Medicaid is a growing economic powerhouse, anchoring the new coverage paradigm under the Patient Protection and Affordable Care Act (PPACA) and wielding increasing influence within the healthcare sector and beyond. Already the largest source of federal funding flowing to states and a major revenue stream for providers, health plans, pharmaceutical companies, and vendors, Medicaid is projected to cover a record 65 million people and expend close to $500 billion dollars in 2014. Twenty-five states and the District of Columbia have expanded their Medicaid programs to include new adult populations under PPACA, and several others are evaluating expansion options, fueled at least in part by mounting research pointing to positive impacts on state and local productivity, jobs and earnings. By 2020, Medicaid could provide health insurance coverage for as many as 1 in 4 Americans.
This growth, combined with increasing sophistication from state purchasers, continued pressure to contain state budgets, and a national drive for payment and delivery reform, will make 2014 a transformative year for Medicaid programs across the country. The following trends will be central drivers behind this transformation in the year ahead.
Trend 1: New wave of Medicaid Expansions: Looking to the private market
In June 2012, the Supreme Court effectively made the Medicaid adult expansion under PPACA optional, and as 2014 begins, half of all states are expanding Medicaid. However, the debate is far from over, and as it continues, look for the remaining states to pursue Medicaid expansion through increasing integration with the private market. States are seeking to re-shape their Medicaid programs in a manner that makes practical and political sense for their constituencies, putting federalism to the test in the form of proposals that incorporate private insurance principles including premiums, cost sharing and incentives for healthy behavior.
For some states, like Arkansas and Iowa, expansion in 2013 turned on being allowed to use Medicaid funds to purchase coverage for some or all expansion adults through qualified health plans (QHPs). While it is too early to assess the impact of this “private option,” initial results in Arkansas show a dramatic increase in the size of the Marketplace, enrolling younger adults into QHPs, and providing commercial-level reimbursement rates for providers. Watch for interest in the private option to grow in 2014.
Trend 2: Calls for personal responsibility: Expecting “skin in the game”
For many years, states have sought greater flexibility to use cost-sharing in their Medicaid programs and, in regulations published in early 2013, the federal Department of Health and Human Services (HHS) responded by authorizing states to charge more for non-preferred drugs and for non-emergency use of the emergency room. However, some states are looking to go even further. As additional states debate the Medicaid expansion in 2014, we expect the calls for beneficiary “skin in the game” and personal responsibility to ratchet up.
See also: Feds shift Medicaid costs to states
Trend 3: Aligning and integrating with the private market
In 2014, look for acceleration of the convergence of commercial and government sponsored insurance markets, playing out in three main arenas:
• Decline of Insurer Market Segmentation – Incentivized by new revenue opportunities, especially in Medicaid expansion states, commercial insurers will enter the Medicaid market in greater numbers. On the flip side, recognizing that their target customers (low-income adults and families) now have access to federal tax credits to subsidize health insurance, Medicaid managed care companies will increasingly seek to compete on the Marketplaces.
Trend 4: Promoting stability of coverage
With the heavy focus over the past year on getting people enrolled in coverage, many states put off the equally important work of making sure they can keep it. It is nothing new that people lose and gain jobs, have babies, get married and experience other changes in life that cause them to move in and out of Medicaid eligibility. But this “churning” will take on new significance in 2014 given that some 9 million people are expected to move between Medicaid and Marketplace plans. Coverage stability — or lack thereof — has implications for plan revenue, patient-provider relationships, and ultimately, quality and continuity of patient care. In response, states will be exploring the following strategies under the watchful eye of health plans:
• Extending Medicaid until Marketplace coverage starts. Even if consumers’ circumstances change in the middle of a month, states may continue their Medicaid until Marketplace coverage begins.
Trend 5: Medicaid managed care and beyond: Payment reform in an expanding market
With continued pressure to reduce state expenditures, federal funding available to stimulate innovation, and mounting industry-wide momentum towards achieving the Triple Aim, Medicaid payment and delivery reform will accelerate in 2014. Expect continued growth in Medicaid managed care, as well as increasing sophistication in other purchasing strategies as states seek to leverage their growing market power to reduce costs and improve patient outcomes. Integration of public health priorities and a focus on social determinants of health will be recurring themes.
State Medicaid programs have moved steadily away from volume-based payment, and in 2014 can be expected to further ramp up reimbursement models designed to delegate risk and drive care coordination. Managed care organizations will be big winners, as expansion states increase the number of enrollees, and expansion and non-expansion states alike extend Medicaid managed care to include more high cost/high need populations, including the aged, blind and disabled and waiver populations, and a broader range of previously carved out benefits, including pharmacy, behavioral health, and long-term care services. Look for this growth to be accompanied by increased federal scrutiny of contracting, rate setting, and provider payment arrangements, prompted in part by the federal financing of the Medicaid expansion, but likely to be felt in all states.