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Change is required. Gain fiscal sustainability.

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Medicaid, the nation's most important health program, serves the most Americans and cares for its most needy, clinically complex populations. However, it is fiscally unsustainable as it stands today.

Understanding Medicaid's Unsustainable Path

Medicaid enrollment will exceed 90 million by 2020. Another recession would increase Medicaid enrollment to over 100 million, meaning nearly one-third of all Americans will be insured through Medicaid. Per capita benefit costs are expected to increase by an average annual rate of 9%—far outpacing state revenue growth even in good economic times and doubling Medicaid budgets every eight years.

National Medicaid past and projected spending

2010-$402.9 billion
2015-$542.9 billion
2020-$763.6 billion

Together, we must come to grips with Medicaid's fiscal challenges and transform the program to ensure Medicaid coverage:

Is available for low-income families, seniors, and persons with disabilities
Provides access to high-quality, safe, and effective care across the full spectrum of primary, acute, specialty, and long-term services and support
Makes optimal, efficient use of taxpayer dollars
Does not crowd out resources for other state priorities such as education

Reviewing causes of the crisis

The root causes of Medicaid's long-term fiscal unsustainability are numerous and well understood by state leaders. Many of these are unique to Medicaid, including the sheer complexity of Medicaid policy and administration, a long legacy of federal mandates, and Medicaid's role in providing more types of services to more types of patients than Medicare or any private insurer. However, state Medicaid programs also face the same problems confronting other public and private healthcare purchasers. Medicaid is not immune from the effects of poor quality of care, preventable events, poor coordination and care management, inadequate prevention, lack of transparency, and reimbursement that rewards volume and discourages value.

Considering a strategic framework

To transform Medicaid into a fiscally sustainable program, we recommend states consider this five-step strategic framework, with specific reform opportunities in Medicaid policy and management:

Value-driven Medicaid benefits, payment, care delivery
Data-driven Medicaid enterprise
Streamlined business processes
Aligned leadership as major purchaser
Bias for reform and innovation

Fiscally sustainable Medicaid program strategic framework.

1. Value-driven Medicaid benefits, payment, and care delivery.

A fiscally sustainable Medicaid is a value-driven Medicaid. States should consider adoption of value-based models for Medicaid benefits, payment, and care delivery. Specifically, state policymakers should seriously consider:

Benefit design—Value-based benefit designs where Medicaid covers services based on evidence of clinical value and cost-effectiveness, and healthy behaviors are encouraged over time with proper incentives and supports.
Payments—Value-based payment models align financial incentives with clinical and economic performance at the plan and provider levels. Consider redirection of savings to improve overall provider reimbursement where appropriate.
Care delivery—Value-based care delivery systems should be integrated, coordinated, patient-centered, evidence-based, and data driven at the plan and provider levels.

2. Data-driven Medicaid enterprise

Ultimately, Medicaid fiscal sustainability will require a modern, data-driven Medicaid enterprise. Recommended features include:

Implementing full, expedited systems based on the Medicaid Information Technology Architecture (MITA) 3.0 framework
Expanding analytical capabilities significantly—tools, methods, data, people, and training for— in-state Medicaid agencies and integrating them within program management, strategic planning, and policy development
Setting up a national training and technical assistance program for state Medicaid managers and staff across all key disciplines in Medicaid management, policy, finance, systems, and operations
Using best practices in information and analytics to identify, disseminate, and support Medicaid decision-making at agency, health plan, provider, and consumer levels
Centralizing electronic medical records under the payor process so information can be shared across payors to ensure a comprehensive, longitudinal view of the population
Strengthening Medicaid and Children's Health Insurance Program (CHIP) Payment and Access Commission (MACPAC) capabilities to cover the extraordinary needs and complexities of Medicaid

3. Streamlined business processes

There are many opportunities to replace outdated federally required business processes with new, highly streamlined, outcomes-based processes and procedures. For example, current processes for section 1115 Waivers could be greatly improved by:

Replacing traditional, ridged, research orientation for waivers with an operational approach that supports easy adoption of reforms by multiple states and permitting any state to easily receive waivers granted to another state
Allowing states to use federal savings from other programs, such as Medicare and Temporary Assistance for Needy Families (TANF), to show budget neutrality; currently, only federal Medicaid spending is considered
Considering federal budget neutrality over the life of a waiver, rather than in each year; few innovations result in immediate savings and current structure limits money-saving reforms

4. Aligned leadership as a major purchaser

As large purchasers of healthcare, states should consider ways to leverage their buying power and market influence. This may include:

Aligning objectives and activities across Medicaid, CHIP, state, and local employee health coverage and public health programs
Partnering and aligning policies with other large purchasers, employers, Medicare, and health insurance marketplaces, to the maximum degree possible

5. Bias for reform and innovation

Throughout Medicaid—at the federal and state levels and across all dimensions of the program—policymakers and administrators should adopt a renewed "bias" for reform and innovation. Despite formidable obstacles, state Medicaid programs have long been innovators. Many reforms now championed throughout healthcare—such as performance reporting, prevention, and care management—first found a home in Medicaid. To ensure Medicaid's fiscal sustainability, a strong, relentless bias for reform and innovation is essential. We must renew a national commitment to states as America's laboratories of reform in healthcare. This requires the creation of a legislative, regulatory, fiscal, management, and technical environment that explicitly supports bold reforms, rapid prototyping, scaling of successful innovations, and sharing of best practices.

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