Local Innovations Provide Managed Care for the Uninsured

Providing Managed Care for the Uninsured

Recent shifts in the American health care landscape have deepened the challenge of delivering care to uninsured populations. Of the roughly 44 million Americans lacking insurance coverage, approximately half are classified as low-income, with annual earnings below 200 percent of the federal poverty level. These individuals generally have no regular access to preventive or primary care and instead depend on episodic medical treatment funded through a patchwork of government programs and cross-subsidies drawn from the insured population. Market transformations -- particularly the expansion of managed care -- have placed additional pressure on these already strained resources, but they have also prompted fresh approaches to meeting the health care needs of uninsured individuals.

Communities across the country have begun establishing managed care programs for the uninsured as an innovative strategy to improve health outcomes while reining in costs. These programs emphasize preventive and primary services and attempt to manage the use of more expensive inpatient and emergency department care. In most cases, they repurpose existing charity care funding to serve low-income uninsured individuals who do not qualify for public insurance. Although these initiatives resemble Medicaid expansions in many respects, they are not entitlements and rely on limited local funding, so they cannot guarantee the same comprehensive benefits as insurance.

Five of the 12 communities that HSC studies have developed some form of managed care arrangement for the uninsured. Boston, Indianapolis, and Lansing had operational programs for at least one year at the time of the study, while Orange County, California, and Northern New Jersey were exploring pilot projects.

Market Changes That Spurred New Programs

A range of local market developments motivated the creation of managed care programs for the uninsured across the HSC study sites. The five communities exhibited diverse characteristics that had historically shaped how they delivered care to low-income uninsured residents. Despite these differences, providers and policy makers in each community adopted a managed care framework. While the general strain on resources served as a common motivating factor, specific catalysts varied and included the introduction of Medicaid managed care, hospital mergers, and the deregulation of hospital rates.

Medicaid Managed Care. In several communities, managed care programs for the uninsured emerged in direct response to the rapid expansion of Medicaid managed care. There was widespread concern that this transition would strain the financial resources that safety net providers relied upon to treat the uninsured. Moreover, because many low-income individuals cycle in and out of Medicaid eligibility as their circumstances change, providers and policy makers saw a managed care model for the uninsured as a way to maintain continuity of care.

In 1995, Massachusetts authorized Boston's largest safety net providers -- Boston Medical Center and Cambridge Health Alliance -- to use charity care funds to establish managed care programs for uninsured individuals expected to become eligible for Medicaid through planned expansions. Although eligibility was ultimately not expanded as broadly as projected, the safety net hospitals maintained the Boston HealthNet and Network Health programs for the uninsured and created separate Medicaid programs with similar names.

In Michigan, concerns about the potential impact of Medicaid managed care on the safety net prompted the local health department to develop a plan to enroll all residents in an organized health care delivery system by 2005. This goal, combined with state funding assistance, led the Ingham County Health Department in Lansing to establish the Ingham Health Plan for the county's low-income uninsured residents in 1998.

In 1995, Orange County transitioned to Medicaid managed care under the direction of a local agency called CalOPTIMA. The expectation was that CalOPTIMA would eventually integrate the county's Medical Services for the Indigent (MSI) program once Medicaid beneficiaries were enrolled. However, CalOPTIMA expressed concern that available funding was insufficient to provide MSI-eligible individuals with the same comprehensive benefits that Medicaid enrollees received. As an interim step, the agency proposed integrating a limited number of chronically ill MSI beneficiaries to better understand the health care needs and utilization patterns of a population that administrators considered most challenging to incorporate into a managed care model.

Hospital Mergers. In Indianapolis, while Medicaid managed care expansion played a role, the merger of two major hospitals into Clarian Health served as a key catalyst for developing the Wishard Advantage Program. Wishard Hospital, the city's public hospital, was not party to the merger and feared that its capacity to serve the uninsured would be undermined as Clarian used its market leverage to compete for Medicaid beneficiaries and absorbed physicians who had traditionally treated uninsured patients.

Deregulation. State deregulation of hospital rates, along with the resulting changes to traditional charity care funding models, contributed to the development of managed care programs for the uninsured in both Boston and New Jersey. Safety net providers grew apprehensive that private hospitals would underbid them for health plan contracts, leaving them with diminished revenue to subsidize charity care.

In response to these pressures, the New Jersey state legislature attempted to redesign charity care into a hospital-based managed care system. This would have required hospitals statewide to cover comprehensive primary and preventive services through a coordinated provider network. Some hospitals lobbied against the plan because it compelled them to allocate a portion of their already strained disproportionate share hospital (DSH) revenues to unaffiliated outpatient providers. The proposal was subsequently scaled back to the Managed Charity Care Demonstration, a voluntary pilot program. This revised model was under review by the Health Care Financing Administration because it involved redirecting DSH funds to cover services delivered outside the hospital setting.

Diverse Program Structures

The five programs shared several managed care features: they used primary care physicians to coordinate service utilization within established provider networks and implemented mechanisms to control costs. However, the programs differed significantly in the scope of services offered, the populations they targeted, their funding sources, and their approaches to reimbursing providers.

Provider Networks. Most programs were built around local safety net hospitals, relying on their ambulatory facilities to deliver preventive and primary care. Many also partnered with community health centers and other providers to expand capacity. The Ingham Health Plan in Lansing, for example, planned to contract with private practitioners once its community health centers reached capacity. Others were more reluctant to collaborate with community-based providers; some New Jersey hospitals, for instance, raised concerns that such partnerships would dilute their already limited resources for uninsured care.

Scope of Services. The range of services provided varied widely across programs. At one end of the spectrum, Boston's programs offered comprehensive inpatient and outpatient coverage. At the other end, the Ingham Health Plan covered only outpatient services. All programs sought to provide necessary health services without offering benefits more generous than those available through public insurance programs, and they proactively transferred enrollees to Medicaid or the Children's Health Insurance Program when eligibility was established.

The programs also aimed to reshape enrollees' care-seeking behavior by encouraging use of preventive and primary care. Features such as expanded clinic hours and 24-hour medical help lines were established to redirect patients to outpatient settings in lieu of emergency departments when appropriate. Additional supports included language interpreters and reduced-cost transportation to health care facilities.

The degree to which each program actively managed care varied. In Lansing, Ingham Health Plan enrollees were required to obtain referrals for specialty care. By contrast, the Boston programs did not restrict access or utilization, though they did attempt to redirect patients toward outpatient settings for nonurgent care. The Wishard Advantage Program in Indianapolis initially implemented a pre-authorization process but abandoned it due to insufficient infrastructure and because enrollees did not tend to self-refer for specialty or ancillary services. Both Wishard and New Jersey's proposed program nevertheless maintained some degree of utilization management.

Population Enrolled. These managed care initiatives generally targeted low-income, uninsured individuals ineligible for public coverage. The lowest-income enrollees -- ranging from below 100 percent of the federal poverty level in Lansing to below 200 percent in Boston, Orange County, and New Jersey -- faced no cost-sharing requirements, while individuals above those thresholds paid on a sliding scale in some locations. Several programs also provided partial benefits to individuals with limited insurance. Health status was generally not a factor in eligibility, although both the New Jersey and Orange County pilots planned to target individuals with specific diagnoses.

Program enrollment ranged from 1,000 for the Orange County pilot to an estimated 73,000 for the two Boston programs combined. Enrollees were predominantly single adults, and many were reportedly employed. The Ingham County Health Department was considering plans to explicitly target this working population by marketing the Ingham plan to small employers.

Outreach strategies varied considerably. In some sites, individuals learned about the program only when they sought care at a clinic or hospital. Others automatically enrolled individuals from an existing indigent care program and actively sought potential enrollees in the community. In programs that had been implemented, enrollees received a membership card resembling a standard insurance card to facilitate access.

Funding. Funding for the managed care programs came from existing indigent care funds drawn from federal, state, and local sources. Most participating hospitals dedicated a portion of their federal DSH funds to the programs. Indianapolis and Lansing also drew on county tax revenues, and Boston relied on a portion of funds from the state uncompensated care pool -- a fund generated by hospitals and health plans to reimburse charity care providers.

Provider Reimbursement. Most programs used risk-based payment mechanisms to control expenditures. Outpatient providers in the Wishard Advantage Program, for example, received a capitated payment of $15 per member per month, while Wishard Hospital bore the risk for ancillary and inpatient services. The Ingham Health Plan also provided capitated payments to participating providers. By contrast, providers in the Boston programs were paid on a fee-for-service basis, although state policy makers and program administrators were considering partial risk-bearing arrangements to reduce strain on the uncompensated care pool.

Program administrators faced the challenge of offering competitive provider reimbursement while simultaneously containing costs. They reported that payments were generally comparable to, if not better than, those of Medicaid and other managed care payers. As a result, the established programs experienced little difficulty recruiting and retaining providers. Because the programs relied heavily on hospital-based DSH funds, providers not affiliated with local hospitals were often eager to participate in order to capture new revenue.

Program Profiles in Three Communities

Boston HealthNet and Network Health (implemented 1995): These programs provided outpatient primary and specialty care, inpatient services, emergency care, ancillary services, and limited dental, vision, pharmacy, and mental health coverage. Individuals below 200 percent of the federal poverty level received free care. Combined enrollment reached approximately 73,000 (62,000 in Boston HealthNet and 11,000 in Network Health). Funding was drawn from the state uncompensated care pool and DSH, with the amount varying according to demand. Providers were reimbursed on a fee-for-service basis.

Wishard Advantage Program, Indianapolis (implemented 1997): This program covered outpatient primary and specialty care, inpatient services, emergency care, ancillary services, pharmacy, and limited mental health services. Individuals below 150 percent of the federal poverty level received free care, while those below 200 percent faced cost-sharing requirements. Enrollment stood at approximately 20,000. Annual funding of $56 million came from city and county property tax revenues. Primary care providers received capitated payments of $15 per member per month, with varied arrangements for specialty and inpatient services.

Ingham Health Plan, Lansing (implemented 1998): This program covered outpatient primary and specialty care, ancillary services, and pharmacy. Individuals below 100 percent of the federal poverty level received free care, while those below 250 percent had cost-sharing requirements. Enrollment was approximately 8,500. Annual funding of $3.5 million came from DSH, Medicaid, and county tax revenues. Providers received a global capitated payment of $24 per member per month.

Looking Ahead

Because these managed care programs were relatively new at the time of the study, it was difficult to draw firm conclusions about their ability to improve health outcomes for the uninsured. Nonetheless, some programs had already shown measurable progress. The Wishard Advantage Program, for instance, had cut annual inpatient days in half and reduced emergency room use by 30 percent among its enrollees. Boston Medical Center had also decreased emergency room use for its uninsured population enrolled in the Boston HealthNet program.

However, the dual objective of expanding access while controlling costs raised legitimate concerns. Many policy makers and safety net providers were hesitant to assume that increased demand for outpatient services would be offset by reduced spending on emergency and inpatient care. Some feared that expenditures could actually rise as additional services were offered to a larger number of people. In fact, some program directors expressed doubt that the programs would produce savings, since they needed to compensate for the previous scarcity of specialty and tertiary medical services -- not just primary care -- for this population.

In programs that built in explicit assumptions of cost reductions, the parties bearing financial risk were often apprehensive. New Jersey hospitals and CalOPTIMA in Orange County worried that they would be expected to deliver comprehensive services with inadequate reimbursement. Without better data on the health care needs of uninsured populations in their communities, providers remained uncertain that expanded preventive services would ultimately generate savings and were reluctant to absorb the associated financial risk, especially if doing so required them to redirect funds to other providers.

All programs expressed concern about funding adequacy. If funds were depleted, participating providers could be left responsible for delivering needed medical services while absorbing the additional costs. In this respect, the programs functioned more like uncompensated care pools than public insurance, since they carried no legal commitment to reimburse providers for a contracted set of benefits. This was especially troubling to providers facing deteriorating margins who questioned their capacity to subsidize the cost of this care through traditional cross-subsidies.

From enrollees' perspective, this lack of a guaranteed benefit package also distinguished the programs from true insurance. If funding ran out, individuals could be disenrolled or see their benefits curtailed, pushing them back into the fragmented traditional charity care system. To avoid this outcome and ensure long-term sustainability, advocates for these initiatives argued that additional funding was essential. Program directors acknowledged the inherent fragility of their programs by actively helping enrollees obtain more stable public or private insurance when possible.

Despite these limitations, the programs offered significant potential benefits. They could provide a usual source of care for the uninsured and deepen local understanding of this population's health care needs. By encouraging and facilitating access to preventive and primary care, the programs could steer individuals toward more cost-effective care settings. This in turn could reduce the risk and cost of serving this population and potentially open the door to broader insurance coverage.

Whether managed care programs ultimately produce such outcomes remained to be seen. But the successes and limitations of these initiatives would provide important lessons for policy makers as they confronted the challenge of caring for a growing uninsured population in a rapidly changing health care environment.

HSC Study Sites

The Community Tracking Study, the primary research effort of the Center for Studying Health System Change, monitors health system changes in 60 sites representative of the nation. Every two years, HSC conducts surveys in all 60 communities and site visits in 12 communities: Boston, Mass.; Cleveland, Ohio; Greenville, S.C.; Indianapolis, Ind.; Lansing, Mich.; Little Rock, Ark.; Miami, Fla.; Northern New Jersey; Orange County, Calif.; Phoenix, Ariz.; Seattle, Wash.; and Syracuse, N.Y.

The first round of site visits took place in 1996 and 1997, and the second round in 1998 and 1999. The findings reported in this Issue Brief are based on the second round of site visits.

Sources and Further Reading

Kaiser Family Foundation — Employer Health Benefits Survey — Annual data on employer-sponsored health insurance trends.

CMS — Health Insurance Marketplace — Federal marketplace information and enrollment resources.

Health Affairs — Peer-reviewed health policy research and analysis.

Robert Wood Johnson Foundation — Health policy research and programs.

Commonwealth Fund — Research on health care system performance and coverage.