Managed Competition in Florida Medicaid

Managed competition doesn’t work the way its advocates think it works. Despite glowing descriptions of the Federal Employee Health Benefits Program (FEHBP) by Alain Enthoven and equally effusive praise from some of our friends on the right, the FEHBP is deeply flawed. The versions created for state employees and many college and university employees have these same flaws. Managed competition in Medicaid also shares those flaws – even though it may still be an improvement over traditional Medicaid.

A Kaiser study of the Florida Medicaid program found that:

  • About three in ten enrollees were not aware they needed to choose among competing private health plans.
  • Over half of those who were aware had difficulty making a choice.
  • Four in ten enrollees appear to have been assigned to a plan by the state rather than choosing one on their own.

Had Kaiser investigated the FEHBP or any of the various state and university health systems they would have discovered similar lack-of-information and lack-of-understanding problems. Kaiser researchers seem to think (1) they are studying a consumer choice model and (2) they have found flaws in that model. They are wrong on both accounts.

In Florida Medicaid, private plans are not competing for enrollees based on price. Enrollees don’t pay any premium and the plans get the same payment from the state, per enrollee, regardless of the services they are expected to use. Moreover, since the plans aren’t competing on price, they don’t compete on quality either.

What incentives does a Florida health plan have to improve its diabetic services and seek out and recruit diabetic patients? It has a negative incentive. The diabetic is likely to incur above-average costs, which means that each diabetic enrollee is likely to generate losses rather than profits. Indeed, if the plan thought it could get away with it, its economic incentive is to advertise that it is a lousy plan for diabetics and for anyone else who expects to have above-average health care costs. Thus, all of the normal benefits we expect from market competition are absent.

Whether it’s Florida Medicaid, or any other managed competition system, health plans do not communicate with, seek enrollment of, or otherwise compete for patients with special health problems. If anything, they compete to avoid the sick and enroll the healthy. (See our treatment in Lives at Risk here.)

The exception is the Medicare Advantage program, where Medicare pays a risk-rated premium that reflects the patient’s expected costs. In this program, special needs plans specialize in the treatment of patients with multiple chronic conditions, and they actively seek their enrollment.

The lesson: Competition, consumer choice and markets work in health care, provided they are not saddled with perverse incentives.

Comments (3)

Trackback URL | Comments RSS Feed

  1. Greg says:

    Good post. Most people in health policy don’t understand this at all. They tend to think that when ever someone uses words like “choice” and “competition” we must be talking about real markets.

  2. Joe S. says:

    Managed competition is an oxymoron.

  3. Grace-Marie Turner says:

    In response to study on "Florida's Medicaid Reform: Informed Consumer Choice?"
    Grace-Marie Turner
    Galen Institute

    The study about Florida’s Medicaid reform project gives the program poor marks regarding informed consumer choice. However, the telephone survey upon which the study is based was conducted between November 2006 and March of 2007, yet the target population for the survey was being enrolled from September 2006 to April 2007. Clearly some people were interviewed before the program was even established. Wouldn’t it have made more sense to conduct the survey after the state had a chance to get information to people about the program?

    Also, the study continues to report results as poor when they could easily be read as successes. For example:

    “[Thirty] percent of adult SSI enrollees and 20 percent of the overall caseload in both counties were not aware that they had a choice of health plans under the waiver.” But that means that 70 and 80 percent presumably WERE aware they had choices.

    The article also seems to disregard the study’s own finding that “many reported that it was very easy or easy to get information about the various plan options.” Could part of the problem be that the survey was taken too soon, before people had information about their options?

    It takes time for people to learn about program changes and plan options, all of which were state approved. Certainly there are some ways in which the program can be improved, but giving people on Medicaid the dignity of having a choice of the private coverage is certainly worth trying.