Florida’s Market-Based Medicaid Reform Demonstration: Cost and Quality Issues

No. 350
Tuesday, October 22, 2013
by Michael Bond
National Center for Policy Analysis

Executive Summary

Medicaid, the federal-state health care program for the poor, was created almost as an after-thought as part of the Medicare Act of 1965. From 1975 to 2010, Medicaid costs grew 1.8 percent faster than gross domestic product (GDP), raising federal costs and putting increasing pressure on state budgets. Florida exemplifies the states' Medicaid spending problem:

From 1990 through 2010, Florida's Medicaid expenditures grew at an annual rate of 10.1 percent.
As a result, Medicaid accounted for 29 percent of state expenditures in 2010.
With these growth rates, the program will consume the state's entire budget in less than 30 years.

However, in 2005, the Centers for Medicare and Medicaid Services (CMS) approved a Florida reform initiative designed to increase beneficiaries' access to care and the quality of care at no greater cost than traditional Medicaid. The federal waiver has allowed the state to move about 413,000 Medicaid beneficiaries in five demonstration counties into health plans run by private providers and insurers. Instead of paying for each separate service hospitals and doctors provide to patients (fee-for-service), Medicaid reimburses the health plans in the five counties for each beneficiary who enrolls. The plans have some flexibility in the design of benefits and delivery of care. Moreover, the health plans compete for business, because Medicaid enrollees have a choice.

To assist beneficiaries with plan selection and other Medicaid issues, Florida created a Choice Counseling Program, which includes a call center that received almost 58,000 calls in a recent quarter. According to surveys, satisfaction with the counseling program ranges from a low of 76 percent for "ease of understanding information" to a high of 98 percent for "being treated respectfully." Responses to the remaining eight survey questions show satisfaction ranged from 86 percent to 96 percent.

Competition among plans has clearly led to a welcome addition of services beyond the original Medicaid benefits package. Expanded services include over-the-counter drug benefits of $25 per household per month, adult preventive dental care, circumcisions for male newborns, and additional adult vision and nutritional counseling.

Overall satisfaction with the reform plans is high. Federal law requires Florida to track complaints about private Medicaid plans. According to the most recent quarterly data available, there were just 744 complaints in the reform counties, representing just 0.2 percent of enrollees.

The demonstration project has affected medical cost inflation. According to available CMS data, during the 2006 to 2009 period, per capita Medicaid expenditures in the whole state increased 5.2 percent, whereas the cost per enrollee in the reform counties increased only 1.4 percent. Among specific groups of in the private plans, costs have been much lower than traditional Medicaid. Over the first seven years of the reform:

The cost for each private plan enrollee receiving Supplemental Security Income (SSI) has fallen from 102 percent to 62 percent of statewide average Medicaid expenditures for SSI recipients.
The cost for each private plan enrollee receiving Temporary Assistance to Needy Families (TANF) has fallen from 80 percent to 53 percent of statewide average Medicaid expenditures for TANF recipients.

One reason for lower costs in the reform counties is privately administered drug benefits. According to estimates by the Menges Group, integrating drug and health benefits in a statewide managed care program could save Florida Medicaid $5.1 billion over 10 years ($3 billion in lower federal spending and $2.1 billion less in state spending).

Improvement in the overall health status of enrollees is a key goal of reform. Long-term health improvements only appear with time, but it is known that better management of chronic health conditions reduces the number and severity of complications. The performance of health plans in the demonstration counties has improved relative to counties with conventional Medicaid. Specifically, looking at measures for diabetic care, in 2011, according to the latest data available:

The national average for glucose testing (HbA1c) is 80.60 percent, whereas the average for the Florida five demonstration counties was 81.90 percent, and the below-average performance in the nonreform counties was 79.60 percent.
Control of glucose levels by diabetics in the reform counties (48.60 percent) exceeded both the national average (44.90 percent) and the below-average performance in nonreform counties (42.50 percent).

CMS approved Florida's request to extend the waiver through June 30, 2014. The state has also requested that the reform be expanded statewide, and has received tentative approval from CMS to proceed.