State agency questions changes to HUSKY health program

Gov. M. Jodi Rell’s proposal earlier this year to end the use of managed care in the state’s HUSKY insurance program was seen as a win on several fronts. Patient advocates said it would improve access to health care, and legislators figured anticipated savings of $76 millon into this year’s budget.

But two months into the budget year, the agency in charge of HUSKY has not made the change, and has raised questions about the benefits and savings to be achieved.

The uncertain status of the HUSKY change was among the reasons for a projected $144 million in cost overruns in the state Department of Social Services this fiscal year, the largest part of the $171.7 million in cost overruns projected for the state in the budget forecast released earlier the month.

The change, authorized as part of this year’s budget adjustments, centers on moving HUSKY and the Charter Oak Health Plan from managed care to a model in which insurance companies play a more limited role.

starkowski 5-26-10

DSS Commissioner Michael Starkowski

Under the existing system, the state pays a fixed fee for each client every month to three different insurers, who assume the risk for paying the clients’ medical bills. Under the new system, the insurers – referred to in the statute as administrative services organizations – would receive a lower fee to administer the plans, while the state would be responsible for the cost of medical claims – a model akin to self-insuring, the method used by many large companies.

Patient advocates have argued that the existing model overpays managed care companies and gives them a financial incentive to deny care to clients. The budget adjustment statute does not require DSS to implement the change, although the savings from doing so were figured into the budget.

DSS officials have raised concerns about the new model, citing potential problems with its cost, administrative burdens and skepticism from the federal government, which pays for more than half the cost of HUSKY.

Whether the department ultimately embraces the model identified by the legislature or another method for administering the programs, the effects will likely stretch beyond the nearly 400,000 people in HUSKY and more than 12,000 in Charter Oak. The department has recommended that whatever model is adopted be used for the entire Medicaid population, a group that now includes more than 500,000 people, or more than one in every seven state residents, and is expected to increase by as many as 150,000 people when federal health reform takes effect.

Risk and Incentives

The projected savings come from two different sources. Reducing the amount of money paid to insurers to administer the plans would save a projected $11.7 million, according to the state Office of Fiscal Analysis.

The remaining $65 million in expected savings would come from changing the timing of state Medicaid payments, from paying managed care companies in advance to paying bills after the medical services are provided. In theory, that would leave one month in which the state makes no payments for Medicaid services, creating a one-time savings for that fiscal year. Ultimately, though, the state would not be avoiding the costs, just delaying them.

But DSS officials have questioned whether changing the model will save money, saying it removes incentives for insurers to manage costs.

Currently, the insurers are responsible for contracting with doctors and other health care providers. Under the model the legislature endorsed, HUSKY and Charter Oak would continue to use the insurers’ networks, but the state would be responsible for paying the fees the insurers negotiate with providers.

That would be problematic, social services Commissioner Michael Starkowski said, because insurers would no longer have an incentive to negotiate cost-effective rates.

Starkowski said federal officials discouraged the model, which he said would also require more administrative work – and cost – to substantiate that the system costs less than a fee for service system would.

And the projected $65 million in savings could be difficult to achieve, DSS officials said, because the department’s payments to the managed care companies already lag behind by two months. In a presentation to the Medicaid Care Management Oversight Council earlier this month, Mark Schaefer, the department’s director of medical care administration, said any change that further delays the payments would be unworkable.

Alternative Models

In his presentation, Schaefer described three options for restructuring HUSKY and Charter Oak – the one identified by the legislature, and two alternatives.

One alternative would be to switch from managed care to having insurers administer the plans, as the legislature suggested, but use the network of providers in the state’s Medicaid fee for service program, not the insurers’ networks. Doing so could save money because providers would receive standard rates, rather than the varied rates managed companies negotiate.

But DSS officials have said that model could be problematic because the fee-for-service network has fewer providers and could struggle to attract more because its rates might be lower than what the managed care companies offer.

Another option, which Schaefer said the federal Centers for Medicare & Medicaid Services proposed, would be closer to the existing system, with the insurers continuing to be responsible for paying medical claims, but with limits on their profits, losses and administrative costs.

Schaefer said that option would give the insurers incentives to manage costs and  negotiate cost-effective rates while limiting profit margins. But it might not produce the full $11 million in savings budgeted for the move away from managed care.

What the Legislature Wanted

Advocates have blasted the department, saying the legislature clearly identified a system in which responsibility for paying claims is moved from managed care companies to the state.

“There’s a reason that the law was passed that way,” said Ellen Andrews, executive director of the Connecticut Health Policy Project and a member of the Medicaid care oversight council.

The model identified in the statute would remove incentives for the insurers to control costs, she said, but it would also remove the incentives for them to deny care to patients.

Andrews was skeptical of the department’s reasons for not following the model identified by the legislature. Many large companies are self-insured, she noted, as are the state employees’ health plans.

The state previously moved dental and behavioral health care from managed care to a fee for service system, and both times, increased the number of providers participating, Andrews said, suggesting that the HUSKY fee for service network could increase if it is removed from managed care.

Sheldon Toubman, an attorney with the New Haven Legal Assistance Association, said concerns about rates paid to providers under the new model could be addressed by having DSS set the rates, rather than having the insurers negotiate them.

Toubman also questioned why the department did not include another option for restructuring HUSKY: Primary care case management.

Under that model, patients’ care is coordinated by primary care providers, who receive $7.50 per patient each month. The model already exists in some areas of the state, but fewer than 500 patients participate. More than two dozen other states use it for some or all of their Medicaid clients, and the Centers for Medicare & Medicaid Services considers it an acceptable model. Using it would likely save even more money than paying the insurers to administer the plans, Toubman said, since the insurers would likely be paid more than $7.50 per client.

“It’s deeply troubling that an option which CMS recognizes, and which DSS recognizes would fully comply with the legislature’s direction, is being ignored in its list of options for HUSKY restructuring, and that’s especially so given that it has saved a lot of money in other states,” Toubman said. “It’s deeply troubling that they for some reason will not seriously consider this option along with the other ones.”

DSS spokesman David Dearborn said HUSKY Primary Care is a pilot program that could be expanded statewide after an evaluation, but that it does not have a network of providers – the size of what managed care companies or the fee-for-service system have – that could be converted into the model the legislature identified. Other doctors in the HUSKY and Medicaid networks might not want to participate in the program without the services the managed care companies provide, he said.

Jeffrey Beckham, a spokesman for Rell’s budget office, said it was clear during budget negotiations that the $76 million savings would be difficult, but that the administration will continue to work toward it.