Costs watched as Medicaid managed care begins in NC

“It’s been a long time coming,” said Rep. Donny Lambeth, R-Forsyth, who helped pass the managed care law in 2015 and other legislative adjustments, some finalized just this week.

Sen. Ralph Hise, R-Mitchell, who spearheaded the change in the Senate, agreed.

"I think it's been more than seven years now we've been working on the legislation here, and today represents a good start in that process," Hise said. "This is Phase 1."

Four statewide health plans and one multi-regional plan will now handle care for roughly 1.6 million of the nearly 2.5 million consumers covered by Medicaid — mostly poor children and older adults — as well as from another program for children in low- and middle-income families. Another smaller plan for Eastern Band of Cherokee Indians members also has started.

More Medicaid consumers, particularly those with substance abuse issues, developmental disabilities and severe mental health troubles, shift to similar managed care coverage in July 2022.

“It’s the biggest change to our program in its history,” said Department of Health and Human Services Secretary Dr. Mandy Cohen, whose agency awarded the five-year plan contracts — expected to cost $6 billion annually — and carries out the law.

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As the largest state by population yet to switch to managed care, North Carolina’s foray into privatized Medicaid will be watched closely by other states and Medicaid experts. Almost 70% of the nation’s Medicaid enrollees participate in managed care plans in nearly 40 states, or about 54 million people, according to Kaiser Family Foundation data.

For decades, Medicaid has used a traditional fee-for-service process, whereby providers bill the state for each test or procedure. Now health plans will receive monthly payments for each patient enrolled. For example, health plans initially will receive on average $170 for each covered child and $420 a month for each adult, according to DHHS data.

The plans’ financial gains or losses will depend on what’s left over after medical expenses and other costs. Healthier patients could mean monetary bonuses, with financial penalties possible for poorer outcomes.

Patients have signed up for a health plan — some operated by Blue Cross Blue Shield of North Carolina and United Healthcare and others with less familiar names like Wellcare and Amerihealth Caritas — or have been enrolled automatically in one. Medical providers have entered into contracts with plans and consumers are being told what to expect.

“We feel very good at this point,” state Medicaid director Dave Richard said. “There will be things that don’t work anytime you have something this big, but I think we’re as prepared as possible come July 1.”

Managed care was embraced by Republican leaders after Medicaid cost overruns in the late 2000s and early 2010s.

"When I was elected 10 or 11 years ago, the Medicaid process was in complete shambles," Hise said. "Quite frankly, we were missing the budget estimates by hundreds of millions of dollars."

While GOP leaders blamed the cost overruns on the fee-for-service model, NC Health News editor Rose Hoban says that wasn't the main problem.

Hoban, who's covered the reform process since it began, says North Carolina's former Medicaid management agency, Community Care North Carolina, actually won national awards in 2007 and 2013 for efficient management and cost savings.

The problem, she says, was that lawmakers repeatedly low-balled the cost of the program in the state budget.

"If you go back, it's pretty well documented that people like [former DHHS Secretary] Lanier Cansler and [former Medicaid director] Al Delia flagged — I actually I have letters from them I published back in 2013 — that the legislature was under-budgeting Medicaid," Hoban told WRAL News.

Hoban said she thinks the motivation for the change was profit. North Carolina was the largest state at the time that had not yet moved to managed care for Medicaid. She said managed care companies had been eyeing the state and hired platoons of lobbyists in 2014 to make their case.

"As the ninth or 10th largest state in the country, with more than a million people on the Medicaid program," Hoban said, "you convert them to managed care — that's a profit center."

Under Medicaid rules, managed care plans that save money on services are allowed to keep that money as profit.

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Initially, Medicaid spending under managed care will increase, with new administrative and underwriting expenses and more consumers still covered in the COVID-19 pandemic. Medicaid spending this coming year is projected at $18.3 billion, with 70% paid through federal funds and the rest from the state and other sources. Medical service spending is projected to decline as managed care matures.

"What we're really hoping to target is a lot of unnecessary tests and health care services and visits that can be dealt with much more efficiently," Hise explained. "It'll take several years, but we think we will get much better Medicaid."

Keeping costs under control will require significant DHHS and legislative oversight of the health plans, said Hemi Tewarson, executive director of the National Academy for State Health Policy.

State officials must "really push them to do all the things that they should be doing or could be doing,” Tewarson said.

Tewarson said she's anxious to see how North Carolina conducts pilot projects that will target further ways to address the non-medical needs of Medicaid patients, such as homelessness, transportation and access to healthy foods.

Lambeth said he’s concerned some providers are not ready to handle the paperwork that managed care requires. Other small-town doctors or personal care agencies may not have entered contracts with multiple health plans, meaning some patients may learn they can’t use those providers.

Michelle White, a director of Cone Health’s HomeCare Providers, covering four central counties, said consumers who have been struggling during the pandemic may not realize how managed care could affect them.

“What’s going to happen July 1 and the days and the weeks to follow will be somewhat of an awakening as people start to understand that there have been changes with their Medicaid,” said White, whose agency will serve about 100 Medicaid managed care patients daily. “We’re going to have work to do as an industry to really help them get settled into the right plan, the plan that’s going to meet their needs.”

Only 15 percent of Medicaid recipients actively chose their managed care plan, Hoban said, which is consistent what other states have seen. The rest were automatically enrolled in a plan, though the transition includes a grace period to allow them to change plans if they need to. She says most probably aren't even aware of the change yet, and it may take months for issues to surface.

"There may be folks who walk into their old physician's offices this week, only to have them say, 'Hey, you know what? We're no longer in your network,'" Hoban said. "These people will be like, 'What?' And I think that's going to be the first indication for many people that something is happening."