Medicaid extreme makeover: with growing numbers of uninsured people and costs out of control, states are looking at radical changes to Medicaid.

• Author: Goodwin, Kristine
• Position: Centers for Medicare and Medicaid Services

States are scrambling to slow Medicaid growth and reform a troubled system that is devouring their budgets.

Medicaid covers about $3 million low-income Americans, including 13 million elderly and disabled people. Costs are increasing by 10 percent a year.

Enrollment growth and increases in health care costs contribute to Medicaid spending growth as do rising hospital and prescription drug costs. A growing number of beneficiaries, including the low-income elderly and individuals with disabilities have greater medical and long-term care needs.

"Without question, public officials believe that under the current course, Medicaid will not be sustainable in the long run," says Vernon Smith of Health Management Associates, an author of a 50-state survey released in October by the Kaiser Commission on Medicaid and the Uninsured.

States across the country want to change the program fundamentally. The reforms are unprecedented in scope and design. "States are proposing remedies that have never been tried before," Smith says.

IT TAKES FEDERAL OK

Substantial Medicaid innovations require approval through a Section 1115 Medicaid reform waiver from the Centers for Medicare and Medicaid Services (CMS).

Twenty-five states plan this year to seek a new waiver or amend one already in place, according to the Kaiser study. Their goals are to manage costs, improve access to care and improve the system and the care it delivers to its beneficiaries. Fourteen states want to reduce the number of people without health coverage and 13 states want to reduce growth in Medicaid costs.

ON THEIR WAY

Florida ranks among the top five states in both Medicaid enrolment and overall spending, which has grown in the state by 12.5 percent annually for the past five years. The average monthly caseload increased from 1.8 million in 2000 to 2.2 million today, according to the Winter Park Health Foundation. The Florida Agency for Health Care Administration estimates that if something isn't done, Medicaid will consume more than half of all state spending within 10 years.

"We have a responsibility to try to slow the rate of growth," says Senator Mike Fasano. In May, Florida lawmakers approved a reform package that creates a fixed payment--or capitated--delivery system that initially would operate in two counties of the state. The state received a 1115 waiver for its Florida Medicaid Reform from CMS in October. Officials believe the capitated delivery system will lower costs. The fixed payment system offers greater predictability in spending, and proponents believe that infusing free market principles into the Medicaid system--competition among plans and enhanced consumer choice, as well as responsibility--will curb costs.

"The fundamental difference will be that participating companies will have the flexibility to decide the kind and amount of benefits that beneficiaries receive," says Joan Alker, senior researcher at Georgetown University Health Policy Institute. Eligible beneficiaries will be able to choose among participating managed care organizations. A health plan will receive a risk-adjusted premium on behalf of a beneficiary. The plans must cover all federally mandated services, but they can vary in the scope, amount and duration of benefits they offer.

The state Agency for Health Care Administration will evaluate the plans to ensure that they are sufficient and that they are equivalent to the benefits enrollees currently receive. Those designing the plans say their flexibility will benefit enrollees. Participants will be able to choose the plan that is right for them, and a...