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States take different paths toward health care reform

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States are taking increasingly divergent paths as they seek to revamp their roles in health care and rein in costs.

Perhaps no two states exemplify the extremes in approaches like Vermont and Florida. In both states, lawmakers in recent weeks have passed sweeping bills that are on opposite ends of the care-delivery spectrum.

The Vermont bill puts the state on the path toward single-payer coverage, where public and private health care dollars would be put in one pot and administered by the state. Democratic Gov. Peter Shumlin is slated to sign the bill today.

Florida, by contrast, plans to move nearly all 2.9 million Medicaid recipients into managed care starting in 2012. The approved legislation would create 11 regions to be administered by private insurers and eliminate the fee-for-service system, at an expected savings of about $1.1 billion in the first year. Republican Gov. Rick Scott is expected to sign the bill package soon.

“Some states are looking for ways to be more innovative in terms of managing care and delivering care in ways that will be more efficient and better, and others are cutting back,” said Dee Mahan, director of long-term services advocacy at Families USA. “Some of these changes are draconian, but some states want to be smarter in the way they deliver care.”

In Vermont, the focus is on expanding coverage to everyone. The first step is H.B. 202, which would set up a new five-member panel to draft a proposal to move the state to a universal health care system. The bill does not include details on how the program would be financed, and the state would have to obtain waivers from the Centers for Medicare and Medicaid Services to gain flexibility to administer its Medicaid and Medicare programs in a new way.

Ultimately, the idea is to set up a single-payer system called Green Mountain Care that would be available to all Vermonters, perhaps in 2017, regardless of whether residents currently have coverage through Medicaid, Medicare, a private insurer or are uninsured. Medicaid and Medicare reimbursements to providers would be paid out through Green Mountain Care, if federal waivers are approved.

Initially, the bill requires that Vermont set up a health insurance exchange, as mandated in the federal health care reform law, and begin enrolling individuals and employees of small firms by January 2014.

The state hospital and medical associations have stayed neutral on the proposal, taking a wait-and-see approach. The financing details must be developed by January 2013.

“We are cautiously optimistic, and we stress the word "cautiously,'” said a spokeswoman for the Vermont Assn. of Hospitals & Health Systems. The Vermont Medical Society also is neutral on the bill. Blue Cross & Blue Shield of Vermont, the state's largest insurer, is reportedly supporting the proposal and could play a role in administering the payment system. The not-for-profit insurer did not return calls for comment by deadline.

Kevin Outterson, associate professor of law at Boston University, has been closely following the bill. He said employer financing for single-payer system will take the form of a payroll tax, perhaps 11% on employers and 3% on workers.

“It's called "pay whether or not you play,'” Mr. Outterson said, meaning that employers would have to pay the tax even if they provide comprehensive health benefits to their workers. “It's the only way to get the large, self-insured plans on board.”

The Vermont Chamber of Commerce has said in testimony that it opposes a tax on employers, and has concerns about cost-shifting medical spending to employers under the plan. The group did not return calls.

Mr. Outterson noted that former Massachusetts Gov. Mitt Romney in a recent policy speech called for a renewed period of federalism in health care. “That's exactly what we are getting now,” Mr. Outterson said. “Vermont is pushing hard for single-payer.”

Meanwhile, Florida is planning to privatize most of its low-income population into managed care. “This is a time when we are having tremendous experimentation in the states,” Mr. Outterson noted.

The Florida proposal would authorize managed care plans and large health care networks to oversee nearly all of Florida's $21 billion Medicaid program. Virtually all of the state's 2.9 million Medicaid beneficiaries, including the elderly and disabled, would be moved into private plans, starting in July 2012, at a $1.1 billion savings the first year, according to the governor's office.

Like Vermont, Florida must get a federal Medicaid waiver to implement the legislation; the CMS has expressed some reservations. The agency urged Florida lawmakers to include a medical-loss ratio requirement that would require managed care plans to spend a certain amount on direct medical care. Instead, lawmakers adopted a profit-sharing formula similar to one in Texas, whereby insurers would rebate profits above 5% back to the state.

Already, 67% of Floridians on Medicaid are enrolled in a managed care plan. The bill would move the rest away from a fee-for-service model. It would also institute $100 copayments for nonemergency visits to hospital ERs and a $10 monthly premium.

Consumer advocates fear this approach could hurt patients.

“A lot of these things raise concerns,” said Ms. Mahan of Families USA. For instance, if a patient thinks he is experiencing heart attack symptoms, and at the ER is told he is not, Mahan wondered, would he have to pay the $100 fee? “Is that considered inappropriate care?”

Florida House Speaker Dean Cannon, R-Winter Park, said upon the bill's passage that Medicaid is a “federal entitlement program run amok that has become the single-largest cost driver in our state's budget.” He added that the “transformational legislation will reform our state's broken Medicaid system.”

Florida providers have reservations about the change, which comes on top of a 12% Medicaid reimbursement rate cut estimated to cost hospitals a total of $510 million next fiscal year.

Provider service networks would be able to compete with managed care firms for the contracts in the 11 Medicaid regions carved out. And a proposal that would have required every hospital to sign a contract with every Medicaid managed care plan in its region failed.

Florida is continuing a trend of other states of expanding risk-based Medicaid managed care, where insurers take on the risk of the population for a set amount paid by the state, said Julia Paradise, associate director of the Kaiser Family Foundation's Commission on Medicaid.

“Until now, states have largely enrolled children and families into managed care,” Ms. Paradise said. “What's increasingly changing is states are also enrolling different populations into managed care, including seniors and people with chronic illnesses and disabilities.”

This is happening because people with chronic conditions make up the majority of Medicaid spending, she said. “There's a lot of potential to do it well, but if it is not done well, there is equally a lot of potential jeopardy.”

As of 2008, 21.7 million Medicaid beneficiaries were enrolled in 307 full-risk managed care plans in 34 states, according to the Kaiser Family Foundation.

The Medicaid managed care industry generates about $60 billion in revenue today, said Carl McDonald, a managed care analyst at Citi Investment Research. Between the state and federal Medicaid expansions happening through 2014, Mr. McDonald estimates overall revenue growth for the sector at $40 billion.

Insurers that previously stayed out of the fray are jumping in. Blue Cross & Blue Shield of Florida, the state's largest insurer, announced that it would seek to provide managed care for the Medicaid population. A spokesman for the not-for-profit insurer said it is “still assessing the most effective market strategy entry.”

Bruce Rueben, president of the Florida Hospital Assn., said he sees the goal of the managed care expansion to reduce Medicaid costs and make those costs predictable.

“We are interested in seeing standards in transparency and accountability for patients and taxpayers,” he said. “If they (the Legislature) were concerned with quality of care, they would have gone with the medical-loss ratio requirement,” he said.

Mr. Outterson of Boston University said he would not be surprised if Florida and Vermont are given the green light by the federal government to proceed with their visions.

“I think the Obama administration can send a clear signal by giving Vermont and Florida the permission they need to move forward,” he said. “And in five or 10 years we'll see how it turns out.”

Rebecca Vesely is a reporter for Modern Healthcare, a sister publication of Business Insurance.