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Medicare Compliance & Reimbursement

Health Plans:

Managed Care Faces New Opportunities In Medicaid

Published on Thu Jan 13, 2005

Market heats up as more states look to private plans for help.

The economy is still sour, more people are being laid off, and states are facing budget deficits. Add it up, and it's a great time to do business in Medicaid.

"It's a little-known fact that Medicaid has actually become bigger than Medicare in terms of numbers of people," explains Jane Galvin, director of regulatory affairs for the Blue Cross and Blue Shield Association. There are now approximately 50 million Medicaid recipients.

"Managed Medicaid is counter-cyclical," explains Anthony Horball, CEO of Ion Health Holdings Inc., a Medicaid plan based in Erie, PA. When the economy is down, more people become eligible for Medicaid, which now constitutes more than one third of some states' budgets. And with states facing severe budget crises, they need help cutting costs.

"Medicaid is the first place many governors go to find savings and balance their budgets," Horball says. "They are turning to private contractors."

This is a turnaround from recent years, and it presents managed care plans with a rare opportunity.

In the late 1990s, managed Medicaid enrollment flattened out in most places, explains Jim Fossett, a policy analyst with the Rockefeller Foundation. Some states rolled back from full risk to case management, and many states lost longtime managed care partners as health plans decided there wasn't any money to be made in Medicaid.

But most of the plans that left Medicaid were larger managed care plans that focused mainly on commercial business and had tried to handle some Medicaid on the side, explains Jim Verdier, director of state policy at Mathematica Policy Research Institute. The plans that remained in Medicaid usually fit into one of two groups: either plans based in hospitals or federally qualified health centers, or large, multi-state, publicly held companies that work exclusively in Medicaid, such as Molina Healthcare Inc., Amerigroup Corp. and Centene Corp.

These latter, Medicaid-only plans "have been thriving," says Verdier, who is a former Indiana State Medicaid director. He notes that stock prices for Medicaid-only plans have been particularly high lately as the companies acquired competitors.

Heads up: "The opportunities in Medicaid managed care are obviously pretty substantial, and are seen as such by these privately held plans and by Wall Street," Verdier says.

Medicaid-only plans were boosted by a recent regulatory change, explains Thomas Johnson, executive director of the Medicaid Health Plans of America. Previously, health plans were required by law to have a certain amount of commercial business, but the Centers for Medicare & Medicaid Services struck down that law, allowing for the creation of Medicaid-only plans.

Experts are torn as to whether larger commercial plans will return to Medicaid. But Horball points out another inviting regulatory change: better reimbursement rates. If the states don't pay a high enough rate, the federal government can withhold federally matching funds.

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