Today’s Managing Health Care Costs Number is $64,500
Kaiser Health News reports this morning that California is delaying moving its special needs children and young adults from a fee for service payment system (California Children’s Services, CCS) to private managed care plans. I’m no fan of fee for service as a payment methodology, but I think this is a prudent approach.
CCS covers 31,000 special needs children (up to age 21), and costs about $2 billion (or over $64,000 per person). Many of its beneficiaries are also eligible for Medi-Cal, California's Medicaid program. CCS covers the care associated with a chronic disease (like Cerebral Palsy or Cystic Fibrosis), and Medi-Cal covers the direct medical expense. There are excellent reasons to combine the programs – having two separate programs pay for a single individual’s needs invariably leads to cost shifting. In the extreme, programs can spend more energy shifting costs than they do actually managing care. Multiple funding sources also provides a more fertile environment for fraud such as double billing.
Managed care, theoretically, should also be far better for those with extreme needs, where coordination and benefit flexibility should lead to more creativity, and prevent complications and hospitalizations. It’s hard to save a lot of money caring for healthy people, given that they don’t cost a lot in the first place. It should be so much easier to cut waste in a population where the average cost is so high.
But as states have moved their Medicaid populations into managed care, those with exceptional special needs have often stayed behind in fee for service programs. There’s a good statistical reason for this. These populations have an enormous amount variation in cost that is due to underlying disease and randomness, as opposed to provider performance. Actuaries could create sound budgets for these beneficiaries – but that would require a huge population. Managed care Medicaid plans tend to be small – way too small for stable budgeting. This leads to a high likelihood of either catastrophic losses or windfall profits for insurers who participate in such programs. Neither is good public policy. Windfall profits mean the public is overpaying. Catastrophic losses mean that insurers will exit the market, leaving these especially vulnerable populations with difficult and unnecessary care transitions.
Massachusetts has tried a special needs program for its sickest Medicaid-Medicare dual eligible population. The program, One Care, hasn’t gone well. All three participating health plans show large losses. One dropped out of the program, and a second is teetering on the brink of insolvency. Some might think the state got a “good deal” by underpaying for the care of this population, but any improvement in care is likely to be lost as health plans seek to cut their losses.
Fee for service has a bad reputation, and is likely responsible for overutilization of high margin care such as high cost imaging and diagnostic tests. But fee for service is a good way to pay for some care too. Fee for service can help increase the use of underutilized low margin care, such as vaccinations and preventive care. Fee for service is also the best way to pay for care when there is not a large enough population over which to spread risk, or where there is too little experience with a new type of care to set a budget or a bundled payment.
We should keep on pushing toward better ways to pay for medical and related care, especially for those with severe and expensive illness. But I’m glad that California is not rushing the sickest of children into poorly budgeted and untested managed care plans.
