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May 02, 2013 10:00 AM Cherry Picking in Medicaid

By Don Taylor

Managed care companies are cherry picking the healthiest disabled senior dual eligible beneficiaries in New York state using a variety of methods, and excluding those needing the most care. The program provides a monthly per capita payment amount ($3,800/month) regardless of how much care is provided. The general theory is that the insurer has an incentive to keep people well, reducing care needed, and therefore increasing their profit. However, there is also an obvious financial incentive to simply sign up those who need less care in the first place. Several points here.


  • North Carolina has announced what I would call aspirational plans to put all Medicaid beneficiaries into private plans, of their choice. The notion is that via competition for patients, quality will rise and costs will drop. However, the New York experience shows the downside. I call the N.C. plan aspirational because there are scant details, but they do say they will ‘risk adjust’ to prevent cherry picking, but this will be hard. (this links to many posts I have written about N.C. Medicaid reform)

  • The key is to remember that Medicaid is not one program, but has a variety of types of patients unified by having low income. It is not hard to imagine children and pregnant women and low income adults in managed care; many states have done so, with better and worse effects. Doing so is no panacea, nor is it the worst thing ever. However, the idea that disabled and elderly Medicaid beneficiaries are going to be put into private plans, and more to the point for N.C., that persons in Nursing Homes who suffer from dementia, etc. are going to be picking plans so as to improve quality and reduce costs is a pretty long walk in the woods as my grandaddy would have said (aka not likely to work). This table shows the per capita spending differences by category of beneficiary in N.C.


  • To belabor the point, it is not that the theory of competition cannot work in health care, it is that the groups of Medicaid beneficiaries who comprise the dual eligibles and the long term disabled have so many complicated and expensive acute and long term care health needs that I think private companies will mostly be trying to avoid the most expensive and difficult patients. Put another way, tell me the private, for profit “entity” (to use Gov. McCrory’s language) that will be bidding to care for the dual eligibles on a straight capitated basis so I can make sure that I don’t own their stock.

  • This doesn’t mean we cannot have Medicaid reform in N.C. However, caring for “the least of these” will always be hard and expensive. I still think federalizing the cost of the dual eligibles at least, and allowing states more flexibility in especially the children and low income adult categories is the best policy approach with any hope of political consensus of any sort. You could also move toward pushing dual eligibles into Special Needs Plans to get the ‘one payer’ coordination impact, but then see the N.Y. experience. Here is a proposal for a broad SPN with opt-out among the dual eligibles, but then you just make cherry picking officially ok. [I remain unsure about the care of the long term disabled; such a heterogeneous group of people with vast array of needs, sometimes for decades; will always be hard and expensive]

  • Bottom line, we need Medicaid reform in North Carolina. I don’t see how the outline suggested by Gov. McCrory can work if it is to include all Medicaid beneficiaries. Either no one will want to bid if they really must take all comers, or it will simply be cherry picking if there is an opt out.

[Cross-posted at The Reality-based Community]

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Don Taylor is an associate professor of public policy at Duke University, where his teaching and research focuses on health policy.