Indiana’s Medicaid Savings May Not Solve Its Bigger Cost Problem

Photo By: CDC

Indiana may have eased its immediate Medicaid budget pressure. But fewer people enrolled in Medicaid does not necessarily mean the state has solved the bigger problem: the rising cost of caring for the people who remain.

That distinction matters.

Enrollment is one of the easiest Medicaid numbers to measure. If fewer people are enrolled, total spending can fall. Eligibility changes and redeterminations can produce savings relatively quickly.

But Medicaid is not just about how many people are covered. It is also about who remains in the program and how much care they need.

As enrollment declines, the remaining population may be older, sicker and more likely to need long-term care, home-based services and other costly support.

In other words, Indiana may be making Medicaid smaller without necessarily making the cost of care lower.

The cost problem does not disappear

Jim Maguire, co-founder of Government Market Strategies, says Indiana’s immediate budget challenge should not be confused with solving the underlying cost problem.

“Indiana may have addressed its immediate Medicaid budget challenge, but it has not necessarily solved the underlying cost of caring for its most complex members,” Maguire said.

One reason is how Medicaid managed care is financed.

Indiana pays managed care organizations a set amount, known as a capitation rate, to provide care for their members. Those rates are based on estimates of future medical costs.

The challenge is that those estimates rely partly on historical data.

But the Medicaid population may be changing.

“If eligibility redeterminations and other policy changes reduce enrollment, the remaining population is likely to be older, sicker, and more reliant on long-term services and supports,” Maguire said. “That makes past utilization and trend data less predictive of future costs.”

If many healthier members leave Medicaid, past spending patterns may no longer accurately predict what it will cost to care for the people who remain.

Long-term care is a growing concern

Indiana’s own analyses have identified long-term care, home- and community-based services and attendant care as important drivers of Medicaid cost growth.

These costs are closely tied to the needs of the people who remain enrolled.

An older member may need help with daily activities or medications. Someone with a disability may need an attendant to remain safely at home. Another member may need both behavioral health and medical services.

These services can be expensive, but they can also prevent more costly care, such as unnecessary hospital stays or institutional care.

That creates a difficult question: What happens when the state expects Medicaid spending to fall while the people remaining in the program need more care?

Lower payments can shift risk

This is where health plans face a difficult challenge.

If Indiana lowers payments to managed care organizations based on expectations of lower enrollment, the state may reduce its own financial exposure.

But that does not necessarily mean the underlying cost of care has fallen.

Instead, more of the financial risk may shift to the health plans.

Plans could be responsible for managing a population that is more expensive and harder to predict while receiving less money to do it.

That can make it harder to invest in programs that could reduce costs over time.

The investments that could save money take time

Consider a Medicaid member with several chronic conditions who frequently visits the emergency room.

A health plan could invest in a care manager to coordinate doctors, medications and support at home.

That costs money today.

But if it prevents a hospitalization next year, it could save the Medicaid program money.

The same is true of caregiver support, behavioral health services and home-based care.

These investments may improve outcomes and lower costs, but the savings are not always immediate.

“If plans are expected to manage increasingly complex populations with fewer resources, the very investments most likely to improve outcomes and lower long-term costs can become harder to fund,” Maguire said.

That creates a paradox. A focus on short-term savings can make it harder to achieve long-term savings.

Enrollment tells only part of the story

There is nothing wrong with monitoring enrollment. States need to make sure Medicaid covers eligible people and that taxpayer dollars are used responsibly.

But enrollment should not be the only measure of success.

Policymakers should also ask:

• Who remains enrolled?

• How has their health risk changed?

• What is happening to the cost of caring for those members?

• Which services are driving spending growth?

• Are health plans getting the resources they need to manage high-need members?

Those questions provide a better picture of whether Medicaid spending is truly becoming more sustainable.

Indiana may have created some breathing room in its Medicaid budget. But the harder challenge remains.

The state needs to understand why the cost of caring for its most complex members is rising and what can be done to change that trajectory.

A Medicaid program can become smaller while the cost of caring for each remaining member becomes higher.

As Maguire puts it, “lower rates can help balance budgets, but they do not by themselves improve population health or reduce the true cost of caring for medically complex and high-acuity members.”

The real measure of success should not simply be whether Indiana spends less next year.

It should be whether the state can provide better care for its highest-need members while making that care more affordable over time.

Otherwise, Indiana may not be solving the cost problem. It may simply be deciding who carries more of the risk.