July 21--Failure, like beauty, must be in the eye of the beholder.
Gov. Rick Perry recently rejected a federal expansion of Medicaid that could provide coverage for up to 2 million low-income Texans. In his words: "The bottom line here is that Medicaid is a failed program."
Perry even compared the program to the Titanic.
The same day he announced his decision on Fox News, Amerigroup agreed to be acquired for $4.9 billion. The sale price represented a 47 percent premium, the highest in its industry in 15 years, according to Bloomberg data.
Amerigroup provides managed care for Medicaid patients, treating the poorest and often sickest. It operates in 13 states, and Texas accounted for close to a third of Amerigroup's 2 million members at the end of 2011 -- and a big chunk of its growth and profits.
It's the largest Medicaid HMO in Dallas and Fort Worth, with 281,305 enrollees, according to state HMO filings. Also, 63,000 DFW children are in Amerigroup's CHIP plan, which provides coverage for low-income kids.
In the last fiscal year, in North Texas alone, Amerigroup reported $605 million in revenue from Medicaid and CHIP. The company made $89.5 million in net income before taxes, a profit margin of nearly 15 percent -- just on its DFW business.
Does that sound like a sinking ship?
The business model is so healthy that Amerigroup's stock price has nearly tripled in the past two years, including the bump from this month's sale to Wellpoint, the country's second-largest health insurer. Wellpoint operates Blue Cross-Blue Shield in 14 states, and the Amerigroup purchase signals a major bet on Medicaid.
The rationale is simple: The Medicaid population is soaring, and states are desperate to control the expense, so they're turning to private organizations that can ratchet down costs.
That's likely to mean lower reimbursements for doctors, but it also rewards HMOs for keeping patients healthy and out of hospitals. When it works right, the privatization push can be a virtuous circle and another option to try to bend the cost curve.
The Affordable Care Act, upheld by the Supreme Court last month, drives much of the growth potential. It envisions a major expansion in Medicaid, as states extend health coverage to uninsured, low-income Americans -- and no place has more potential customers than Texas.
But states are not required to expand Medicaid. And Perry is one of several Republican governors pledging to reject the change despite the federal government picking up most of the expense.
"Well, I'm always intrigued with the concept that there's free money out there," Perry told Fox. "And that we can pour more money into a program that is already failed and somehow or another, we're going to have a different result than what we had the first time."
For all his disparaging of Medicaid, it plays a vital role for millions of Texans and thousands of providers. In Tarrant County, it pays for more than half the bills at Cook Children's Medical Center, for example, and close to two-thirds of the emergency room visits.
Almost 3.1 million Texas children are covered through Medicaid and CHIP, and their family income is often less than $20,000. About 750,000 disabled and elderly also have coverage.
Medicaid pays for more than half the births in the state and helps more than two-thirds of Texans in nursing homes. Without it, local hospitals would have to provide an extra $4 billion in annual treatment through the ER.
Expanding Medicaid would pull in millions of low-income Texas adults who are currently excluded. The feds will cover all the expansion costs for three years and 90 percent of the costs after 2020.
By one estimate, Texas would spend about $5 billion and get $76 billion in federal funds for the first five years of the expansion. Barring a repeal of the law after the November election, most people expect the states to join in.
Asked by analysts about the issue, executives from Wellpoint and Amerigroup seemed confident that states will move forward. They tiptoed around the politics, in part because their business depends on winning contracts with leaders from the same states.
But the federal dollars "are very compelling," Amerigroup CEO James Carlson said.
"We think once everybody settles down and understands this from a budgetary standpoint, and really from the human factor of the people that we're talking about, the states will wind up participating in the expansion," Carlson said in a conference call.
If Perry hadn't been slamming President Barack Obama from Day One -- and using that as the centerpiece of his own failed run for the presidency -- he could offer a much different narrative. Texas was a pioneer in promoting Medicaid HMOs as a way to lower costs and get more needy people into medical homes.
Perry could brag on the success of Amerigroup and others like it, including nonprofit HMOs run by Cook Children's in Fort Worth and Parkland in Dallas. They make more money by keeping patients healthier, and the plans must meet standards for quality care, access and customer service.
Last year, in a state report on Medicaid, several surveys showed positive results. Under the state's Star program, 71 percent of children received well-child visits at ages 3, 4, 5 and 6, compared with 65 percent nationally. A higher share of pregnant women in Star initiated prenatal care than the national average. Eighty-five percent said they had a personal doctor, the state said.
Most complaints about Medicaid stem from the finances, though critics also point out that many Medicaid enrollees are dissatisfied and most Texas doctors won't accept new Medicaid patients.
In Texas, Medicaid spending doubled in the past decade and accounts for a quarter of the state budget. One reason is that the number of residents living below the poverty line has grown significantly; another reason is that the price of all healthcare has soared. Of course, the state also refuses to raise tax revenue, so the rising costs are even more painful.
Medicaid spending per person has been slower than Medicare and much slower than private insurance. States such as Texas keep squeezing rates to providers and embracing HMOs to control costs.
Perry could argue that Texas' HMO push is working, not failing -- with the caveat that every element of healthcare needs improvement.
If Texas expands Medicaid, contrary to Perry's wishes, HMOs like Amerigroup will get $8.6 billion over five years, according to a Bloomberg analysis. Texas hospitals stand to gain almost as much. And home health providers and nursing homes will get billions, too.
Who says Medicaid can't be a winner?
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