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Medicaid Managed Care and People with HIV

July/August 1999

Perhaps no government program is more important to people with HIV than Medicaid. This state-federal partnership provides comprehensive health care to more than half the adults with HIV and virtually all the children. In 1998, Medicaid expenditures on HIV care totaled $3.8 billion, far more than any other government program.

This article, the second part of our series on health care for people with HIV, takes a close look at this key government program. This is a particularly important time for a discussion about Medicaid because major changes are underway in how the program is funded and structured.

Medicaid programs are beginning to adopt managed care models, which have already come to dominate the private insurance market. The move to Medicaid managed care is complex, and varies by state. The push to Medicaid managed care is driven by often contradictory impulses. What changes are in store, and what might they mean for people with HIV?

The History and Definition of Medicaid

Although the following facts are well enough known, a review of basic information about the program is in order. Medicaid began rather inauspiciously, as a relatively small part of President Lyndon Johnson's Great Society initiative of the 1960s. Created through Title XIX of the Social Security Act, Medicaid was initially a medical care extension of federally funded income maintenance programs for the poor, with an emphasis on the aged, the disabled and dependent children and their mothers. Families and individuals who received federal cash assistance, typically Aid to Families with Dependent Children ("welfare" for poor families) or Supplemental Security Income (a cash grant for the disabled), also received Medicaid benefits to cover their health care costs.

Over time, however, Medicaid has diverged from a firm tie to cash programs. Recent legislation ensures Medicaid coverage to an expanded number of low-income pregnant women, poor children, and some Medicare beneficiaries who are not eligible for any cash assistance program and who would not have been eligible for Medicaid under earlier Medicaid rules. Legislative changes focus on enhanced outreach toward specific groups of pregnant women and children, increased access to care, and improved quality of care.

The most important trend in Medicaid over the last thirty years has been payment of nursing home care for the elderly. At the time the program was created, the World War II generation was still working and "Baby Boomers" had not yet been to Woodstock. As the population aged, however, the role of Medicaid in nursing care expanded greatly. Today, Medicaid is the key financing mechanism for most nursing home care in the United States, with nursing home payments now consuming most of the Medicaid budget.

Financing for Medicaid is a joint state-federal responsibility. The portion of the Medicaid program that is paid by the federal government, known as the Federal Medical Assistance Percentage (FMAP), is determined annually for each state by a formula that compares the state's average per capita income level with the national average. States with higher per capita incomes, like New York, receive a lower federal share, while poorer states, like Alabama, receive a higher share.

By law, the FMAP cannot be lower than 50 percent or greater than 83 percent. The federal government also shares in the states' expenditures for administration of the Medicaid program. Most administrative costs are matched at 50 percent for all states. However, higher matching rates are authorized by law for certain functions and activities.

In order to receive federal matching funds, state Medicaid programs must meet certain conditions on the type of services provided in the program. All state Medicaid programs must provide inpatient hospital services, outpatient hospital services, physician services, medical and surgical dental services, nursing facility services for individuals aged 21 or older, home health care for persons eligible for nursing facility services, family planning services and supplies, rural health clinic services and any other ambulatory services offered by rural health clinics, laboratory and x-ray services, pediatric and family nurse practitioner services, federally-qualified health center services and any other ambulatory services offered by a federally-qualified health center, and nurse-midwife services.

Similarly, states must cover certain groups of people in order to receive federal matching funds. All states must cover low-income families with children who were eligible for "welfare" as of July 16, 1996, when Congress enacted "welfare reform." In addition, states must cover all Supplemental Security Income recipients, all infants born to Medicaid-eligible pregnant women, and all children under age 6 and pregnant women whose family income is at or below 133 percent of the federal poverty level. States must also cover all children under age 19 in families at or below the federal poverty level born after September 30, 1983.

Medicaid does not provide medical assistance for all poor persons. Even under the broadest provisions of the federal statute (except for emergency services for certain persons), the Medicaid program does not provide health care services, even for very poor persons, unless they are in one of the groups designated above. Low income is only one test for Medicaid eligibility; assets and resources are also tested against established thresholds.

Apart from required services, states have some discretion in adding other services. The federal government provides matching funds for these optional services. The most common optional services are clinic services, nursing facility services for those under age 21, intermediate care facility/mentally retarded services, optometrist services and eyeglasses, prescribed drugs, tuberculosis-related services for TB infected persons, prosthetic devices and dental services.

States may also choose to cover optional populations for which the federal government will provide matching funds. The most commonly added populations include: infants up to age one and pregnant women not covered under the mandatory rules whose family income is below 185 percent of the federal poverty level; other low income children; certain aged, blind, or disabled adults who have incomes above those requiring mandatory coverage but below the federal poverty level; children under age 21 who meet income and resources requirements for AFDC but who otherwise are not eligible for AFDC; institutionalized individuals with income and resources below specified limits; persons who would be eligible if institutionalized but are receiving care under home and community-based services waivers; recipients of state supplementary cash payments; and TB-infected persons who would be financially eligible for Medicaid at the SSI level.

Some states, like New York, include virtually all optional services and populations in their program. Other states include no service or population options. The decision on what and who to cover is often about economics. Since states are required to pay for a portion of the program, adding services and populations consumes state resources. Many states are unwilling to spend more money on Medicaid.

States may impose nominal deductibles, coinsurance, or copayments on some Medicaid recipients for certain services. Emergency services and family planning services must be exempt from such copayments. Certain Medicaid recipients must be excluded from this cost sharing: pregnant women, children under age 18, and hospital or nursing home patients who are expected to contribute most of their income to institutional care.

The amount of total federal outlays for Medicaid has no set limit (cap); rather, the federal government must match whatever the individual state decides to provide, within the law, for its eligible recipients. However, reimbursement rates must be sufficient to enlist enough providers so that Medicaid care and services are available under the plan at least to the extent that such care and services are available to the general population in that geographic area.

Medicaid has traditionally operated as a fee-for-service health care program. Medicaid pays physicians and other health providers directly for every service provided to a Medicaid recipient. By law, providers participating in Medicaid must accept the Medicaid reimbursement level as payment in full. Each state has relatively broad discretion in determining (within federally imposed upper limits and specific restrictions) the reimbursement methodology and resulting rate for services, with three exceptions. For institutional services, payment may not exceed amounts that would be paid under Medicare payment rates. (Medicare is a different health insurance program, paid for entirely by the federal government, for retirees and some disabled people.) For disproportionate share hospitals (i.e., hospitals with a large number of Medicaid recipients), different limits and higher rates are mandated. For hospice care services, rates cannot be lower than Medicare rates.

Medicaid Managed Care

No other recent development in the Medicaid program is as important as the move to Medicaid managed care. Managed care is now the primary model of private health insurance in the country. The adoption of managed care accelerated during the 1990s in the private insurance arena as a method to hold down escalating health care costs. The same impulse has led state governments to apply managed care to their Medicaid programs. In 1993, just over fourteen percent of Medicaid recipients were in a managed care plan. By 1998, more than half of Medicaid enrollees were in a managed care plan.

Medicaid managed care typically means a state Medicaid program will contract with a private managed care company to provide health care for Medicaid recipients. The promise is that Medicaid recipients can receive health care from existing private networks without the hassle and stigma of using only government-funded clinics. By placing Medicaid recipients in the private system, they would be indistinguishable from privately insured patients.

Managed care is a broad category encompassing many models for health care financing. Managed care differs fundamentally from "traditional" fee-for-service health care in that health care providers receive a set fee for all the health care of each recipient. Traditional fee-for-service pays the health provider for each service offered, regardless of the amount of care needed by the patient. The provider in a managed plan receives a set payment (usually monthly but sometimes quarterly or annually) from the managed care company for each patient. Whatever money is not spent on patient care is kept by the physician, so the physician has an incentive not to over-utilize health care resources.

The principles underlying managed care are meant to improve the quality of health and limit cost. Managed care limits the use of health care generally and typically encourages preventive health measures, like vaccinations, that are far cheaper than the treatment of disease. Managed care also limits care to the simplest and least expensive available, like outpatient surgeries or generic drugs. Another typical feature of managed care is the restriction of patients to a limited network of health care providers.

In practice, the difference between managed care and traditional fee-for-service insurance is usually more complex with health plans having features of both systems. The few fee-for-service plans left in the United States (including basic Medicaid plans) now pay hospitals set rates based on a patient's diagnosis. In addition, many managed care plans allow their members to seek care outside of the plan's approved network of providers and still receive at least partial reimbursement for the service.

A number of different models of managed care are now in existence. Health Maintenance Organizations (HMOs) are the original form of managed care, started over thirty years ago. The basic feature of an HMO is that it provides both inpatient and outpatient health care for a pre-paid, per capita rate for each member. HMOs can be a "staff model," where all care is delivered in hospitals owned by, and by physicians who are employed by, the HMO. Independent Practice Associations (IPA) are a variation on this model where a group of health care providers contract with a managed care company to provide all care for the plan's members.

Preferred Provider Organizations (PPOs) are another model where a group of providers contract with a managed company to provide care to its members. Unlike an IPA, however, members of a PPO are not restricted only to the providers in the PPO. Members may see providers outside the PPO if they agree to pay a higher co-payment or deductible.

Prepaid Health Plans (PHPs) are a managed care model almost exclusively used by Medicaid. PHPs pay a set fee to providers for a limited range of health services. Some PHPs provide only outpatient services. These plans typically contract with an HMO to provide a specific limited range of health care services to the plan's members.

Point of Service (POS) options are a provision within some managed care plans that allow members to seek care outside the approved managed care network. POS usually requires the patient to pay a higher deductible or co-payment. POS options have not been generally available in Medicaid managed care plans thus far.

Another important managed care model is a Pharmacy Benefit Manager (PBM). Usually these are separate organizations that contract with a managed care organization to manage all prescription drug benefits available to plan members. PBMs usually require that the least expensive drug be used, often substituting generic for brand name drugs. PBMs negotiate discounts on wholesale drug purchases. PBMs often take on the additional responsibility of coordinating a member's prescriptions by checking for side effects and interactions.

The adoption of managed care by Medicaid programs can occur in two different ways. First, states can allow Medicaid recipients to choose a managed care company voluntarily. Second, there are procedures for the states to request federal approval to move Medicaid recipients into managed care mandatorily. Mandatory Medicaid managed care has been the focus of most community advocacy thus far. Until 1997, states had to apply for a waiver from the federal government to move Medicaid recipients into managed care. The Balanced Budget Act of 1997 changed these rules and now allows states to proceed without federal approval.

The state's desire for Medicaid managed care has two sometimes-conflicting goals. On one hand, cost savings from managed care, like reduced use of hospital emergency departments and more preventive health care, may allow states to cover more people in their programs. In this scenario, Medicaid managed care may be a vehicle to extend health care coverage to more uninsured people. On the other hand, Medicaid expenditures have grown rapidly and states are looking for ways to limit these costs. The desire to extend coverage and the need to hold down costs are the fundamental conflict at the center of Medicaid managed care.

As Medicaid managed care has grown rapidly, Medicaid recipients across the country are entering all sorts of private health care plans both voluntarily and mandatorily. Yet the growth of Medicaid managed care has primarily centered on children and their mothers and people who receive federal cash assistance but who are not seriously ill. The average annual health care cost of a healthy person aged 18 to 44 is around $2,000, and many people in this age group require only minimal health care. Only one-quarter of the Medicaid recipients in managed care are disabled. In other words, the easiest part of the transition is already well underway: Medicaid beneficiaries who are in good health and do not accumulate large health care costs are making the transition. But what about Medicaid recipients who are seriously disabled, including people with AIDS? Annual treatment costs for even an asymptomatic person with HIV can approach $20,000. How can the expensive health care needs of the seriously ill and disabled be accommodated in managed care since these populations are historically unattractive to commercial insurance companies?

Medicaid Managed Care Trends
 Total Number of Americans Receiving MedicaidFee-for-Service PopulationManaged Care Population
Source: United States Health Care Financing Administration

Medicaid Managed Care for the Disabled

No state has been more aggressive in developing managed care for the disabled than New York. New York has some of the highest Medicaid expenditures in the country, and more Medicaid recipients than any state except California, which has more than three times the population of New York. New York's move to Medicaid managed care is largely motivated by a desire to limit spiraling Medicaid costs.

New York's Medicaid managed care program is now well underway. On August 9th, Medicaid recipients in some parts of New York City began the transition to managed care. Over the next year, the program will be extended in phases, county by county, all over the state. Medicaid recipients who are not seriously ill will be required to join a managed care plan. Recipients will be sent a notice explaining the transition to managed care and instructing them to choose a plan. If the recipient ignores the mailing or does not choose a plan, a plan will be chosen for him by October 9. People who are seriously ill, including those with renal disease or HIV, will not be required to join although they may do so voluntarily. However, the state cannot always identify people with exempt conditions in its Medicaid program. So, advocates fear, some people who are not required to join a managed care plan may have one assigned to them. That means the recipient may no longer be reimbursed for the care they receive at their established provider.

New York has three major provisions to accommodate people with HIV and other disabilities in Medicaid managed care. The first provision is an enhanced per capita rate, based on disease stage and severity, given to the managed care company to care for the disabled. Currently, New York intends to pay managed care companies about $225 per month for each Medicaid recipient they enroll. For generally healthy people, who have average health expenditures of about $2,000 annually, this rate is in line with established costs. For disabled recipients, the state will increase the per capita up to an additional 4.8 percent.

Is 4.8 percent enough to cover the expensive health care costs of the seriously ill? Many people doubt it, and there is good reason to be skeptical. The most important measure of the rate's inadequacy is that the two largest managed care companies in New York, Oxford Health Plans and Blue Cross/Blue Shield, will not participate in the Medicaid program. The companies believe the rate structure is insufficient. Instead, new managed care entities are being formed by consortia of hospitals and other providers that already serve the majority of Medicaid recipients. The promise that Medicaid recipients could be enrolled in mainstream managed care plans therefore seems unlikely to occur.

Another way New York intends to make managed care workable for the disabled is by continuing to cover some high cost services on a fee-for-service basis. For example, prescription drugs will not be part of the New York program. These will continue to be available to all Medicaid recipients whether they are in managed care or not. The same is true for substance abuse treatment and many mental health services.

For people with HIV, New York has created a special exemption. The state is actively developing an alternative managed care framework for people with HIV called Special Needs Plans (SNPs, pronounced "snips"). SNPs are still in development. The state released its request for applications for HIV SNPs just last month. They are expected to be in development for the next year or so. People with HIV will not be required to enter a Medicaid managed care plan until SNPs are up and running.

The key feature of a SNP is that it is a special, comprehensive network of HIV-specific providers. The SNPs receive a much greater per capita rate in return for providing a fuller array of services. SNPs will be expected to manage HIV disease comprehensively, including medical care and supportive social services, like treatment education and adherence programs. At this time, medical providers and social service providers in New York are all forming networks and contractual relationships to join together in SNPs.

The development of HIV SNPs is part of a recognition by the state that the existing network of HIV providers in New York is a valuable resource. Medicaid managed care could seriously undermine the expertise gained by these providers over two decades. The rate structure for HIV SNPs is not finalized. However, it is expected to be approximately $2,000 per patient per month. This is more in line with annual treatment costs for HIV. And, at the same time, prescription drugs and other services will still be provided on a fee-for-service basis even in an HIV SNP.

Will any of this work? No one really knows how successful moving disabled people into Medicaid managed care will be. Some evidence, presented in the previous issue, that people with HIV in managed care have the highest level of care, offers hope for success. However, what does seem clear is that the goal of moving Medicaid recipients into standard commercial health plans remains an elusive goal. The managed care organizations that are pursuing Medicaid patients tend to be providers who are already deeply involved in caring for Medicaid patients. They have no choice but to adapt to managed care since all their patients already rely on Medicaid.

Managed care for people with HIV also must confront the fact that HIV disease itself has been quite difficult to manage from a clinical perspective. Inpatient cost savings from antiretroviral treatment have been well documented. But will this persist if larger numbers of patients experience clinical failure? The HIV epidemic and its treatment continue to change rapidly, perhaps faster than managed care can accommodate.

What is clear is that people with HIV and other serious disabilities have a brief reprieve. No one is yet required to enroll in a managed care plan. If you or your patients receive notification from the state of managed care enrollment, you should take this seriously and deal with it right away. For the time being, traditional fee-for-service Medicaid can be preserved for HIV patients in New York. The stakes are certainly high since Medicaid is the primary health care program for people with HIV. What the future holds, however, remains uncertain.

Medicaid Managed Care State Enrollment: June 30, 1998
StateMedicaid EnrollmentManaged Care EnrollmentPercent in Managed Care
District of Columbia112,64551,02245.29%
New Hampshire73,0367,36810.09%
New Jersey643,120376,83958.60%
New Mexico243,059193,81879.74%
New York2,140,104634,23329.64%
North Carolina815,359559,03568.56%
North Dakota42,49022,04551.88%
Puerto Rico869,807813,79193.56%
Rhode Island117,80074,44663.20%
South Carolina442,99415,8233.57%
South Dakota62,11043,83470.57%
Virgin Islands17,15400.00%
West Virginia308,910131,34942.52%
Source: United States Health Care Financing Administration

Back to the GMHC Treatment Issues July/August 1999 contents page.

This article was provided by Gay Men's Health Crisis. It is a part of the publication GMHC Treatment Issues. Visit GMHC's website to find out more about their activities, publications and services.
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