Consolidation is thinning the already-depleted ranks of Medicaid managed care insurers in Illinois, leaving people with fewer health plan choices and jeopardizing the goals of a government-funded program meant to capitalize on market competition and private-sector efficiency.
The proposed merger of Centene and WellCare Health Plans would leave the program with five companies, down from seven a year ago and 12 before that. The deal—which is under scrutiny by federal antitrust enforcers—comes on the heels of WellCare’s 2018 purchase of Meridian, another participant in the state’s program.
A dwindling roster of insurers threatens the benefits Illinois hoped to realize by enlisting private companies to run its managed care program for Medicaid, the joint state and federal health insurance system for low-income people. Competition was supposed to control costs, foster efficiency and improve quality. But with fewer competitors, remaining insurers face less pressure to achieve those goals.
“We know these Medicaid managed care companies can often provide care more efficiently than the state—that’s why you want to use them,” says Amanda Starc, an associate professor at Northwestern University’s Kellogg School of Management. “But in order for that to be true, you need true competition.”
If Centene’s IlliniCare and WellCare’s Meridian health plans merge, the combined company would have more than half the state’s Medicaid managed care market. Outside Cook County, beneficiaries would have only three insurers to choose from.
Mergers complicate the state’s efforts to maintain an optimal number of insurers in the program. Former Gov. Bruce Rauner cut the roster from 12 to seven starting last year, in hopes of reducing administrative burdens on hospitals and doctors. Now Gov. J.B. Pritzker has to decide whether to open up the program again.
Pritzker says the Department of Healthcare & Family Services, which oversees Medicaid, is reviewing the program ahead of a Centene-WellCare merger.
There’s no magic number, he says, adding: “It’s whatever is going to deliver the services and do it efficiently for people who are on Medicaid. That’s what I’m going to be focused on. And if that’s five, then that’s what it’ll be. If it’s more, we’re going to open it up.”
It’s a delicate situation. Too many insurers—each with a different set of rules—created an administrative headache for doctors. But too few insurers could limit patients’ access to care and give payers significant bargaining power over doctors and the state.
Under Medicaid managed care, which covers roughly 2 million people and cost Illinois about $10.7 billion during fiscal year 2018, private insurers vie for state contracts in a competitive bidding process. Winners collect a set amount per member per month, rather than reimbursement for each medical service they cover. The program aims to improve people’s health and control costs by ensuring all care is appropriate and high-quality.
SAVINGS ON TRACK?
In January 2018, Illinois expanded the program from 30 counties to all 102 in the state. Officials aimed to save roughly $1 billion over the initial four-year terms of the contracts—largely by paying insurers less. The state has not said whether it’s on track to achieve the estimated savings. A Medicaid reform package passed May 30 requires more disclosure of insurers’ revenue, expenses and more.
Illinois hopes to capitalize on large private insurers’ skill at negotiating lower prices from hospitals, pharmacies and other health care providers. Insurers with a market share of at least 15 percent negotiated prices for physician office visits that were 21 percent lower than the prices negotiated by smaller insurers, with less than 5 percent of the market, according to a 2017 study published in Health Affairs.
But other studies show that consolidation among health insurers in the commercial market leads to higher premiums for patients and lower payments for doctors. That might be less of a concern in Medicaid, “if you thought the state is a particularly good and cost-conscious consumer” focused on awarding contracts to low bidders, Starc says.
Managed care program proponents say competition between insurers reduces spending and improves outcomes. Critics, however, question whether savings are simply attained through denying medically necessary care. Under the program, health plans pocket whatever they don’t spend on medical care and administrative costs.
A WellCare-Centene deal would combine Meridian, which has 38 percent of the Illinois market, with IlliniCare, which has 16 percent. With a 54 percent market share, the resulting entity would have considerable leverage over the state in contract renewal negotiations. It could also drive harder bargains with doctors and hospitals.
A WellCare representative declines to comment. Centene and IlliniCare representatives did not respond to interview requests.
“Providing members with quality choice is one of the central goals of managed care, and we closely monitor developments that might impact this,” Healthcare & Family Services spokesman John Hoffman says in an email. “The department will take any steps necessary to ensure that a robust choice of health plans continues to be available to members throughout the state.”