photosPhotos audioAudio videoVideo blogBlog commentsComments

Easier said than done

Can Illinois wring savings out of its Medicaid budget?

by Daniel C. Vock

By October, Illinois state officials hope to take a small but significant step in reining in Medicaid costs. By then, they hope to move about 38,000 patients in the Chicago suburbs into HMO-style managed care plans. That group comprises some of the most expensive — and most vulnerable — types of Medicaid enrollees: the elderly, blind and disabled. Together, they cost the state about $700 million a year, or more than $18,000 each. By promoting good medical practices and limiting the state’s financial risk, the Illinois Department of Healthcare and Family Services expects to shave Medicaid costs in the next five years by $200 million.

“This isn’t a huge cost-saver in the first year,” says Illinois Medicaid administrator Theresa Eagleson, “but in the long run, it ends up saving the state money and giving us healthier patients.”

The move is controversial, but it is most likely a sign of things to come. Illinois’ political climate, its budget mess and advances in the health industry all make it more likely that the state or its surrogates will take a more hands-on approach to managing the health decisions of its Medicaid enrollees.

“I think there are going to be some major changes made in the Medicaid system in Illinois because of the cost,” says state Rep. Patricia Bellock, a Republican who chairs a House committee on Medicaid reform.

The recession, of course, makes the matter more urgent. Not only does the state have less money to pay its bills, more people are qualifying for Medicaid health insurance as they lose their jobs. So even though the state has made several high-profile expansions in eligibility — including the All Kids program in 2006 — Eagleson says 80 percent of the children enrolled since the passage of All Kids would have been covered under the programs in place before the expansion.

Medicaid presents itself as an especially attractive target for budget cutters. The health insurance program is right smack at the center of debates about the appropriate mix of public oversight and private innovation in providing health care. The fact that the state largely runs the program, subject to federal rules, means state officials are in a position to make even seemingly minor tweaks that could reap big dividends for the state budget.

Indeed, most serious proposals of how to right Illinois’ listing fiscal ship include changes to the program that insures 2.5 million lower-income Illinoisans at a cost of $13.7 billion a year. But clamping down on Medicaid costs can be maddeningly difficult politically, financially and practically.

That’s not to say there aren’t ways to save money, just that seemingly simple solutions have big drawbacks.

The most straightforward cost-saving measure, for example, would be to change the rules so fewer people could get Medicaid coverage. Besides the political problem of kicking people off their health insurance in the middle of a recession, the move would jeopardize $3 billion in extra money the state is receiving under the federal stimulus package. Likewise, if the state cuts the rates it pays to doctors and hospitals, fewer providers will see Medicaid patients, and those remaining providers will struggle financially because of the low rates. If too few providers participate, Medicaid enrollees can sue the state for not living up to its duties under federal law, such as what happened to Illinois in 2004.

Federal matching funds also skew budget-cutting arithmetic in Springfield. Medicaid, the nation’s largest health insurer, covers some 60 million Americans, more than even Medicare for seniors, and is operated as a partnership between states and the federal government. Normally, Illinois foots the bill for about half of its Medicaid costs; the feds pick up the rest. But thanks to last year’s federal stimulus package, the federal government now pays 62 cents out of every Medicaid dollar. As always, there’s no limit on how much the feds will pay, as long as the state picks up its share. So now, Illinois officials would have to slash Medicaid spending by more than $2.60 for every $1 of state money they hope to save.

One of the most widely touted ideas to restrain Medicaid costs is to use more HMO-style managed care to ensure that patients use only the services they need. That proposal gets a lot of traction because Illinois uses far less private managed care than most states. Republican lawmakers especially have touted the approach in budget negotiations, and GOP candidates, including the party’s nominee for governor, Sen. Bill Brady, included it in their platforms. In February 2009, the Civic Committee of the Commercial Club of Chicago called for using managed care for all of Illinois’ nondisabled, nonelderly adults receiving Medicaid.

The Taxpayer Action Board, a task force convened by Gov. Pat Quinn last year, estimated that more aggressive care management could save nearly $2.2 billion in the first five years, a far higher estimate than the state provided. In the fifth year of the rollout, for example, the task force said the changes would result in $855 million; the state pegged the number at $310 million.

Either way, Quinn’s administration is already increasing its use of managed care (although state officials prefer the term “coordinated care”). Roughly 1.7 million of the state’s Medicaid enrollees — the vast majority of participants — now use a system called Illinois Health Connect, in which their primary doctors coordinate their care with other providers. The state also has ramped up its efforts to use disease management through a program called Your Healthcare Plus, which improves patients’ health and decreases state costs by making sure, for example, that patients with heart problems keep taking their medicine and visiting their doctors. Now, 220,000 Illinoisans are enrolled, resulting in $104 million of savings in 2008. The state also has long allowed patients to sign up for HMO-style coverage, although only a fraction of them actually do (accounting for 2.5 percent of Medicaid expenditures). And now, of course, the state is moving ahead with the suburban pilot program.

But Bellock, the Republican legislator from Hinsdale, questions the administration’s approach. She says state government should build on its current programs rather than launch an ambitious new pilot program. Patients who use Illinois Health Connect should have to stick with their doctors for a year to prevent them from “shopping” for a physician who will authorize unnecessary treatments. The state also could make disease management mandatory for patients with certain conditions and expand its private managed care efforts to families, she says. Quinn’s Taxpayer Advisory Board also suggested paying doctors based on patient outcomes, rather than just a flat fee per patient.

Just how effective managed care can be in holding down costs is, of course, a matter of debate. Part of the reason decreasing Medicaid costs in Illinois is so difficult is because Illinois’ per-patient costs are already among the lowest in the country.

The state’s average bill of $4,129 per Medicaid enrollee means Illinois had the 10th-lowest average cost of any state or the District of Columbia. And it’s not just that Illinois handles one type of patient particularly well, driving down the average. Illinois has one of the 10 lowest average costs among states for children, the elderly and other adults. Its costs for insuring the disabled are relatively high in comparison but are still about average among states. On top of that, state officials say Illinois comes out near the top of states in the deals it gets with drug makers for the medicines it buys, again holding down costs in one area where Medicaid’s bills have grown most.

One of the ways Illinois limits costs is by paying less to medical providers than the vast majority of states. It only pays doctors, for instance, about 90 percent of the national average. By using a managed care organization, the state would not pay providers directly. Instead, the state would pay the managed care organization a set amount per patient, and then that organization would determine how much to pay its providers. But because Illinois is already paying its physicians and other providers so little, it’s hard to imagine how a managed care organization could squeeze providers any more. In fact, Eagleson, the state Medicaid director, testified in March 2009 that for children and parents, the state pays HMOs more per patient than it costs the state to take care of them itself.

But because insuring children and their parents is relatively inexpensive, states have begun to look at managed care for their most vulnerable enrollees: the elderly, blind and disabled. In fact, 41 states now use some sort of managed care for those populations. Not all of them have relied on the private sector. About a quarter use private organizations, another quarter use state-run programs that give patients a “medical home” with their primary care physicians and half offer a combination.

Medicaid is designed to help some of society’s most vulnerable people. Usually, that means recipients must not only be poor, they must also fall into a category of at-need patients: kids, their parents, the elderly, the blind or the disabled. So while Medicaid is a major insurer in its own right, its influence is especially big in certain parts of the health care system — the delivery room and the nursing home. In 2005, Medicaid paid for half of all births in Illinois, including 95 percent of births to teenage moms. The program also pays half of the nation’s bills for long-term care, such as nursing homes.

The most expensive patients in Medicaid are also, not surprisingly, the most fragile. It costs Illinois, for example, 10 times as much in a year to pay for coverage for a disabled patient than it does for a child. Even nonelderly adults are relatively cheap — less than $2,000 a year — compared with senior citizens ($11,560) or the disabled ($16,613). Children make up 59 percent of Illinois’ Medicaid rolls but account for only 28 percent of the program’s costs.

That’s a big reason why the Medicaid agency is going ahead with the pilot program focused on the elderly, blind and disabled.

The agency is looking for two insurers to provide HMO-style coverage without the big drawbacks of HMOs. Often, managed care organizations save money by limiting access to services, but the state hopes to encourage the insurers to promote smarter uses of services instead. So, for example, the state will give bonuses to the carriers based on how many of their patients who end up in the hospital visit their primary care physician within two weeks of leaving the hospital. Other incentives would promote mental health screenings and diabetes management. Roughly 6 percent of the potential reimbursement for the carriers would come in the form of such bonuses.

But Democratic and Republican lawmakers alike have serious concerns about the experiment. They say the state doesn’t have the expertise to try such an ambitious project, especially because Illinois rarely uses HMOs for patients whose care is easier to manage. “Why would we as a state that has done hardly any managed care take on a project that other states that do have managed care haven’t taken on?” Bellock asks.

The pilot program “is driven by budgetary pressures to save money without taking into account the human toll it will have,” Rep. Esther Golar, a Chicago Democrat, said in a statement. “We are concerned whether individuals will have the ability to continue services with their current providers because continuity of care is important.”

Golar is one of several sponsors of a measure designed to slow the pilot project. The legislation would create a task force charged with studying managed care for aged, blind and disabled patients. The proposal essentially would put the brakes on the pilot program, at least until the task force gave its approval.

Hospitals are wary of the trial, too. If the managed care organizations don’t develop adequate networks of providers, hospitals could end up holding the bag, says Howard Peters, senior vice president of the Illinois Hospital Association. If patients can’t find a doctor in their network, they will head to the nearest hospital for treatment instead. And then it will be up to the hospitals to haggle with the managed care organization over whether they can get paid, Peters says.

Peters says the state should strengthen its own managed-care efforts rather than relying on outside providers. If a private HMO figures out how to squeeze savings out of the Medicaid program, those savings stay within the company as profit. But if state government can save money, that money goes back to the state, which can use it to pay for other services, he says.

A handful of high-profile failures mar Illinois’ history of using managed care companies in Medicaid. Just two years ago, Illinois and federal prosecutors reached a record $225 million settlement for health care fraud in a case they brought against Virginia-based Amerigroup. The government argued that Amerigroup intentionally blocked pregnant women and other at-risk patients from signing up for its Medicaid managed care program. Amerigroup settled the case after a trial court entered a $334 million award against the carrier, which far eclipsed the $243 million the company received for providing Illinois Medicaid services from 2000 to 2004.

Barbara Otto, executive director of the Chicago-based Health and Disability Advocates, says she hopes the pilot project will provide a new model for medical providers in Illinois. “It’s really hard to design different models of service delivery when you’re basically held captive by fee-for-service,” she says. Under the current fee-for-service arrangement, providers have little incentive to develop community-based services rather than nursing homes because Medicaid pays more for nursing home stays, she says.

But for the project to succeed, Otto stresses, state officials must focus on transparency and communication. Patients need to know what changes are in store and why. They should also have access to a “strong appeals process” in case the managed care organization prevents patients from getting the treatments they want, Otto says.

Even if the state moves forward with the pilot program — or the more ambitious managed care plans floated by budget experts — the savings to the state will be slow coming in. The most optimistic projections say it will take about three years for the benefits to really become apparent. That’s bad news for lawmakers trying to balance the budget this year.

Rep. Frank Mautino, a Spring Valley Democrat who worked on Medicaid issues, says he once thought Illinois could quickly and easily save $1 billion annually in Medicaid costs. “Anyone who tells you they’re going to save you $1 billion is not familiar with how Medicaid really works,” he now says. “It looks good, and it’s a great headline to say I can save you a billion dollars tomorrow. You can’t.”

Daniel C. Vock is a reporter for in Washington, D.C.

Illinois Issues, April 2010


Search Illinois Issues Web Site:


bullet Roster
bullet Resources
bullet Projects


credit cards balanced on fingertip