Cherry Picking in Medicaid

Managed care companies are cherry picking the healthiest disabled senior dual eligible beneficiaries in New York state using a variety of methods, and excluding those needing the most care. The program provides a monthly per capita payment amount ($3,800/month) regardless of how much care is provided. The general theory is that the insurer has an incentive to keep people well, reducing care needed, and therefore increasing their profit. However, there is also an obvious financial incentive to simply sign up those who need less care in the first place. Several points here.

  • North Carolina has announced what I would call aspirational plans to put all Medicaid beneficiaries into private plans, of their choice. The notion is that via competition for patients, quality will rise and costs will drop. However, the New York experience shows the downside. I call the N.C. plan aspirational because there are scant details, but they do say they will ‘risk adjust’ to prevent cherry picking, but this will be hard. (this links to many posts I have written about N.C. Medicaid reform)
  • The key is to remember that Medicaid is not one program, but has a variety of types of patients unified by having low income. It is not hard to imagine children and pregnant women and low income adults in managed care; many states have done so, with better and worse effects. Doing so is no panacea, nor is it the worst thing ever. However, the idea that disabled and elderly Medicaid beneficiaries are going to be put into private plans, and more to the point for N.C., that persons in Nursing Homes who suffer from dementia, etc. are going to be picking plans so as to improve quality and reduce costs is a pretty long walk in the woods as my grandaddy would have said (aka not likely to work). This table shows the per capita spending differences by category of beneficiary in N.C.
  • To belabor the point, it is not that the theory of competition cannot work in health care, it is that the groups of Medicaid beneficiaries who comprise the dual eligibles and the long term disabled have so many complicated and expensive acute and long term care health needs that I think private companies will mostly be trying to avoid the most expensive and difficult patients. Put another way, tell me the private, for profit “entity” (to use Gov. McCrory’s language) that will be bidding to care for the dual eligibles on a straight capitated basis so I can make sure that I don’t own their stock.
  • This doesn’t mean we cannot have Medicaid reform in N.C. However, caring for “the least of these” will always be hard and expensive. I still think federalizing the cost of the dual eligibles at least, and allowing states more flexibility in especially the children and low income adult categories is the best policy approach with any hope of political consensus of any sort. You could also move toward pushing dual eligibles into Special Needs Plans to get the ‘one payer’ coordination impact, but then see the N.Y. experience. Here is a proposal for a broad SPN with opt-out among the dual eligibles, but then you just make cherry picking officially ok. [I remain unsure about the care of the long term disabled; such a heterogeneous group of people with vast array of needs, sometimes for decades; will always be hard and expensive]
  • Bottom line, we need Medicaid reform in North Carolina. I don’t see how the outline suggested by Gov. McCrory can work if it is to include all Medicaid beneficiaries. Either no one will want to bid if they really must take all comers, or it will simply be cherry picking if there is an opt out.

cross posted at freeforall. update: I revised the post for clarity; was a bit sloppy initially, I apologize.

Author: Don Taylor

Don Taylor is an Associate Professor of Public Policy at Duke University, where his teaching and research focuses on health policy, with a focus on Medicare generally, and on hospice and palliative care, specifically. He increasingly works at the intersection of health policy and the federal budget. Past research topics have included health workforce and the economics of smoking. He began blogging in June 2009 and wrote columns on health reform for the Raleigh, (N.C.) News and Observer. He blogged at The Incidental Economist from March 2011 to March 2012. He is the author of a book, Balancing the Budget is a Progressive Priority that will be published by Springer in May 2012.

22 thoughts on “Cherry Picking in Medicaid”

  1. I proposed, back when the Clinton’s tried this, and, of course, mainly to 3 other people, a fairly simple plan.

    When you are born your parent’s insurance company has to cover you for the rest of your life. Period. You would have the option of switching insurance companies if you could but whatever company insured you did so for life, regardless of circumstance. If the parents or you were employed the payment was made by the employer to the insurance company. Otherwise, the government paid the bill.

    The salvation for insurance companies was the secondary layer of risk insurance. If an insurance company got slammed by too many high-risk they submitted claims to a high-risk pool for reimbursement. All companies paid into the pool based on their number of insured.

    Government would mandate a minimum level of coverage and, possibly, be a third level of risk pool for really expensive situations.

    The tricky part is converting from the current plan to this plan.

    Overall, I would like to see single payer but the above was an attempt at a free market solution.

    1. I don’t think that system is workable with multiple providers. You could perhaps do a lottery system, where a carrier is chosen at birth, and that carrier is obligated for life, so individual family members might have different providers, but really, why all the fuss?

      Universal health care with single payer is really what you mean. I wish conservatives would realize the medical system we have is so far from a free market as it is. Instead it’s a series of mini-monopolies and rent seekers, skimming profits at many layers for no good reason.

      Even in single payer, you could still have the actual service provider compete for services. If they’re no good, no one will go to them. Pay the providers by the patient, and allow the patients to choose their providers, but have one insurance company, the government, set prices and determined covered services.

      If you want anything above the government provided care, pay for your own private insurance or pay out of pocket.

      At this point it’s been proven the world over that this is that heavy government involvement in the medical system is only thing that works.

    2. Rud

      The transition difficulty to any other system is in many ways the hardest challenge….several types of other systems are imaginable and could work, but getting from here to there is exceedingly difficult

  2. And the problem is that while the majority of PEOPLE on Medicaid are young, the majority of SPENDING on Medicaid is for the dual eligibles, who are on both Medicare and Medicaid. So if a state has a system that hopes to deal with Medicaid costs by putting people on private insurance plans, they will not succeed by putting only the young, cheap people on private insurance. The state then would still have to pay for the dual eligibles, and that’s where the expense is. What insurance company is going to sign up to “insure” someone who is 70 years old and in a nursing home? No insurance company at all, obviously.

    1. Yes, well said. I have been surprised (shouldn’t have been) how little policy makers in NC understand about who is actually covered and where the money goes in Medicaid.

      1. What makes you think that they don’t know? I think it’s far more likely that they have some vague sense of how things are but just don’t care. And why should they? The entire “free enterprise system” of health care is basically a scam designed to allow insurance companies and health care companies to skim as much government money as possible without adding anything of value beyond what a single-payer system or national health care system would provide at a far lower cost.

        1. Talking with some of them informally, and then in other cases public comments. The Sec of HHS recently said one goal was to get to where there was a predictable number of beneficiaries over the course of a year which is of course impossible with a counter cyclical program with different eligibility requirements. There is some of what you note, but a fair amount of true cluelessness as well…not sure which is worse.

          1. Did you sense any understanding on their part that they ought to educate themselves on the issues they are legislating about in advance of making decisions about people’s lives? Do they understand that Americans on the whole receives inferior health care, with no better and sometimes worse outcomes, for vastly more money? Isn’t that a part of what being a legislator is supposed to be about?

        2. It’s easy to impute the worst motives to our political opponents, but health policy is complicated. I’m taking Zeke Emanuel’s Coursera course on the ACA, but before I took it, I didn’t understand a lot of the details about health care costs and government health care policies. I’m sure that some people don’t care, but a lot of people really believe that the free market can solve the problem of the dual eligibles, and other problems of cost and access.

          1. It would be easier to accept the good faith of the people attempting to “privatize” both Medicaid and Obamacare if they didn’t represent states with long histories of screwing the poor, workers and the middle classes. I don’t think any can rationally believe that the free market is going to solve any of these problems. A lot of people once believed there were pixies dancing in their gardens and thefts by gremlins were the reason people were left with odd numbers of socks. At this point, such beliefs seem vastly better founded than a belief in unrestrained free markets.

            Your own comment proves my point: Why do we have such a crappy, complicated health care system? Because years ago private companies decided to get into the health insurance business. But their problem was that every dollar spent on health care was a loss to them and they discovered it was much more profitable to spend money on advertising and administratively denying coverage for expensive illnesses. But instead of simply eliminating them in favor of single-payer, we reward them by structuring a health insurance system so complicated that people like yourself have to take courses and spend hours studying how to navigate the ACA. That’s totally insane. People in other modern, industrialized countries don’t have to do any remotely like that—they just sign up and the system tries to do the best it can and most of these systems work pretty well because there no incentive to do anything other than provide good health care at as reasonable a cost as possible.

  3. The free market by definition does whatever it takes to turn a profit.
    If that means grannies have to starve, well, so be it.

    This is why single-payer is the only way to go.
    A private sector solution would have to be very heavily regulated (like in Switzerland).
    And we all know that makes the baby Jesus cry!

    1. All real Americans know that God meant the big to be big and the little to be little.

    2. The political market by definition does whatever it takes to get elected, and if that means Granny has to die to devote the money to a more efficient way of buying votes, that will happen, too. It won’t happen openly, but it will still happen.

      1. The economic market by definition does whatever it takes to make a profit, and if that means Granny has to die to make money more efficiently, that will happen. It won’t happen openly, but it will still happen.

  4. Competition works great in some fields of health care, notably veterinary medicine. Why is the veterinary market so much more functional than the medical one, when their technologies and regulation are pretty much the same? A few differences between the markets come to mind:

    – Nobody cares if Fido dies because Fido’s owner has no money.
    – Fido’s owner is likely to put Fido down when Fido gets too creaky.
    – Fido’s owner is likely to bear Fido’s sufferings with admirable stoicism.
    – Fido’s owner won’t object to a dangerous therapy, if it is reasonably cheap and generally effective.
    – Pet insurance works off prices set by the predominating uninsured market.

    Honest, folks! The free market model of medicine works just fine, if we treat poor people like dogs. Which, as far as I can tell, is pretty much the Republican agenda. You can’t accuse them of logical incoherence.

    1. Exactly. Also, if Fido is found abandoned and sick, we don’t have a large public outcry if he is humanely put down. If Granny is abandoned and sick, even most Republicans won’t say she should be euthanized. At least not in public.

    2. I don’t think you understand. The goal for a competitive market is to maximize profits. So you cherry-pick the patients who offer the lowest costs, and then you create a firewalled subsidiary or three to care for the possibly-expensive ones. If providing minimal care works, the profits flow back to the parent company; if it tanks, the state picks up the tab.

      1. Gosh, here in Southern California we love our pets and are faced with an uncompetitive vet market, as I believe is true everywhere in the US.

        The vets, as with MDs treating folks with no insurance, charge whatever the heck they want. I am interested in how one might shop for pet treatment when confronted with, say, a dog run over by a car or a cat poisoned with Warfarin? Does one call around to several vets asking for quotes while the pet is dying?

    3. My cardiologist brother-in-law tells a story about a vet calling his college roommate (who became an orthopod) to get hints on doing his first dog hip replacement the next day. The vet was fearless because he knew the dog’s owners would not sue him if something went wrong. Both my brother-in-law and the orthopod were quite jealous of the vet. No malpractice premiums! Except I’m pretty sure both docs make more money than the vet.

  5. Who could possibly have predicted that following the failed recipe of Medicare Advantage would yield the same bad results as Medicare Advantage, in the same fashion? Except (perhaps) Rita Mae Brown. of course

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