Photo By: Ryan De Hamer
Indiana may have addressed its immediate Medicaid budget problem. But that does not necessarily mean the state has solved the bigger challenge: the rising cost of caring for people with the most complex healthcare needs.
That is the concern raised by Jim Maguire, co-founder of Government Market Strategies.
Maguire says the Medicaid conversation often focuses on two things: how many people are enrolled and how much money the state can save in the short term. But those numbers do not tell the whole story.
The more important question may be: Who is left in the program, and how much will it cost to care for them?
That question matters as Indiana and other states make changes to Medicaid eligibility and enrollment. When enrollment falls, the people who remain may have higher healthcare needs on average. They may be older, have multiple medical conditions or rely more heavily on long-term services and support.
If that happens, simply having fewer Medicaid members does not necessarily mean the cost of caring for the remaining population will fall at the same rate.
The challenge with predicting future costs
Indiana relies on managed care organizations to provide healthcare to Medicaid members. The state pays those plans a set amount, known as a capitation rate, to cover the cost of care.
Those rates are developed using actuarial models and information about past healthcare use and costs. The approach is designed to make sure payments are reasonable and that the state and health plans can manage financial risk.
But, as Maguire points out, predicting future healthcare costs is difficult when the population itself is changing.
Past data may not fully reflect what lies ahead.
For example, if lower-cost members leave Medicaid while people with more complex needs remain, the average cost of the remaining population could increase. That can make historical spending patterns less useful when estimating future costs.
In Maguire’s view, this is an important part of the Medicaid debate that can get lost when policymakers focus primarily on enrollment reductions and immediate budget savings.
Long-term care is a major piece of the puzzle
The issue is especially important when it comes to long-term services and support.
Indiana Medicaid provides services that help people with significant physical or functional needs remain in their homes and communities. Those services can include personal care, attendant services, care management and support for family caregivers.
These services can help people avoid institutional care and maintain a better quality of life. But they also come with significant costs.
Indiana has seen increased attention on these services as the state works to manage Medicaid spending.
For Maguire, the concern is not simply that these services cost more. It is that the people who need them are often among the most difficult and expensive members of the Medicaid population to serve.
That makes the way the state sets payment rates particularly important.
Who takes on the financial risk?
This leads to another issue at the heart of Maguire’s argument: risk.
When the state lowers its Medicaid spending or reduces capitation payments, the state may reduce its immediate financial exposure. But that does not necessarily reduce the actual cost of providing healthcare.
Some of that risk may instead move to managed care organizations.
Health plans then have to manage a population that may be more complex while working with fewer resources.
That can create a difficult situation.
The investments that could help control costs over the long term—such as intensive care management, behavioral health services, caregiver support and programs that help people remain safely at home—also require money upfront.
If plans are facing greater financial pressure, it can become harder to make those investments.
Looking beyond the enrollment number
Maguire’s broader point is that Indiana’s Medicaid discussion should not stop with enrollment.
A decline in enrollment can certainly affect the state’s budget. But it does not necessarily mean the underlying cost of healthcare has been reduced.
Policymakers and health plans also need to understand how the needs of the remaining population are changing.
Are members becoming older or more medically complex? Are long-term care and home-based services becoming a larger share of spending? Are payment rates keeping pace with the cost of providing those services? And are health plans able to invest in programs that could prevent more expensive care later?
Those questions get closer to the underlying issue.
For Maguire, the challenge is ultimately about more than balancing the Medicaid budget. It is about understanding the true cost of caring for people with the greatest needs.
Lower enrollment and lower payment rates may help manage short-term spending. But they do not, by themselves, make healthcare less expensive.
The harder—and potentially more important—task is finding ways to improve care for Indiana’s most complex Medicaid members while addressing the factors that are driving their costs.
Otherwise, the debate may become less about reducing the cost of care and more about deciding who carries the financial risk for that care.