THE IDEA LAB: Making Medicaid Work – Protecting the Vulnerable, Offering Individualized Care, and Reducing Costs


By Energy and Commerce Committee Chairman Fred Upton (R-MI)

Medicaid, the state-federal partnership program enacted in 1965, was designed as a safety net for the most vulnerable Americans. While the program covered just four million people in its first year, there were approximately 72 million Americans (nearly 25 percent of the population) enrolled in the program at some point in 2012 − more recipients than any other government health care program, including Medicare. Moreover, the implementation of the Patient Protection and Affordable Care Act (PPACA), unless repealed, could grow enrollment by nearly 26 million – resulting in the largest expansion of the program in history.

The influx of individuals thrust into Medicaid further erodes the program’s core mission. The raw numbers show that the size and costs of today’s Medicaid are compromising quality of care, and if Medicaid is to continue fulfilling its safety net mission for the country’s most vulnerable, we must fix the program. One of the most successful, bipartisan repairs to an American safety net program was the Personal Responsibility and Work Opportunity Reconciliation Act of the 1990s – more commonly known as welfare reform. Solutions for sustainable welfare reform came from the states – not one-size-fits-all social engineering from Washington – and the same model of federalism will work to fix Medicaid.

Earlier this year, I partnered with Senate Finance Committee Ranking Member Orrin Hatch to produce a detailed examination of Medicaid reforms. With this paper, those policy concepts are provided in a more condensed format, along with specific examples of how these types of policies are already working well in states across the nation.

As we work to uphold the promise of quality care to the nation’s most disadvantaged individuals, we propose the following state-originated policy reforms:

1.     Encourage States to Implement Reforms that Enable Individualized Quality Care: In identifying the health care needs of each Medicaid population group, states need the flexibility to design appropriate benefit structures to meet the specific needs of their enrollees in a quality-driven, cost-effective, and efficient manner. Recognizing that one solution will not work for every state nor every Medicaid population, we should offer states a menu of options from which to design benefits, such as the following: 

  • Consumer-Driven Options: States like Indiana have implemented benefit models that provide higher deductible plans along with a pre-funded account to cover out-of-pocket medical expenses. While enrollees’ accounts contain resources to ensure they receive the care they need, the approach introduces consumer incentives so enrollees have more ownership of their health care. Indiana’s plan was implemented through a Section 1115 demonstration waiver (described below) with significant limitations; this policy would statutorily authorize this model without existing barriers restricting enrollment and participation.
  • Assistance to Enroll in Private Coverage: The Medicaid statute has long included provisions that allow states to offer premium assistance to enrollees, but the bureaucratic hurdles to implementation have prevented the vast majority of states from offering private coverage to Medicaid recipients. This proposal would allow states to offer premium assistance and provide recipients the opportunity to receive benefits equivalent to private coverage (without additional federal restrictions).
  • Healthy Behavior Framework: Studies have consistently shown Medicaid enrollees utilize less efficient settings like emergency rooms to receive health care services. In an effort to improve care, improve patient safety, and reduce costs, governors have asked for more flexibility to ensure services and health care settings are being used to optimize public health outcomes.
    • Enhanced Benefit Accounts: States should be granted greater flexibility to implement incentive-based models that reward enrollees for healthy behaviors and practices that improve their care and reduce the overall costs to the program. For example, under the Florida Enhanced Benefit Accounts, enrollees receive incentive payments through program adherence to be used by enrollees for additional services, products and cost-sharing expenses. In West Virginia, added plan benefits are incentives for enrollees agreeing to adhere to certain healthy behaviors; and, in Idaho, studies have shown that financial incentives have worked in “improving the proportion of children with up-to-date well-child visits.
    • Appropriate Cost-Sharing: Under current law, Medicaid cost-sharing is allowable with significant limitations. We should allow states maximum flexibility in designing a cost-sharing framework across all health care services and incomes. When carefully designed, cost-sharing can be an important tool to encourage patients to follow treatment regimens, receive primary care services instead of unnecessary emergency room utilization, and seek higher value health care services. States would have the ability to develop and test enforcement mechanisms to ensure program effectiveness.
    • Shared Responsibility: States should be allowed to impose premiums on enrollees to ensure patients’ shared ownership in health care decisions. Under this policy, states would be allowed to charge premiums, as appropriate, and develop incentive-based benefit packages that, for example, could encourage healthy behaviors such as enrollment in certain wellness programs by decreasing premiums or nullifying them all together. The decision as to how premiums should be applied, if at all, should be left to the states.

2.     Release States from Existing Federal Barriers that Often Deter States from Developing Innovative Coordinated Care Models: The use of managed care in Medicaid has grown steadily over the years as both states and managed care plans grow more experienced in caring for vulnerable populations. For example, between 1997 and 2009, Medicaid managed care enrollment grew from just eight million to nearly 50 million. This proposal would increase beneficiary access to coordinated care models by: (1) allowing states to passively enroll additional enrollees into managed care; aligning payer incentives through established model waivers whereby states, like Texas, receive a defined federal funding stream traditionally used as a supplemental payment pool to expand their managed care reach; (2) improving managed care payment determination by evaluating the effectiveness of actuarial soundness requirements, competitive bidding approaches, and payments based on historic cost trends; and (3) preserving state regulatory authority by precluding the federal government from imposing a one-size-fits-all Medical Loss Ratio (MLR) upon state contracts with managed care plans.

3.     Foster Price Transparency to Ensure States and Enrollees Know the Costs of Services and Reward Value: Patients in America have greater access to information about the quality and prices of cars than they do about their health care providers. With little transparency in the health care system, it is not surprising that health care costs outpace any other sector of the American economy and that patients routinely miss out on value for the dollars they spend. We can ensure states have the flexibility they need to design innovative provider payment models that ensure higher quality and lower costs by: (1) promoting health care transparency in the Medicaid marketplace that encourages health care providers to make pricing data more widely available to health care consumers; (2) aligning fee-for-service provider payments models with performance accountability measures for episodes of care; and (3) improving states ability to set provider rates.

4.     Promote State Innovation by Modernizing the Federal Government’s Outdated Waiver Process: While these reforms offer states an array of options to modernize Medicaid, it would be impossible to codify every innovative idea in law. To promote reform, Congress should amend the Section 1115 waiver process to make it more responsive to forward-thinking states with bold ideas to improve their Medicaid programs. To that end, the existing Section 1115 waiver process would be reformed by: (1) instituting an 1115 waiver clock that protects states from delayed negotiations; (2) creating waiver reciprocity that enables one state to model reforms off of another state’s successful demonstrations; (3) requiring waiver integrity improvements that protect the federal taxpayers and truly ensure federal budget neutrality; and (4) promoting a compendium of innovative practices that appropriately catalogs and updates Medicaid directors on innovations and active state demonstrations.

5.     Per Capita Caps – Ensure Greater Flexibility for States While Providing Fiscal Discipline for the Federal Budget: Similar to the Medicaid reforms proposed in the 1990s, federal per capita caps would be placed on the four major beneficiary groups: aged, blind and disabled, children, and adults. The overall federal per capita allotment would be: (1) based on the product of the state’s number of enrollees in each of the four population categories and the per capita amount for each population category; (2) based on the most recently available expenditure data; and (3) state-specific. After the base year amount, caps would grow by a realistic and appropriate growth factor for each state. Considerations would be made to normalize a significant variation in Medicaid program spending across states. The goal of the proposed per capita model is to ensure greater flexibility for states while improving budget predictability and fiscal discipline for the federal budget. While the increased flexibility is critical for states, we should ensure there is a framework in place that holds states accountable and improves the quality of care for enrollees. As such, states would be required to report on key measures related to access, patient outcomes, patient experience, and health care costs.

Energy and Commerce Committee Republicans remain committed to modernizing the Medicaid program so that it is protected for our poorest and sickest citizens and put on a sound financial footing for the future. Washington does not always know best – we have a lot to learn from our states.