Progress Illinois

Under constitutional obligation to close the state's still-enormous budget hole, but reluctant to endorse any proposal with a tax increase, Illinois Republicans are trying to drum up support for another plan they argue is a prudent deficit reduction strategy: Medicaid reform. Specifically, they want to shift all children and non-disabled, non-elderly adults -- roughly 1.8 million Illinoisans -- into "managed care" programs. On WIND's John and Cisco In The Morning earlier this week, House Minority Leader Tom Cross said such a change could save the state $1 billion dollars annually. Listen here:

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Sen. Matt Murphy (R-Palatine) also floated the idea on WTTW's Chicago Tonight.  Watch it (full video here):

Most recently, the Tribune editorial board promoted the idea in yesterday's paper. But don't buy they hype. 

Popular in the 1990s and pushed by former governor Jim Edgar, managed care programs -- which can be public or privately-run -- attempt to bring some free market discipline to government entitlement programs.  A private Managed Care Organization (MCO) operates like an HMO with its own network of doctors and hospitals. Essentially, health providers are paid a fixed fee per patient for every month they serve that individual. The theory goes that by limiting the amount they can spend, MCO's have an incentive to keep patients healthy and a disincentive to over-treat (a problem well-detailed by Atul Gawande in a recent New Yorker article). In Illinois, 145,000 Medicaid beneficiaries have voluntarily selected an MCO as their healthcare delivery system. And in testimony to the Senate Committee on Deficit Reduction in March, MCO Harmony Health Plan wrote that bolstering the managed care program will "reduce spending and contain costs in its Medicaid program." The Taxpayer Action Board agreed (PDF), writing in their report released yesterday that "if used appropriately and coupled with improved primary and preventive care, capitated managed care can be a substantial cost saver for the Medicaid program, while, at the same time, ensuring quality of care for the person."

The fairly new state-run Primary Care Case Management (PCCM) program, Illinois Health Connect, has shown promising signs of cost-control. Based on an American Academy of Pediatricians' initiative to ensure that preventive health care is emphasized to all, enrollees choose a single primary care provider who coordinates and manages their care. In other words, children have secure access to immunizations and regular checkups and adults are given consistent data about how to protect themselves and their dependents. According to a 2007 Kaiser study (PDF), "the PCCM and DM are estimated to save $57 million each year, which would cover the first-year costs of the All Kids program, estimated at $25 million." In fact, the program outperformed Kaiser's expectations, achieving a net savings of $104 million in the fiscal year that ended June 30, 2008. And the bulk of Illinois’ Medicaid and SCHIP populations will be required to enroll in the PCCM when it is fully implemented, spreading out the cost burden. Through 2007, 424,400 used the program, and that number is expected to grow.

But in calling for a mandatory shift, the Republicans have not specified whether they support moving Medicaid recipients into Illinois Health Connect or a private, "capitated" HMO option. If it's the latter, Jim Duffett, executive director of the Campaign for Better Health Care, says that route makes no sense. "It's snake oil health care," he tells us. "It's bad for the state and it's bad for consumers."

What's the problem with MCOs? Like other private insurance companies, satisfying shareholders is the ultimate priority, meaning there is an incentive to cherry-pick healthy patients. In fact, MCO Amerigroup and its Illinois subsidiary systematically avoided enrolling pregnant women and unhealthy patients in their managed care program between 2000 and 2004, despite receiving $243 million in state and federal taxpayer dollars to provide health care to eligible low-income people. The Attorney General's Office and the Department of Justice eventually won a joint lawsuit against the company, who agreed to pay $225 million to resolve claims. "We will be rewarding an industry that will be profiting off of taxpayer's money," Duffet says.

Duffet also says MCOs have much higher administrative costs than Medicaid itself, but they don't make that information public. As Joseph Vengrin, Deputy Inspector General for Audit Services for the Department of Health and Human Services wrote in 2004 (PDF), four MCOs he studied "did not have effective procedures to develop and compile data on the costs of their operations." 

What's worse, a major migration to private managed care could derail the state's experiment with Illinois Health Connect, which is boosting care and already saving taxpayer money. 

Murphy and Cross also seem to be overstating the potential savings associated with their proposal dramatically. That's because under capitated HMO managed care, Medicaid beneficiaries would be removed from the state's fee-for-service system. Why is that important? The Illinois Hospital Association explains the potential ramifications (PDF):

The Hospital Assessment Program and intergovernmental transfers – which are calculated on the number of fee-for-service inpatient days – net the State more than $1.5 billion annually. Under capitated, risk-based HMO managed care, Medicaid beneficiaries would be removed from the fee-for-service system and could not be counted in calculations for the upper payment limit – which would mean the loss of the revenues – billions of dollars – generated for the State by the Hospital Assessment Program. Many other states that employ capitated, risk-based HMO managed care do NOT have the special Medicaid financing mechanisms used by Illinois to leverage substantial federal matching funds.

In a "minority opinion" appended to the TAB report [skip ahead to page 109], Dory Rand of the Woodstock Institute sums up the problems with private managed care quite succinctly: "[The report] ignores the significant failures, abuses and outright fraud that have attended the history of capitated managed care in Medicaid in Illinois."

Throwing more Medicaid consumers into MCOs, when the pool of potential Medicaid enrollees is growing, could set the state back economically while padding the pockets of private insurers. If this is the best the Republicans can come up with, Duffett and other health reform advocates have vowed to put up a fight.