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Texas HMOs Set Enrollment Record

 |  By Margaret@example.com  
   October 16, 2013

Medicaid and Medicare Advantage plans are the primary drivers of a resurgence in health maintenance organizations in the Lone Star state, where Medicare Advantage HMOs enjoyed double-digit enrollment growth in 2012.

After several years of membership losses, Texas health maintenance organizations are enjoying something of a resurgence with enrollment hitting a record four million members according to the Texas Health Market Review 2013.

The primary drivers? Medicaid and Medicare Advantage plans. Yep, although Texas officials may rail against government programs, HMOs there have been busy expanding their markets and setting up networks to grab a larger membership share of those government programs.

In terms of enrollment, the largest HMOs in the Lone Star state are national Medicaid plans—AmeriGroup (661,478 members) and Centene (410,512 members)—and the Texas Children's Health Plan (354,684), which covers members who are part of the federal Children's Health Insurance Plan.

What is happening in Texas?

Allan Baumgarten, a Minneapolis-based consultant who has studied the Texas market for more than a decade and is the author of the market review, says the state has been busy in recent years transitioning its elderly and disabled Medicaid recipients into managed care arrangements.

The program, which began as a demonstration project in Houston, "is creating significant enrollment opportunities" for the Medicaid HMOs says Baumgarten.

Of course, this opportunity pales somewhat compared to the two to three million Texans who were expected to become eligible for Medicaid under the expansion provisions of the federal Patient Protection and Affordable Care Act. Last year the U.S. Supreme Court gave states the permission to opt of the expansion. Texas officials decided to exercise that option.

Meanwhile, baby boomers are leading the Medicare charge. Medicare Advantage HMOs enjoyed double-digit enrollment growth in 2012. More than 500,000 Texas seniors are now in those plans.

Profitability is a mixed bag, though. While Medicare Advantage is the most profitable line of business for HMOs, Medicaid HMO plans lost a collective $74.3 million on their operations in 2012.

Baumgarten attributes the Medicaid losses, at least in part, to expansion costs. He notes that ramping up provider networks and operations to move into new markets is a costly undertaking. Also, to quickly build those provider networks the HMOs may have agreed to unfavorable contracts in terms of their commitment to payment arrangements.

Baumgarten is reluctant to make any guesses about future profitability. "Going forward will they have better success? Who knows? It's an open question."

In general, as a health plan's activities in a service area mature, it begins to post profits. Baumgarten says the same scenario could be applied to Medicaid HMOs in Texas but with two caveats:

  • From time to time Medicaid programs put the squeeze on HMO payment rates to see how low they can go before plans start to drop out. He has seen that happen before in Texas.
  • Baumgarten is also concerned about how much time it may take an HMO to recover from disadvantageous provider contracts signed in those early years. "Sometimes contracts are for multiple years. It's not something you can turnaround in 12 months."

He says the expansion in the state of the elderly and disabled Medicaid managed care program promises to boost profitability because the average per-member per-month revenue is in the $800 to $1,000 per month range.

With favorable contracts and discounts from major providers, and if the HMOs perform a better job of care coordination than now happens with fee-for-service payments, then Baumgarten says that should be sufficient to provide a return.

Health insurance exchanges
Despite a lack of support from the state of Texas, Baumgarten sees HIX as having "significant potential" that may even help kick start commercial HMO enrollment, which has dropped like a rock to around 500,000 members as employers have moved to PPOs.

For employers, most of the innovation in health plan product design is "happening outside of the HMO," says Baumgarten. That makes commercial HMOs a tough sell.

Margaret Dick Tocknell is a reporter/editor with HealthLeaders Media.
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