By Jon Kamp
California secured federal approval Wednesday for the largest
state-based program yet aimed at testing a new way to care for
people on both the Medicare and Medicaid government health
programs.
The Centers for Medicare and Medicaid Services approved a
demonstration program that will launch in October and cover up to
456,000 so-called dual-eligible patients. This is a later launch
and smaller population than the state initially targeted, but still
ranks as by far the most expansive, new plan for covering these
high-cost and often very sick patients.
The three-year California program promises a revenue boost for
Health Net Inc. (HNT), Molina Healthcare Inc. (MOH) and WellPoint
Inc. (WLP), as well as other local health plans previously slated
to cover these patients.
California is one of several states aiming to streamline
coverage for patients who qualify for both Medicare and Medicaid
due to age or disability, plus lack of financial resources. The
states' goal--working with the federal government with some help
from the health-care overhaul law--is to simplify a
sometimes-confusing system while improving care and restraining
costs.
California is the fifth state--joining Washington,
Massachusetts, Ohio and Illinois--to win approval for its
demonstration project.
The state had once hoped to launch its program at the beginning
of 2013 while covering 800,000 people, but the more limited scope
could actually aid health insurers as they tackle a potentially
risky new market. Dual patients' high costs mean big revenue for
insurers covering them, but also risks if patients aren't well
managed, leading to costly health problems that could overwhelm
insurers' incoming premiums.
Only about 14% of California's 1.1 million Medicaid members are
dual patients, but they rack up nearly 25% of Medicaid costs.
"We believe limiting the type of duals eligible to participate
should make the program easier for health plans to more quickly
become cost effective despite the smaller than expected program
size," Wells Fargo analyst Peter Costa said.
Among the publicly traded California insurers, Mr. Costa sees
the biggest benefit for Health Net, which is poised to add more
than 112,000 dual members who could boost annual premiums by about
$1.5 billion and per-share earnings by 40 cents. He sees Molina
adding more than 48,000 dual members for more than $500 million in
annual premiums and more than 22 cents per-share in earnings. The
effect is likely minimal for much larger WellPoint, the analyst
said.
Despite double coverage, patients with both Medicare and
Medicaid don't always receive the best care because the government
plans work in different ways. This can confuse patients and add
costs. But in California's program, participating health plans will
get blended Medicaid and Medicare payments while providing all
needed services for the patients.
The patients, in turn, will get one membership card and access
to a care team to help coordinate service.
Critics such as patient advocates have questioned whether the
government and states are moving too fast with unproven
coordinated-care ideas. Nevertheless, there is broad hope among
states trying to control Medicaid expenses--which they split with
the federal government--that these programs will both improve care
and hold the line on costs.
"Californians will receive coordinated care that helps prevent
them from falling through the cracks and ensures they have access
to the right services at the right time," said Diana Dooley, the
state's Health and Human Services Secretary, in a release.
Health Net shares rose 0.8% Wednesday, while Molina rose 0.7%
and WellPoint added 1.3%.
Write to Jon Kamp at jon.kamp@dowjones.com
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