Modernizing Medicaid with a Multi-Stakeholder Financing Model

By Phil Poley, Venture Architect at Redesign Health

When President Lyndon B. Johnson urged Congress to create Medicaid and Medicare nearly six decades ago, he established a North Star that still inspires: “We can – and we must – strive now to assure the availability of and accessibility to the best health care for all Americans, regardless of age or geography or economic status,” he said.

Those of us who’ve worked in Medicaid remain committed to this ideal. That commitment comes from a passion for the mission, the inspiration of seeing how Medicaid transforms lives, and the firm belief that Medicaid can have an even greater impact if we address some of the obstacles to its success. This belief is grounded in the evidence, which shows overwhelmingly that Medicaid has a positive impact on clinical outcomes, health disparities, economic mobility, and provider and state finances.

Many who have worked in Medicaid agree and see its numerous positive benefits. “I’ve repeatedly met and often worked with hundreds of individuals whose early family lives were supported with access to healthcare through Medicaid,” says Greg Buchert, a Redesign Health Advisor and healthcare consultant with more than 20 years experience serving as an executive in some of California’s leading Medicaid plans, including CalOptima, Centene Corporation/Health Net and California Blue Shield. “This allowed children to be healthy enough to attend school, parents to work (often in jobs that benefit all members of society), and grandparents to live long enough to share history, culture and love of family.”

Strengthening Medicaid with alternative financing models

Given this evidence, what’s holding us back from achieving Medicaid’s true potential? Spoiler alert: it’s a financing model that is not aligned to current realities.

Let’s start with the quote from LBJ. It’s from 1965. That’s when Medicaid was first enacted, and the foundational legislation has never been revised. Think about that for a minute: this legislation pre-dates the moon landing, cable TV, managed care, cellphones, the Internet and AI. 

In 1965, Medicaid covered 4 million people, far fewer than the approximately 90 million individuals covered today. Today’s Medicaid coverage includes more than 40% of all births in the US, nearly half of children with special care needs, and five in eight nursing home residents. This growth is due in part to state and federal policymakers’ commitment to innovation. Medicaid programs now operate via a complex set of waivers that stay true to the letter of the initial law while enabling new approaches that strive to meet the vision.

But there are limits to waivers that continue to prevent Medicaid from achieving its full potential. The current focus on social determinants of health (SDoH) does a great job of making the case for a new financing model. 

Yasmine Winkler, a Redesign Health Advisor and former CEO for UnitedHealthcare’s Medicaid plans in the Central Region, explains: “When I ran Medicaid health plans, we learned from direct experience that addressing a person’s whole health is critical. That led us to make investments outside the typical province of payers—we started a transportation company and built affordable housing.

"Sustained emphasis on innovation from Medicaid programs continued to push us in this direction. But there are limits to how far we can afford to innovate within the current financial structure, and bringing more stakeholders into the financial and data exchange equation would add to the momentum and help us realize the full value of whole-person care.”

Making the case for multi-stakeholder financing

In their groundbreaking Health Affairs article, Len Nichols and Lauren Taylor assert that SDoH investments should be seen as a “public good” which benefits multiple entities simultaneously and provides value which cannot be limited only to those parties who pay for them. They portray a hypothetical non-emergency transportation program developed as a public good and demonstrate that all stakeholders (Medicaid, Medicare, private insurers, providers and uninsured people) would benefit from such a program. Their detailed analysis depicts hypothetical positive returns on investment (ROI) to all stakeholders who would participate.  

My own experience supports their findings. When I served as COO of the Massachusetts Medicaid program, I made Medicaid data available to the Massachusetts Housing and Shelter Alliance to support analysis of their Home and Healthy for Good initiative, a housing-first program for homeless Medicaid members. The program’s 2017 progress report tells the tale: even with the Commonwealth bearing 100% of the housing costs, the program achieved savings of more than $13,500 per person. These savings were generated from many sources, including reduced Medicaid beneficiary expenditures. But a great deal of the savings came from spillover effects resulting from Medicaid’s investment, including declines in:

• Average days in hospital (from 3.5 to less than 1)

• Days in state-operated detox facilities (from 4.5 to less than 1)

• Average days in prison (from about 1.2 to about 0.3)

• Average ambulance rides (from about 2.7 to less than 1).

In other words, the prison system, local ambulance services and state-operated detox facilities all benefited from Medicaid investments. Seeing these results, I think we should take the next logical step in the Nichols and Taylor research and treat Medicaid itself as a public good.

These two examples of how a multi-stakeholder financing model could be a good thing for Medicaid and have positive spillover effects for our communities highlight the principal challenge of the current model: it works against long-term thinking. Most people on Medicaid, about 72%, are enrolled in managed care organizations (MCO). Managed care companies operate on slim margins and must make clear-eyed financial decisions about where to invest resources. Investments in longer-term interventions (such as longitudinal care, seamless handoffs from one plan to another, and SDoH) are hampered by the fact that Medicaid members churn on and off the program frequently. KFF reports churn rates range from 5% to 15%. Practically speaking, this means lost capitation payments for MCOs and a lack of visibility or influence over which plan a member re-enrolls in when they re-establish eligibility. As a result, there is little incentive to invest in long-term solutions that may not provide ROI to the plans that invest in them. In other words, perfect conditions for the multi-stakeholder funding model hypothesized by Nichols and Taylor.

Other experts concur. “Medicaid promotes efficient uses of resources so all citizens can benefit from a smoother operating healthcare system,” Buchert says. “It makes sense to evolve the funding model in a way that includes appropriate investment from all stakeholders who benefit from the program.”

Adds Nikita Singareddy, Co-Founder and CEO of Fortuna Health, a startup aimed at digitizing and streamlining the Medicaid experience, “If our shared goal is to help Medicaid members achieve and maintain good health, then we need all stakeholders rowing in the same direction. That’s why I’m excited about exploring multi-stakeholder financing models, as they have the potential to attract a wider range of investors in the Medicaid program, calibrating the level of investment to the benefits obtained by each stakeholder.

“With 58 years of Medicaid experience behind us, I think we now know enough to find a way for the financing model to align with Medicaid’s far-reaching impact.”

ABOUT FORTUNA: Clear, accessible health information is a social determinant of health. Fortuna brings this approach to its simple, consumer-first platform for accessing and navigating Medicaid. Everyone benefits when Medicaid enrollees have the tools they need to enroll and renew their coverage: beneficiaries face fewer care gaps, providers face less uncompensated care, and MCOs retain members. This helps MCOs and other Medicaid stakeholders make better long-term care investments.

Let’s move forward with courage

It took tremendous courage for LBJ to address Congress with a plan for Medicare and Medicaid in 1965. By encouraging development of a multi-stakeholder funding model, can we tap into our personal level of bravery and create a modern Medicaid system with the power to change even more lives? This idea may sound simple on paper but would require a great deal of state and federal coordination and alignment--if you are a Medicaid official, what are your thoughts on the practical realities of moving in this direction? Where should we start? From the health plan and providers perspectives, what do you see as the benefits and challenges of transitioning to a multi-stakeholder financing model? Can we achieve consensus on how to move forward?  Last but not least, if you are or were a Medicaid beneficiary, what are your views on exploring this model?  I encourage you to get the conversation going by leaving comments and am excited to see your critical questions and innovative ideas.