Why Medicaid is the most innovative payer in healthcare | Viewpoint

There’s an old saying in Medicaid, the federal-state safety net healthcare program serving low-income individuals, people with disabilities, children and pregnant women: If you’ve seen one Medicaid program, you’ve only seen one Medicaid program.

Gary Jessee

That’s because outside of setting certain requirements that are standard nationwide, the federal government gives states broad leeway to determine how to shape the program. It’s why today, there are 40 states that have expanded their Medicaid program eligibility under the Affordable Care Act and 41 states, plus Washington D.C., contracting with risk-based managed care organizations to cover care for at least some of their program beneficiaries.

It’s also why you will find countless unique and often well-funded pilot programs that go way beyond the clinic or hospital emergency department.

For most people, Medicaid is perhaps best known as the government-run program with the most challenging acuity mix and the lowest reimbursement rates when compared with Medicare and commercial insurance.

But with 79.3 million people enrolled in Medicaid and CHIP, the Children’s Health Insurance Program, Medicaid covers about half of all children in the U.S. and more than 40% of all births.

I have spent nearly 30 years working in Medicaid, starting in aging and individuals with physical, intellectual and developmental disabilities and continuing as the program transitioned to a predominantly managed care model. Where the program once followed a traditional fee-for-service model marked by high rates of episodic care, Medicaid has evolved far beyond basic health care toward whole-person care. I continue to learn new things about the program all the time.

As the healthcare industry struggles to adopt the principles of value-based reimbursement despite decades of discussion and planning, Medicaid may serve as a useful model. States like Arizona, Tennessee and Texas are operating successful risk-based managed care models today.

Texas, where I formerly served as deputy executive commissioner of medical and social services in the state’s Medicaid program, operates the Pay-for-Quality Program, which holds managed care plans accountable for meeting certain quality metrics, such as preventable ED visits or readmissions, prenatal and postpartum care, and comprehensive diabetes care. Plans that excel are eligible for additional funds, while those that fall short can lose up to 3% of their capitation rate.

Medicaid does this while producing demonstrably good outcomes, all while dealing with the highest acuity mix of patients, including chronic diseases, acute intellectual and mental health issues, physical disabilities and daunting socio-economic challenges.

Research has consistently shown that exposure to Medicaid eligibility is associated with significant improvements in a host of health measures including hypertension, diabetes, heart disease, and obesity, reductions in infant, childhood and adult mortality, earlier use of prenatal care, improved vaccination rates and preventive care for children.

Studies also tie Medicaid access to improved educational and economic outcomes. “States that have adopted the expansion have dramatically lowered their uninsured rates,” writes the nonpartisan Center on Budget Policy and Priorities. “Extensive research finds that the people who gained coverage have grown healthier and more financially secure, while long-standing racial inequities in health outcomes, coverage, and access to care have shrunk.”

How has Medicaid done this?

Where the program was once focused narrowly on fee-for-service, episodic care — many people still associate Medicaid beneficiaries with frequent visits to the ED — today it is much more oriented around the concept of whole-person care. For example, Medicaid pays nearly equal amounts to doctors and hospitals for acute care and to long-term care, the skilled nursing and assisted-living facilities for which Medicare and commercial plans offer limited coverage, if any.

Much of the innovation in Medicaid lay in the program’s many flexibilities.

The federal government establishes general guidelines regarding program eligibility, benefits, provider payments and care delivery. But it gives states considerable leeway to operate their programs. They can choose to cover prescription drugs, adult dental, and physical and occupational therapy, but also less traditional benefits like home and community-based services (HCBS), which range from skilled nursing services delivered in the home to case management, help with preparing meals or getting dressed, and providing transportation to doctor appointments.

Medicaid also gives states the ability to apply for waivers to access funding to fund unconventional projects that aid in caring for beneficiaries, provided they can generate savings and remain budget-neutral. States can use Section 1115 demonstration waivers, managed care authority or “in lieu of” services that substitute for standard Medicaid benefits to address things like housing instability, nutritional needs or other home and community-based services (HCBS).

One prominent example is CalAIM, an ambitious, $12 billion initiative launched in 2022 by Medi-Cal, California’s Medicaid program. Funded through a 1115 waiver, the program aims to expand whole-person care by tapping nonprofit social service providers for community supports ranging from tailored home-modification services to sobering centers and help securing stable housing. The goal of the five-year program is to reduce the cost of caring for some of the state’s most vulnerable patients.

Finally, digital health has finally discovered Medicaid and is offering promise for reaching more patients.

Funding for digital health startups focused on Medicaid remains a small fraction of overall investment in healthcare solutions. I often meet with entrepreneurs who express reluctance about working with Medicaid. I tell them two things: One, they’d most likely work with a managed care organization, not a state government agency; and two, it’s the area of healthcare with the greatest needs, a much more concentrated pool of people with similar needs than commercial insurance or Medicare, with huge opportunities to make a difference and generate an impressive return on investment. Medicaid needs more entrepreneurs.

The promise of effective healthcare is directly tied to whole-person care. If a person has significant behavioral health issues, uncontrolled diabetes and is homeless, there is no point in addressing any of the conditions in isolation without addressing them holistically. A person’s social determinants of health have a direct bearing on their physical and mental health issues.

Medicaid remains a challenging market marked by populations with complex socio-economic, intellectual and physical health challenges. It’s a segment that demands outside-the-box thinking.

I always tell people that if you spend any time with Medicaid, you'll quickly learn that it’s a top-rated healthcare system in terms of innovation and comprehensive care.

Gary Jessee is senior vice president, national Medicaid consulting practice, at Sellers Dorsey.