North Carolina’s Medicaid plan is poised on the brink of change. The first big step was putting in an application to the federal government to approve plans to make change a reality.

By Rose Hoban

On Wednesday afternoon, surrounded by lawmakers, doctors in white coats and emergency medical technicians in their dress uniforms, Gov. Pat McCrory signed off on a document — an application to federal regulators requesting an overhaul of North Carolina’s Medicaid program.

“This is really a change for the better for North Carolina citizens across our state,” McCrory said as he introduced the plan.

Gov. Pat McCrory signs an application to federal regulators to change the state's Medicaid plan as Health and Human Services secretary Rick Brajer (right) watches.
Gov. Pat McCrory signs an application to federal regulators to change the state’s Medicaid plan as Health and Human Services secretary Rick Brajer (right), legislators and state health officials look on. Photo credit: Rose Hoban

The proposal would change the way the state pays for the care of low-income children and many of their parents, of people with disabilities and of low-income seniors who are beneficiaries of the program, 1.9 million people in all.

McCrory and Health and Human Services Secretary Rick Brajer explained how the changes will move Medicaid from a traditional fee-for-service program to one that pays health-care providers set monthly fees to cover all the clients’ care. The goal becomes paying for outcomes, rather than reimbursement for tasks and tests done to patients.

“We’re moving from a system that does not have much flexibility at all with payments,” Brajer said, ”especially for those people who are high utilizers of our system.”

He said that the new system would have the ability to “invest in the social determinants of health, flexibility with payments to do the things that they want to do to improve the care of folks.”

In all, Brajer said the system would save $400 million during its first five years.

But for all the fanfare associated with getting the application off to the feds, questions still remain about the benefits of the overhaul.

Lots of change

While $400 million over five years, or $80 million a year, sounds like a lot of money, when it comes to the massive Medicaid program in North Carolina, it only equals about 9/10ths of one percent of the current total.

[pullquote_right]Also: How is North Carolina’s Medicaid plan doing this year? Read our analysis here.[/pullquote_right]And, for Medicaid, the federal government pays the lion’s share of costs in the form of matching dollars. So, when $80 million gets saved, North Carolina sees only about $27 million of the savings, with the other $53 million helping the federal bottom line.

Democratic Rep. Verla Insko (D-Chapel Hill) said she isn’t convinced it’s worth all of the disruption to the state’s health-care system for that little return.

“I was opposed to changing the system,” Insko said. She cited the state’s current management system, Community Care of North Carolina, as being just as efficient as for-profit managed care companies that will bid for contracts to manage the new system.

She pointed out that, currently, once CCNC gets paid, any other savings accrue to the state. But under the new managed care system, companies doing the management will take profit on top of the fees they get paid to run the system.

Health and Human Services Secretary Rick Brajer speaks to reporters after the Medicaid reform signing ceremony.
Health and Human Services Secretary Rick Brajer speaks to reporters after the Medicaid reform signing ceremony. Photo credit: Rose Hoban

“I don’t think that this change is about making this system so much better; it’s about wanting to privatize as much of the system as we can,” Insko said. “It’s a difference in the philosophy of the free market and capitalism over government running its own services.”

According to Matt Salo, head of the National Association of Medicaid Directors, managed care companies take profits that are pretty modest. In states with well-written contracts, he said, the profit margins can be as low as 1 or 2 percent.

Salo also pointed out that new regulations completed by federal regulators in May have put a tighter lid on the activities of Medicaid managed care companies, including limits on how much profit they can take.

Few old, poor, mentally ill

Often, when states contract with Medicaid managed care organizations, they “carve out” different populations that won’t be covered by the for-profit plans. That’s the case with North Carolina’s proposed plan, too.

Since 2012, the state has had a system of state-backed managed-care organizations that provide mental-health care. Those so-called LME/MCOs comprise more than $500 million in state dollars at present.

Despite Brajer’s claim that “we’re connecting the head to the body,” those mental health management entities will continue to work separately for at least four years after the new program begins.

The Medicaid plan won’t cover so-called dual eligibles, folks such as low-income seniors who qualify both for Medicare because of their age and for Medicaid because of their income. Some folks with disabilities are also dual eligibles. According to legislative staff, the dual eligibles comprise about 15 percent of the annual spending in the most recent fiscal year, a total of about $1.5 billion a year at current spending levels.

No expansion

Submitting the application to the federal Centers for Medicare and Medicaid Services is only the first step in a long process, Salo explained. Actually, the application is a request to CMS to waive parts of the Social Security Act of 1965, the law that created Medicaid.

“This process is all about negotiation and give and take with CMS, and how much went on before the formal waiver was submitted,” Salo said.

Up until now, one of the variables has been whether CMS would “slow-walk” any application that didn’t include the expansion of Medicaid to cover low-income working adults, a change that’s permitted under the Affordable Care Act.

“Today, Medicaid expansion is not part of our vision, part of this waiver,” Brajer told a legislative committee before the signing ceremony with the governor Wednesday. “There’s actually a question in the waiver [application], ‘Will expansion be part of it?’ We say no. So, that’s how we begin this discussion.”

Brajer said he recognized that expansion is an important topic in Washington.

“Each of us will have goals coming into the discussion,” Brajer said. “It’s clear CMS’ goals will be Medicaid expansion. It’s an important goal for CMS… but it’s outside of DHHS’ ability to negotiate.”

North Carolina is one of only 19 states that has not expanded Medicaid. Estimates are that anywhere between 350,000 and 500,000 people could be covered if the state took that direction.

But the legislature has firmly said ‘no’ since the option first presented itself in 2013. Salo said CMS officials realize no other states will expand the program before the presidential election this November.

“So trying to impede a waiver proposal on the basis of that doesn’t strike me as something that will happen,” he said.

Both Salo and state health officials say they expect the waiver process to take anywhere from a year to 18 months to complete.

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