Florida's $11 Billion Medicaid Gamble

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Treating the public policy arena like a casino is never a good idea.

Florida is placing an $11 billion bet on Medicaid this year.  If the state loses, we’ll all be emptying our pockets for lower services.

The bet involves moving all Medicaid recipients to managed care.  As reported in an article by Jim Saunders in Health News Florida last week, passage of this legislation this year is as close to a sure thing as there is in government.

Florida hopes to save $1 billion the first year, and $2 billion by 2013 – nearly 10% of the total State Medicaid budget.

There are three problems with this calculation.

The first is that the projected savings from moving to managed care might be too high.  In a 2009 report prepared for America’s Health Insurance Plans, the Lewin Group found that savings in 24 different state Medicaid plans ranged from half of one percent to 20% after a switch to managed care.  Savings tended to be low at first, and most were still in the single digits after several years.

The second is that the savings will be offset by lost federal revenues, because the federal government will reimburse at least 55% of Florida’s Medicaid costs the next two years.  The actual savings to taxpayers is under $1 billion in FY2013, less than half of what the Governor and legislators are claiming.

The third problem is that to achieve these savings, Florida has to include elders and people with disabilities – who together account for 70% of Medicaid expenditures – in managed care.

To many people, “managed care” means the same thing as “care delayed or denied.” If $700 million of Florida’s Medicaid savings come from denying care to nursing home residents, cutting back on treatment services to people with mental illness, and delaying care for people with mental retardation, legislators fighting Medicaid growth won’t exactly be hailed as conquering heroes.

Together, these factors leave at most $300 million in savings associated with the non-long term care Medicaid program.

But the savings may not be even that high.

The reality is that Florida had a much slower growth rate in its Medicaid program from 2004 through 2009 than did the nation as a whole. The cumulative savings in Florida over this period was 10% compared to Medicaid spending in the nation as a whole.  Florida may have already squeezed the savings from Medicaid without resorting to managed care. 

Also, there is a new cost associated with turning the program over to the private managed care companies.  Unlike the state, these companies have to make money, which has to be added into the cost calculation.

Finally, reports authored by Jack Hoadley and Joan Alker of the Georgetown Health Policy Institute and released yesterday by the Jessie Ball DuPont Fund suggest that Florida’s own Medicaid managed care pilot program has disrupted care for Medicaid recipients while saving little or no money. 

In the face of all this evidence, saving even $300 million in Medicaid non-long term care is a long shot. 

So on what is Florida wagering $11 billion? 

Senator Joe Negron, the Senate legislation’s sponsor, says that Florida will drop out of the Medicaid program if the Federal Government refuses to go along with Florida’s managed care plan.

That’s an $11 billion gamble – the annual Federal reimbursement that Senator Negron says Florida will give up if the federal government doesn’t let it switch to managed care.      

Obtaining federal approval for unpopular Medicaid changes which could disproportionately and adversely affect elders is no sure thing.     

If Florida drops out of Medicaid, 3 million Medicaid recipients will become uninsured.  This will bring the total number of uninsured people in Florida to close to 7 million – more than 35% of the population.

Hospitals, nursing homes, independent physicians, community health centers, mental health centers, and other providers do not have the capacity to absorb care for 7 million uninsured people. 

Instead, Florida would have to create and fund a new plan to pay for the care of all 7 million people.  To do this, it would have 9 billion state Medicaid dollars with which to work. 

$9 billion – or $1,300 per person – may seem like a lot of money to provide care for these 7 million people.  But they aren’t young and healthy – remember, 70% of the Medicaid dollars go to long term care – and one nursing home bed alone can cost fifty times this amount.

$9 billion could disappear in a matter of weeks.

Florida can’t afford the gamble.  If saving $300 million in the Medicaid non long-term care program is the state’s goal, it should either find out in advance if the federal government is willing to approve or find another way to do it.   

After all, Florida’s not playing with house money, but ours.