, for example, the stimulus law and the Children’s Health Insurance Program Reauthorization Act “provided New Jersey with the funding to avoid difficult decisions and to close gaps,” says Dan Emmer, spokesperson at Horizon Blue Cross Blue Shield of New Jersey. “Even proposals to add copays and to freeze certain categories were reversed.” Horizon’s wholly owned subsidiary Horizon NJ Health is the largest of the state’s Medicaid contractors, with 359,000 members, according to AIS’s Directory of Health Plans: 2009.

Medicaid is the last place states should look to for budget cuts, says Mary Morse, director of Medicaid programs at Blue Cross and Blue Shield of New Mexico, a unit of Health Care Service Corp. The New Mexico Blues plan has participated in SALUD!, that state’s Medicaid program, since fall 2008.

Federal Matching Funds Keep Benefits Stable

New Mexico is “extraordinarily dependent on oil and gas revenues,” Morse says. “So we not only are dealing with the impact of just the general recession, but the lower oil and gas prices have sort of translated into a double whammy.” Still, New Mexico “generally looks at benefit reductions and eligibility reductions as a last resort,” she says. “The last thing a state would want to do is cut eligibility for a couple of reasons. One, in a recessionary environment, you’ve got more people in need. And secondly, for every dollar spent in New Mexico, we get a little more than three federal dollars” through the federal matching program. As a result, New Mexico’s Medicaid program is focusing “only on administrative efficiencies” to save money.

Not every state had a choice, however. The Kansas City Blues plans’ new contract calls for reduced reimbursement, Burns says. “It’s a bad economic time, and the state of Missouri has some shortfalls.”

Missouri last year decided to move pharmacy benefit management from contracting health insurers back to the state, partly to benefit from lower rebates that pharmaceutical companies are required to pay to state Medicaid programs. “That did create a reduction in premiums for us, because we weren’t covering outpatient pharmacy,” he says. But “the outpatient pharmacy expenses far outweighed the [pharmacy] premium,” so carving it out made the Medicaid product more manageable, he contends.

“It’s not necessarily a product where we’re going to say, ‘Gee, we need to make 10% on it or we need to make 5% on it.’ It’s more of a mission thing.…[And] even with the rate reduction, we think we can at least break even.”
Some health plans have been forced to exit Medicaid programs. Hayden emphasizes that WellPoint’s Medicaid participation is “very aligned with our mission of improving our members’ lives.” Still, he concedes, the insurer exited Medicaid programs in Ohio and Nevada last year. “[In] the states we’ve exited, [state Medicaid programs were unwilling to pay] the rates we needed to provide services for those members,” Hayden says.

At the same time, though, WellPoint has entered new states, such as South Carolina. The insurer operates a joint venture with BlueCross BlueShield of South Carolina, Hayden says. “We’re roughly a year into it. We’re meeting member projections and our network development now, I believe, is statewide.” Benefits are offered through the South Carolina Blues plan, and administered by WellPoint. “We think it’s a very viable business model, and I’d be delighted to talk to other states about it,” he says.

Blues Execs Have Mixed Views on Reforms

Blues plans’ Medicaid executives are enthusiastic about the prospect of using Medicaid as a vehicle for coverage expansion — but they caution that success depends on how financing and risk are structured.

“States have all this administrative infrastructure already built,” Hayden says. “I think it’s a great opportunity to look at the assets the state already has” and use them to expand coverage. And as a Medicaid contractor, “we’re in a position to expand eligibility through managed care networks,” he adds.

Although Medicaid programs traditionally have served “low-income poor people, what we’re seeing with childless adults and the other populations that are now being served by Medicaid, the face of Medicaid…is changing.”

But Hayden says an expansion would not work if states were responsible for a growing share of costs. “The amount the state contributes would be fixed,” with the federal government contributing the rest, he says.

Risk also must be appropriately managed, says Sonya Nelson, CEO of Volunteer State Health Plan, the Medicaid unit of BlueCross BlueShield of Tennessee. “TennCare [Tennessee’s Medicaid program] was founded on the concept of universal coverage, with the understanding that more enrollees translated to more room to spread risk within a program.Without question, this experiment failed,” she says.“Enrollment expansion that is not accompanied by cost, utilization and benefit controls will merely repeat the historical experience of the TennCare program.”

Morse says a Medicaid expansion “is one piece of a pretty comprehensive [health care reform] puzzle, and that absolutely makes sense. We have low-income working families who could easily be eligible for Medicaid.”

She contends that the states most prepared to scale up should eligibility be expanded are those “that have been converted from Medicaid fee-for-service to Medicaid managed care,” since they already have private-sector partners to assist with the process.

Emmer agrees that “Medicaid managed care has offered an excellent infrastructure platform to service members and has capacity in many areas to assume additional populations.” But, he cautions, “an expansion of Medicaid or any other proposal that would create a government-run health plan would be detrimental to our health care system. It will lead to fewer choices of health plans and lower reimbursements to hospitals and doctors. Ultimately, the competitive advantages inherent to a government plan will lead to a single-payer, government-controlled health care system.

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