But Medicaid managed care is a risky business. Many new enrollees are older and sicker than the people health plans typically cover. The political environment is fierce, and insurers face resistance from physicians, hospitals and perhaps patients.
The federal health law calls for a huge expansion of the Medicaid program in 2014 — a potential bonanza for insurers if the law survives court challenges and opposition by Republican contenders for the White House. The expansion will add 16 million enrollees, mostly in private plans, bringing the total nationwide to about 65 million and raising the stakes for controlling costs.
As budgetary pressure rises, states are increasingly passing it on to private plans. Plans typically get a monthly sum to cover a patient’s health costs and try to save by cutting wasteful spending, such as an expensive emergency room visit when a family doctor would do.
“There is a lot of waste in the system, but it’s not something that you just flip a switch and it all goes away,” said Steve Zaharuk, a Moody’s Investors Services analyst. “There’s always the risk that, no matter how good you are, this is still a political game.”
Even so, insurers are willing to gamble, given the potential money to be made. Enrollees such as Espinoza yield on average $7 a month profit, financial analysts estimate. The margin is small, but it will add up quickly as managed care spreads. With the expansion of Medicaid managed care underway in at least 20 states and the surge of enrollment in 2014, insurers expect $60 billion in new annual revenue.
The Rio Grande Valley, where insurers stand to gain 425,000 new Medicaid enrollees beginning in March, could be a proving ground for the managed-care industry. Texas wants to cut its Medicaid bill there by $290 million over two years. But to accomplish that, and make money for themselves, insurers must overcome obstacles of politics, poverty and culture, including language barriers and resistance from health providers.
If plans succeed here, said John Littel, an executive vice president at Amerigroup, a leading Medicaid health plan operator, “it will show that you can bring managed care in and improve [health care] anywhere.” Amerigroup leads the Texas Medicaid market and won new business elsewhere in the state this month, but not in the valley.
The McAllen area is an epicenter of high government health spending. A widely circulated 2009 New Yorker magazine piece showed Medicare, the federal health program for seniors, spends twice the national average per patient here. Older and disabled Medicaid patients, such as Espinoza, cost the state more here than in any populated area, $15,311 a year on average.