Two Reasons Health Reform Will Bring Medicaid Managed Care Expansion

Health insurance companies were largely winners in health reform as millions of new customers will soon flood their care pools.

Sure, there will be those with pre-existing conditions and people who have gone years without preventive care because they have not had insurance. But reform will also mean many of the so-called "young invincibles" will buy insurance rather than face a fine. Yes, the fines are paltry and it won't push all young, healthy people into insurance, but it should move most of them into insurance and they will help pay for the infusion of sicker people who insurers will have to accept.

That's good news for health insurers.

But there is a segment of health insurance that may get an even bigger boost—Medicaid managed care. Depending on your political slant or place in healthcare, Medicaid managed care is either a cost-effective way to control health costs and create medical homes for Medicaid beneficiaries or it's the privatization of Medicaid.

No matter where you stand on the issue, expect Medicaid managed care expansion. Here are two reasons why:

Cash-strapped states will look to private insurers for help
As part of health reform, the feds will pay in full for newly eligible Medicaid recipients over the next three years. The problem is that Medicaid expansion becomes an unfunded mandate after three years and states, which already have trouble paying for Medicaid, will have to pick up the tab. Faced with their own budget crises, states don't always pay promptly.

One avenue they will likely look: Medicaid managed care. What better solution is there for states, especially those with a conservative bent, than to pass the issue of insuring poor, at-risk residents onto insurers with the belief they can control costs. Hopefully, states will create a framework so insurers maintain a certain level of quality and care coordination. That is just as important as keeping costs under control.

States with Medicaid managed care programs can now receive drug benefits
Health insurance companies, particularly Medicaid managed care companies, received a huge gift in health reform that could lead more states to create Medicaid managed care programs.

Reform will allow states with Medicaid managed care programs to receive drug rebates.

The feds created the Medicaid Drug Rebate Program in 1990, which requires drug manufacturers to enter into an agreement with HHS to offer the rebate to Medicaid state programs. However, until health reform, Medicaid managed care pharmacy programs were not eligible, which meant some states carved out pharmacy from their managed care program so they could take advantage of the rebate.

There are about 550 pharmaceutical companies that participate in the program and until the rebate was expanded to Medicaid managed care, states had a difficult decision: Do they save money and remove pharmacy from their Medicaid managed care programs that are run by private insurers? Or, do they keep pharmacy within private health insurers' Medicaid programs and gain the benefit of better care coordination, and lose out on the rebate?

The failure to integrate immediate pharmacy benefit information because drugs are carved out of Medicaid managed care leaves out an important piece of care coordination. Without having that pharmacy information, health insurers don't know if their members were placed on a particular medication that may signal the need for a disease management program.

Medicaid managed care is one of the few growth areas for health insurers. Forward-thinking health plans have already invested in Medicaid, but health reform will likely interest others to follow suit.

Health reform could boost Medicaid managed care and woo more insurers into the program.

Medicaid managed care is a great opportunity for insurers, but there are pitfalls. As I wrote in December, Medicaid beneficiaries are quite different from the typical group market member. There are housing, transportation, and education issues in Medicaid populations that are not common in the employer-based insurance market. Insurers not used to dealing with these issues will have to implement new programs and outreach efforts.

Health reform will spark Medicaid managed care, but insurers should understand that Medicaid comes with its own unique challenges. If they don't develop population-specific programs, their Medicaid managed care programs will likely fail.