Is There A Managed Care “Backlash?”

Embargoed for release: 9:30 a.m. ET, Wednesday, November 5, 1997

For further information contact: Matt James or Tina Hoff

Most Americans Give Their Own Health Plan A Good Grade, But Have Concerns About Key Aspects Of Managed Care

Washington, DC — At a time of expanding enrollment and stricter federal and state regulation, how does the public feel about managed care? Most insured Americans — regardless of whether they have managed care or traditional coverage — give their own health plan a letter grade of “B” or higher. However, majorities of the public also say they are concerned about key aspects of managed health care. According to a new national survey by the Kaiser Family Foundation and Harvard University:

• A majority of Americans (59%) say managed care plans have made it harder for people who are sick to see medical specialists (25% say easier);
• Half (51%) say managed care has decreased the quality of care for people who are sick (32% say increased);
• Three out of five (61%) say managed care has reduced the amount of time doctors spend with patients (16% say increased);
• A majority of people in managed care — 55 percent — say they are at least “somewhat worried” that if they were sick their “health plan would be more concerned about saving money than about what is the best medical treatment;” 34 percent of those with traditional health insurance coverage feel this way.

One area where managed care does come out on top is preventive care: nearly half (46%) of people say managed care has made it easier to get services such as immunizations, health screenings, and physical exams (31% say harder).

The survey also found that people seem to generalize from anecdotal reports in the news about problems with managed care. When asked about specific examples taken from news stories about the problems some people have reported to have had with managed care, the public’s perception is that these are fairly common occurrences. For example, two thirds of Americans believe that a Health Maintenance Organization (HMO) holding back on a child’s cancer treatment is something that happens “often” (26%) or “sometimes” (40%). Two out of five (39%) think newborn babies being sent home after just one day because of a managed care plan’s policy, in spite of mothers’ concerns, happens “often;” an additional third (34%) think this occurs at least “sometimes.”

“Managed care is winning in the health care marketplace, but it is in danger of losing the battle for public opinion,” said Drew E. Altman, Ph.D., President, Kaiser Family Foundation.

More people — 34 percent — think managed care health plans do a “good job” in serving health care consumers than think do a “bad job” (21%). However, overall, other health care groups are viewed far more favorably than managed care health plans: solid majorities of Americans think nurses (83%), doctors (69%), hospitals (61%), and pharmaceutical companies (62%) generally do a “good job.” For many people, though, the jury is simply still out: 32 percent have no opinion about the kind of job managed care health plans are doing.

Who Benefits from Managed Care Savings?

Many people perceive the cost savings from managed care as benefiting both employers (56%) and individuals (49%), but it is the health insurance companies themselves that most (72%) say reap the rewards in the form of greater profits. Few Americans believe the trend to managed care has had a significant impact on the overall cost of health care in this country, with most — 55 percent — saying they don’t see that it has made much of a difference; 28 percent say it has helped bring down costs.

Should Managed Care Be Regulated?

In recent weeks, the push for regulation of managed care has intensified with some industry leaders now calling for “legally enforceable national standards.” The President’s Advisory Committee on Consumer Protection and Quality in the Health Care Industry is also expected to soon release a “consumer bill of rights.” A slight majority of Americans — 52 percent — say the government should protect consumers of managed care; 40 percent say such intervention is not worth the increased costs that would result. When asked who they would “most like to see managed care plans regulated by,” the public is divided over whether the government — federal (19%) or state (18%) — or an independent organization (34%) should regulate the industry. Sixteen percent (16%) maintain that managed care plans should not be regulated at all.

Managed … What?

Few Americans are familiar with some of the key terms used in debates over health care policy. A sizeable percentage of people — 28 percent — have never heard of “managed care” (45% know what it means; 26% have heard of it but are not sure what it means). “Fee-for-service” is even less recognized: while 41 percent say they know what it means, 43 percent say they have never heard the term (15% have heard of it but are not sure what it means). HMOs are more familiar: 62 percent say they know what it means (24% have heard of but are not sure what it means, and 14% have never heard the term).

Comparing the Views of Managed Care Enrollees with People in Traditional Health Plans

People in managed care are more worried than those with traditional coverage when it comes to the perceived motivations of their health plans. Insured respondents under 65 in this survey were grouped into three categories based on their health care coverage: “heavy” managed care, reflecting the most restrictive arrangements; “light” managed care, reflecting less restrictive arrangements; and “traditional” fee-for-service plans. Three out of five people (61%) in “heavy” managed care say they would be at least “somewhat worried” that their health plan would be more concerned about saving money than providing the best treatment option if they were sick. Fifty-one percent (51%) of those in “light” managed care agree. By comparison, 34 percent of those with traditional coverage report a similar anxiety; 62 percent say they would not be overly worried that cost might affect medical care.

“People in managed care are much more anxious than those in traditional plans about whether or not their insurance plan will pay for what they need when they are sick,” said Robert J. Blendon, Sc.D., Professor of Health Policy at Harvard University. “Members appear satisfied with their plans today, but are concerned about what might happen to them in the future.”

While most insured Americans say they trust their health plan to do the right thing at least “most of the time,” those in traditional health plans have a greater degree of confidence than those in managed care that this is “just about always” the case (55% in traditional plans vs. 30% in “heavy” and 31% in “light” managed care).

Managed care enrollees are more likely to have cost concerns than those in traditional fee-for-service plans. While 69 percent of people in traditional health insurance say they think it would be “very likely” that their plan would cover most of the cost of serious illness, by comparison 44 percent of those in “heavy” and 54% in “light” managed care are equally sure their plan would pay. Similarly, three quarters (78%) of those with a traditional plan say it is “very likely” that a visit to the emergency room would be covered, while fewer of those in managed care (56% in “heavy” and 63% in “light”) are as confident their plan would pay.

While managed care enrollees appear more anxious about their health plan than those with traditional health care coverage, people with all types of insurance coverage grade their plans generally favorably. Twenty percent (20%) of those with “heavy” managed care give their plan a letter grade of “A,” 44 percent give a “B;” about the same percentages given by those with “light” managed care (“A” 24%, and “B” 44%). Slightly more people with traditional health insurance give an “A” (33%), and 43 percent give a “B.”

How Type of Health Care Coverage was Determined.

Because many people are unsure — or don’t know — what kind of health insurance they have, insured respondents under 65 in this survey (778 respondents) were asked a series of questions about their health plan to establish what kind of coverage they have. They were asked if they were required to do any of the following by their plan: choose doctors from a list and pay more for doctors not on the list; select a primary care doctor or medical group; and/or obtain a referral before seeing a medical specialist or a doctor outside of the plan. Respondents were listed as being in “heavy” managed care if they reported their plans had all of the characteristics described above (34% of the sample). Respondents were listed as being in “light” managed care if they reported their plans had some but not all of the characteristics listed above (45% of the sample). And, respondents were listed as having “traditional” insurance if they reported their plans as having none of the characteristics (21% of the sample).

Shaping Public Opinion: Personal Experience, Family, Friends, and the Media

People say that their feelings about managed care — favorable as well as unfavorable — are more likely to be based on personal experiences and what they have heard from family members and friends than on media coverage. Two thirds of those who say they think managed care plans generally do a “bad job” serving consumers report that the main reason they feel this way is their own experience (39%) or what they have heard from family or friends (32%). Similar percentages of people who think managed care is doing a “good job” say the same thing (35% say own experience, 32% say family or friends). About a quarter say media coverage of managed care has most influenced their views. Those with unfavorable impressions of managed care are again as likely to cite the media (22%) as those with more favorable opinions (24%).

Media coverage of HMOs or managed care is largely seen by the public as “fair” (54%) and as including a mix of favorable and unfavorable stories (57%). Most people — 56 percent — say they have personally seen at least “some” media coverage about managed care in the past year.

Methodology

The Kaiser/Harvard National Survey of Americans’ Views on Managed Care is a product of the Kaiser-Harvard Program on the Public and Health/Social Policy. It was designed and analyzed by researchers at the Kaiser Family Foundation and Harvard University. The survey was conducted by telephone by Princeton Survey Research Associates with 1,204 adults nationwide between August 22 and September 23, 1997. The margin of error is plus or minus 3 percent for the national sample.

The Kaiser Family Foundation, based in Menlo Park, California, is a non-profit, independent national health care philanthropy and is not associated with Kaiser Permanente or Kaiser Industries. The Foundation’s work is focused on four main areas: health policy, reproductive health, and HIV policy in the United States, and health and development in South Africa.

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National Election Night Survey of VotersPress Release Survey Chart Pack

3. The Affiliation Process and the Role of Reproductive Health Services in the case studies

The four case studies conducted for this project provide insight into the affiliation process between Catholic and non-Catholic health care providers and the role of reproductive health services in the process. The four successfully negotiated affiliations studied included an acquisition, a merger, a consolidation, and a 50/50 joint venture. (See Figure 1 for a summary of the contextual, organizational, and affiliation attributes of the four case studies, and Appendix C for the case study reports.) In case A, a non-sectarian not-for-profit hospital that was part of a large not-for-profit system acquired a financially stressed Catholic hospital of smaller size, which now operates as a non-sectarian hospital. In case B, a large academic medical center merged with a small, financially stressed Catholic hospital a few miles away as part of a strategy to form a non-sectarian integrated delivery system. In case C, a consolidation between two competing religious hospitals of similar size – one Catholic, one Protestant – formed a non-sectarian not-for-profit medical center. In case D, a 50/50 joint venture occurred between a large regional Catholic hospital system and a medium-sized, financially stressed public/district hospital, which did not assume a Catholic identity following the affiliation. None of the cases involved a non-sectarian organization adopting Catholic identity or agreeing to abide by the Directives.

A. Factors Motivating the Case Study Affiliations

The case studies illustrate that the prominence of market forces, including threats to financial viability, was a key factor driving organizations with disparate values and missions (including different religious traditions) to seek to accomodate their different commitments in affiliation agreements. A number of important factors motivating affiliations between Catholic and non-Catholic providers were identified. Key informants in all sites reported that a variety of market factors motivated the decision to affiliate, and they articulated these motivations in terms of improved access to capital, reduced duplication of services, economies of scale, and greater market power. In two cases, the survival of the Catholic partner was at stake due to financial problems.

In general, cases B, C, and D reported that the actual or anticipated increase in managed care penetration in local markets was an important factor motivating the decision to affiliate. All three of these cases also cited the impending financial challenges posed by the shift toward capitated payments for health care services under managed care arrangements as an important factor. The partners to the affiliation in case A, however, did not report that the growth of managed care was a primary motivator. In that case, the most important motivator for the Catholic provider was the need to ensure the survival of the Catholic hospital; the non-Catholic hospital, on the other hand, was primarily motivated to affiliate by the need to increase its market share.

In addition to case A, hospital survival was an important motivator in cases B and D. Both the Catholic facility in case B and the district hospital in case D were struggling financially due to a declining census and operating inefficiencies. The hospitals had begun to close clinical departments and lay off staff in an attempt to reduce their deficits. Concern about possible closures and the consequent loss of inpatient and emergency services to the surrounding communities prompted the hospitals to seek affiliation.

As in case A, case B informants reported that the goal of increasing market share was an important factor motivating the decision to affiliate. In case A, the non-Catholic hospital had established a number of ambulatory care sites (primary care centers) in surrounding communities that provided referrals to the hospital. One center was actually opened in the Catholic hospital’s service area. Acquiring the Catholic facility was therefore part of a larger strategy to strengthen the non-Catholic hospital’s position as a major provider. As for case B, the merger of the two hospitals was part of a larger integration that involved a medical school and a physician group practice, with the goal of forming the only integrated system in the area.

B.The Role of Reproductive Health Services Issues in the Affiliation Process

The case studies illustrate that ethical and religious concerns about reproductive health services are important issues in affiliations between Catholic and non-Catholic providers, that the abortion issue has the potential to derail affiliations, and that there are various strategies for dealing with reproductive issues in the affiliation negotiation process. The historical context of affiliation agreements, the financial status of the Catholic party, the pre-affiliation status of reproductive services in the affiliating organizations, and the community context were all factors that affected the role of reproductive health services in the affiliation process. We found no simple relationship between the type of affiliation and the nature of decisions about reproductive health services. There is evidence in all cases that both theological considerations and market forces affected how affiliations were negotiated and how reproductive issues played out.

Theological considerations necessarily inform affiliation arrangements involving Catholic health care facilities. Although the document specifically guiding the provision of health care in Catholic institutions is the Directives, this document presupposes an earlier statement by the United States Catholic Bishops (NCCB 1981). In these documents, the Bishops identify the dignity of the human person, the biblical mandate to care for the poor, contribution to the common good, the responsible stewardship of resources, and conscience as the normative principles that inform the church’s healing ministry. These principles not only support the church’s position on reproductive services, but also its position on humane care for the dying and the proscription of euthanasia. More broadly, these principles support the church’s commitment to social justice, which entails the view that health care is a fundamental right of all persons and that Catholic health care should distinguish itself by service to, and advocacy for, the poor and vulnerable. Social justice and concern for the common good entail that limited health care resources be used wisely and that employees in Catholic facilities be treated with respect and justice. It is therefore important to note that theological considerations not related to reproductive health services also may be explicitly introduced in affiliation arrangements.

In two of the case studies (A and C), earlier attempts at affiliation had failed because of differences over abortion, and this historical context provided the basis for strategies to deal with proscribed services in the second, ultimately completed, affiliation attempts. In case A, the first affiliation attempt (a proposed merger) in the early 1990s was abandoned because the system under which the non-Catholic hospital operated provided abortions at one of its other hospitals. The Catholic hospital believed that the Directives prohibited a merger under these circumstances. By the mid-1990s, however, the financial instability of the Catholic hospital was such that it could no longer survive as an independent provider. The decision by the Catholic hospital’s governing board to sell its facility to the non-Catholic hospital (rather than to merge) was driven by the need to avoid conflict over the provision of abortion that emerged during the first attempt. The board decided that the continuation of hospital services to the community took precedence over maintaining a Catholic presence. As part of the acquisition agreement, the Catholic facility would no longer retain its identity as Catholic and, accordingly, would cease to operate under the Directives. However, the non-Catholic hospital agreed in writing that no “life-terminating procedures” – including abortion, euthanasia, or assisted suicide – would be provided on the former Catholic campus.

In case C, an earlier affiliation attempt had been made in the 1970s; over a three-year period, the two hospital governing boards pursued plans for a merger, but it was only at the end of this period that the plans were communicated to the public (which then protested the merger, largely on the basis of anti-abortion sentiments) and to the religious order overseeing the Catholic hospital. Given that the Protestant hospital provided abortions, the Catholic Diocese could not authorize merger, and the affiliations plans were abandoned at considerable cost to both parties. Because of the role that abortion had played in defeating the earlier affiliation attempt, the decision was made in the 1990s to defer the abortion question to the governing board of the post-consolidation, non-sectarian medical center. Members of the two existing governing boards felt strongly that, for the benefit of the community, religious ideology should not be allowed to derail the consolidation. Contraceptive and sterilization services were not an issue for the governing boards in the affiliation process because these services had been provided at both institutions prior to affiliation. After consolidation, the new governing board voted to discontinue abortions (except to save the life of the woman) at the former Protestant hospital. This decision was supported by vocal segments of the community.

In case B, the prospects for survival of the Catholic hospital and the pre-affiliation status of reproductive services in the partnering hospitals were the key factors that shaped the role of reproductive services in the affiliation process. The merger in case B was the first affiliation attempt between the parties. In this case, the CEO of the Catholic hospital, the local Bishop, and the order of Sisters sponsoring the Catholic hospital recognized that marketplace changes and a declining census threatened the survival of the 83-bed hospital, which provided no obstetrical or related services. In addition, they recognized that increased competition between their hospital and the nearby academic medical center represented poor stewardship of community resources. The governing board of the Catholic hospital agreed that the alleviation of financial pressures and the means of responsible stewardship lay in a merger agreement with the academic medical center to form a new, non-sectarian, not-for-profit integrated delivery system. As part of the merger agreement, it was decided that the former Catholic campus would continue to operate under the Directives; in effect, this meant that no services in conflict with Catholic values would be offered on that campus. The Directives, however, would not apply on the medical center campus, where obstetrical, gynecological, contraceptive, sterilization, and infertility workups and treatments would continue to be provided. Because the medical center would continue its practice of providing only medically indicated second-trimester abortions, rather than elective abortions, the Bishop supported the merger agreement.

In case D, the community context shaped the role that reproductive health services played in the affiliation process. At the early stages of negotiation between the district hospital and the Catholic system, reproductive issues were a lightening rod for opposition by local reproductive rights groups, hospital physicians, and community members who feared that partnership with a Catholic health system would mean a loss of reproductive services in the district hospital. Through a series of public meetings, representatives of the Catholic system and of the district hospital governing board made it clear that under the conditions of the 50/50 joint venture, the district hospital would not assume a Catholic identity and would not operate under the Directives. With the exception of abortion services, which were readily available at neighboring hospitals and clinics and which had rarely been provided at the district hospital, all other reproductive services would continue to be offered at the district hospital following the affiliation.

A key element in the affiliation process in case D was the articulation of common values in a document that became part of the affiliation contract. Developed by Catholic system ethicists, the diocesian Bishop, and the Catholic system legal counsel, the document outlined the values of the Catholic health care ministry that should be shared by the parties (i.e. social justice, the promotion of human dignity, and responsible stewardship of resources). The document also states that direct abortion and assisted suicide will not be permitted in affiliating hospitals. Because terminations of pregnancy to save the life of the woman are not considered “direct” abortions, they would be permitted at the district hospital under the terms of the joint venture.

All cases therefore developed explicit strategies for dealing with religious values and controversial reproductive health services early in the negotiation process. These strategies included decisions about the type of affiliation, the future Catholic identity (if any) of the partners, and the future role of the Directives in guiding service delivery. Although theological considerations influenced decisions regarding reproductive services, concerns about social justice and responsible stewardship of resources also played prominent roles in affiliation agreements.

C.Factors in Successfully Negotiated Affiliations

Several key factors to successfully negotiating an affiliation agreement between Catholic and non-Catholic providers were identified. The first, as noted above, is the early formulation of a strategy for dealing with religious values and controversial reproductive health services, particularly abortion, within the context of affiliation agreements.

In addition, strategies to inform and involve the community throughout the affiliation process were employed in all four cases. Hospital publications explaining the need to affiliate and the process of affiliation were distributed internally and externally to keep the community informed. Hotlines were established to respond to questions and concerns. In cases A and D, open forums were held to allow community members to express their concerns about the proposed affiliation. In case D, this approach was particularly valuable for ensuring that the abortion issue was addressed early and openly. Additional efforts to ensure community involvement included holding public ceremonies to “mark the death” of the former Catholic hospital (when Catholic identity was relinquished) and soliciting input from community members in naming newly formed organizations. These strategies were considered critical in cases A, B and C, in which the affiliations resulted in the loss of identity of the two Catholic hospitals and the creation of a single, new organizational identity.

Other strategies employed to ensure a successful affiliation focused on managing the affiliation process itself. Outside consultants were hired to help board members, religious leaders, and senior executives come to an agreement about how religious issues would be addressed. Consultants were also hired to facilitate the development of strategies and implementation plans or to assist in the process of obtaining approvals for an affiliation from the Department of Justice.

The strategy employed in case C to facilitate the Department of Justice review process was carefully thought out and executed. A steering committee was organized to oversee the process, and an outside consultant with expertise in managing merger approvals was hired. The partners to the consolidation recognized from other organizations’ failed attempts to affiliate that poor planning could result in a denial from the Department of Justice. The partners to the affiliation in this case were particularly sensitive to these issues, given that they stood to gain 80% of the hospital market share.

In addition to using consultants, careful management of how the affiliations were operationalized was critical to a smooth integration process. Typically, an integration team representing the partners’ senior executives, clinicians, and administrative personnel was assembled to oversee the transition. Workgroups to address the different operational areas were also formed to align services between campuses and to review policies and procedures. Top administrators for the affiliated institutions were selected early, and their responsibilities and performance expectations were defined. Particular attention to human resources issues was identified as critical, in part because of the need to bridge cultural differences stemming from different religious traditions or service ideologies in the affiliating organizations.

The models for structuring governance arrangements that were employed in cases B, C, and D facilitated the integration of the partners to the affiliations. In case B, for example, a new integrated delivery system was formed. Each of the four partners to the integration maintained a separate governing board and had equal representation on a fifth board overseeing the system. Despite the small size of the board of the Catholic facility, its retained powers in the affiliation agreement ensured strong representation within the integrated delivery system. In case C, a single board for the new medical center was established, with equal representation from the two partners as well as community representation. A new corporation was formed to run the district hospital in case D; its board equally represents the Catholic system and the district hospital. The hospital also retained its own elected board, primarily to oversee the use of funds contributed by the Catholic system as part of the affiliation agreement.

Finally, key informants reported that gaining physician support for the proposed affiliations was a critical factor for successfully completing the affiliations. In case B, for example, physician involvement was solicited throughout the process by promoting a leadership role for physicians in managing consolidated clinical service lines. In case D, the strategy to promote physician involvement was to organize members of the district hospital’s medical staff into a committee to evaluate the quality of medical care provided by the Catholic and for-profit health systems competing to affiliate with the hospital.

D.Post-Affiliation Challenges

Affiliations are long-term processes that do not end when a formal agreement is negotiated. Although our site visits were conducted early in the post-affiliation phase of organizational development, it is important to note that ongoing challenges to completing integration activities were identified in all four cases.One of the most important challenges that emerged in all of the cases was completing the process of merging disparate organizational cultures. The human resources issues that are involved in merging cultures were compounded by religious vs. non-sectarian orientations of the partners, by workforce reductions, and by changes in the models of clinical care delivery (e.g. from departments to multidisciplinary service lines). In case B, in particular, cultural integration emerged as one of the most important issues. Key informants reported that management had failed to consider the impact of the merger on staff productivity and morale. Failure to plan for the cultural change process has led to the publication of an underground newsletter and a disgruntled management team.Although there were similar challenges of managing the cultural change process, the cases differed in their identification of challenges to the future of their partnerships. Cases B and D were still struggling with internal integration challenges. In case B, informants reported that an important challenge is finding strategies to help build physician management skills. This emerged as an important skill deficit among physicians during clinical department consolidation activities. In case D, key informants reported that workforce reductions and managing disagreements between unionized labor and management were the key challenges.Both cases A and C were focused on the challenges that lie ahead, now that basic integration strategies have been completed. In case A, informants reported that the most pressing needs are developing strategies for growth in new markets and for streamlining existing services. Case C informants also identified outcomes-focused challenges and the need to become more responsive to women’s health care needs in the communities served by the new medical center. Return to top

Is There a Common Ground? Affiliations Between Catholic and Non-Catholic Health Care Providers and the Availability of Reproductive Health Services

Table of Contents, Acknowledgements, Executive Summary1. Introduction2. Trends in Affiliations Involving Catholic Providers3. The Affiliation Process and the Role of Reproductive Health Services in the Case Studies4. The Outcomes of Affiliations in the Case Studies5. Conclusions and Policy ImplicationsFigures Tables ReferencesAppendix A Appendix B Appendix C

Summary

An Annotated Bibliography of Sentinel Articles

• Report:

• Report: The Development of Capitation Rates under Medicaid Managed Care Programs: A Pilot Study

In 1995, 17.5 million children — one-quarter of all children under age 18 — had Medicaid coverage for health care services. Medicaid, the federal/state health program for the poor, pays for a broad range of services for children including well-child care, immunizations, prescription drugs, doctor visits, and hospitalization, and a range of long-term care services for children with disabilities.

Medicaid plays a particularly strong role for low-income children, covering two-thirds (64%) of all poor children and a quarter( 27%) of children with incomes between 100% and 199% of the federal poverty level (FPL). While employer-based insurance coverage of children declined from 1987 to 1995, expansions in Medicaid have resulted in greater coverage of children in low-income families (Figure 1). During this same period, Medicaid enrollment grew from about 10 million — 15.5% of all children — to 17.5 million children (23.2%).

Despite the importance of Medicaid today, about 10 million children are uninsured. Lack of insurance is particularly high among low-income children. Seventy percent of uninsured children are in families with incomes below 200% of poverty. The new State Child Health Insurance Program, enacted as part of the Balanced Budget Act of 1997, is intended to provide coverage to this group.

Eligibility

Being poor does not automatically qualify a child for Medicaid. In the past 15 years, Medicaid eligibility for children has been broadened considerably through federal legislation and state optional expansions. Prior to 1986, Medicaid primarily served children who received AFDC cash assistance. Today, children qualify for Medicaid based on their age and income.

Medicaid coverage is especially prominent among young children, covering 33% of infants and 29% of children ages 1 to 5. Because recent expansions focused on young children, older children are less likely to qualify for Medicaid. Medicaid covers 22% of children between the ages of 6 to 12 years and 17% of teens between the ages of 13 to 18 years.

Medicaid Coverage of Children:

States are mandated to cover certain groups of children based on age and income criteria. By 2002, all states will be required to have phased-in coverage of children under age 19 with incomes below poverty. States can choose to expand Medicaid eligibility beyond federal minimum standards by raising age and income levels for children (Figure 2). They can also use Section 1115 research and demonstration waivers to broaden eligibility. In total, 41 states have expanded Medicaid coverage to children in one or more age or income levels. Federal coverage requirements for children are as follows:

• Up to age 6 with family incomes up to 133% FPL. For infants, 35 states have chosen to expand coverage beyond 133% FPL and 13 have expanded for children age one to six.

• Age 6 to 14 with family incomes below 100% FPL. Fifteen states have opted to expand eligibility beyond 100% FPL.
• Age 15 to 19 if family income meets the AFDC criteria of August 1996 (state average is 41% of FPL) with coverage phased-in for poor children born before 9/30/83. 25 states have opted to accelerate this phase-in to cover older children up to age 18 with income below 100% FPL (Figure 2).
• Children with disabilities also qualify for Medicaid assistance on the basis of SSI eligibility. Medicaid covers about 1 million additional children with physical or mental disabilities.

Because states established varied Medicaid income eligibility levels for children, and because of state variations in per capita income there is considerable variation in Medicaid coverage, ranging from 13% of children in Colorado to 47% in West Virginia. Similarly, Medicaid pays for 39% of all births nationally, but coverage varies from 21% of births in Massachusetts to 61% in Georgia.

The Balanced Budget Act (BBA) of 1997 creates new options for states to strengthen and expand Medicaid coverage for children. The new State Children’s Health Insurance Program (CHIP) was enacted as part of the Balanced Budget Act (BBA) of 1997. This new capped federal program allocates $20.3 billion over five years in the form of a matched grant to states to expand coverage to uninsured low-income children through either a separate state program or by broadening Medicaid — or both. The funds became available on October 1, 1997 and are targeted to uninsured children under 19 with income below 200% of poverty who are not eligible for Medicaid or not covered by private insurance.

Provisions of the Balance Budget Act also included some important changes to Medicaid. It clarifies the state Medicaid option to accelerate the phase-in for children born before September 30, 1983. In addition, the new law gives states the option to extend presumptive eligibility to children, meaning that services provided to low-income uninsured children will be covered by Medicaid before the Medicaid eligibility determination process is complete. States can also offer 12 month continuous eligibility to children, regardless of any changes in family income during that period.

Services and Costs

Federal guidelines require that Medicaid cover a comprehensive set of services with nominal or no cost-sharing for children. Access to these services is important because poor children experience more health problems than more affluent children. Children with Medicaid are eligible to receive physician and outpatient services, prescription drugs, inpatient hospital care, and long-term care services.

Medicaid coverage also entitles children to early and periodic screening, diagnostic, and treatment (EPSDT) services including a comprehensive health and developmental history and physical exam, immunizations, laboratory tests including blood lead levels, and health education. Children found to have conditions requiring further attention are covered for needed treatment.

The importance of health insurance in securing access to health care services is well documented. Despite their complex health and social needs, children with Medicaid coverage have access to care that is similar to higher income privately insured children (Figure 3).

In 1995, Medicaid spent $25.4 billion on health care services for 17.5 million children in low-income families and about $7.1 billion for one million disabled children. The majority (93%) of the expenditures for non-disabled children are for acute care services, with one third for inpatient hospital care.

While low-income children represent half of the 35 million Medicaid beneficiaries, they account for only 16.7% of overall Medicaid spending. In 1995, Medicaid spent an average of $1,175 per low-income child enrolled in the program. On average, children cost less to care for than older Medicaid beneficiaries, but some disabled children have very costly health and long-term care needs. Medicaid spent an average of $6,421 per year per child qualifying on the basis of disability (Figure 4).

Issues and Challenges

Expanding Coverage.

To broaden coverage of low-income uninsured children, Congress enacted the new State Child Health Insurance Program and included provisions to allow states to facilitate enrollment and continuity of coverage under Medicaid. Key issues facing state Medicaid agencies include how the new children’s program will be structured, financed, and implemented, as well as how it will be integrated with or build on the state’s existing Medicaid program.

Participation.

An estimated 3 million of the 9.8 million uninsured children are eligible for but not enrolled in Medicaid. This is largely due to enrollment barriers or lack of awareness of the program. States can streamline the eligibility process and facilitate enrollment. For example, 25 states allow mail-in eligibility applications and 29 states have dropped the asset test. Medicaid eligibility policy has also changed markedly as a result of the 1996 welfare law, which eliminated the automatic link between cash assistance and Medicaid. Ongoing and intensified outreach and educational efforts will be necessary to assure that all the children who are eligible for assistance under Medicaid are enrolled.

Managed Care.

In 1996, 40% of beneficiaries were enrolled in managed care, mostly low-income children and their parents. The BBA of 1997 expands state flexibility by allowing states to mandate Medicaid managed care enrollment without requiring states to obtain a Section 1115 or 1915(b) waiver. States will still need a waiver to mandatorily enroll special needs children, but will be able to enroll other non-disabled children. Managed care has the potential to improve access to preventive and primary care, but given the vulnerable nature of the Medicaid population, it requires careful implementation and monitoring to assure quality and access.

A booklet to help health care consumers understand managed care.

• A Consumer’s Guide: Understanding Managed Care

• Report: A Comparison of the Medicaid Provisions in the Balanced Budget Act of 1997 (P.L. 105-33) w-Prior Law

The September/October 1997 edition of the Kaiser Family Foundation/Harvard Health News Index includes questions about major health stories covered by news media, including questions about AIDS, Condoms in Schools and Tobacco Companies. The survey was based on a national random sample of 1,007 Americans conducted October 17-21, 1997 which measures public knowledge of health stories covered in the news media the previous month. The Health News Index is designed to help the news media and people in the health field gain a better understanding of which health stories in the news Americans are following and what they understand about those health issues. Every two months, Kaiser/Harvard issues a new index report.

Background

Health care benefits had been offered to active employees for a long period of time before health coverage became a retiree benefit offered by employers. The key event that made employer-sponsored retiree health care a possible benefit for retirees was the enactment of Medicare in 1965. It was then felt possible to provide a widely desired benefit at a relatively low cost, since the Medicare program would pay the majority of the costs.

Millions of Retirees Have Employer-Sponsored Coverage

Based on the 1995 Medicare Current Beneficiary Survey⁵ analysis by Physician Payment Review Commission (PPRC), about 12 million individuals (37 percent of Medicare aged and disabled beneficiaries) have employer-provided supplemental coverage, including about 2 million with employer-provided coverage and Medigap.

Retiree Health Is a Highly Valued Medicare Supplement

As with other matters related to retirement, the appreciation of retiree health benefits increases with age. For example, based on a Hewitt database of employee surveys, there is a twelve-fold increase in value assigned to retiree health care benefits for employees age 55 and over compared to the group age 25 to 34.⁶

The availability of employer-provided coverage is more critical for the pre-65 retirees because they will generally not have access to other insurance or it will be very expensive for them to purchase, if it is available at all. Post-65 retirees at least have Medicare if they have no other health insurance.

Even Medicare, however, provides a relatively low level of benefit when compared to the typical employer plan for active employees. Comparing the Medicare level of benefits to 250 large employers participating in the 1996 Hewitt Health Value Initiative^TM who offer indemnity type benefits, the Medicare design falls in the lowest quartile measured by plan value (18th percentile). That is, 82 percent of the indemnity plans offered by large employers to active employees provide richer or better benefit levels than traditional Medicare. Most of the employers participating in the 1996 Hewitt Health Value Initiative have more than 5,000 employees. Employers with fewer employees will tend to provide a lower level of benefit.

Assuming that the typical employer medical plan considers about 65 percent of total health care costs as a cost covered by the medical plan (excluded costs include items such as over-the-counter drugs, dental care and eye glasses)⁷, and that the average indemnity medical plan reimburses about 83 percent of covered costs⁸, the typical employer plan will pay 54 percent (0.83