Why it's inevitable Hawaii's capitated Medicaid system will kill and injure the people it serves

On February 1 of 2009, Hawaii's aged, blind and disabled Medicaid population were switched from what's called a "fee for service" program to a "capitated fee" program. 

A fee for service program means the insurance provider is reimbursing your actual medical bills.

With a capitated fee program, the insurance company gets a monthly fee (the capitation fee) for each individual enrolled, ranging from $200 to $20,000 per month.  While the state pays them their capitation fee every month, the state does not tell the providers that they actually have to spend the money. 

There is a reason why Wellcare Health stopped providing fee for service Medicare programs as of January 1, 2010.  While I'm not an economist, knowing the way a for-profit company operates I have to assume that managed care programs, which all feature capitated payments, are much more profitable than paying members' actual medical bills.

United Healthcare, which does business in Hawaii as Evercare, reported that while 2009 overall company gross revenues dropped two percent from 2008, their Medicaid subsidiary's revenues were up forty percent to $8.4 billion, and their Medicare subsidiary reported revenues up 15% from 2008 to $32.1 billion.

United Healthcare doesn't report its earnings as clearly as Wellcare does -- I can't specifically say that the company's 2.9 percent of membership which are Medicaid covered is equal to the financial performance of Americhoice, UHC's Medicaid subsidiary.  However, Americhoice revenues are eleven percent of UHC's gross revenue from premiums, which gives a similar profit ratio to what I found for Wellcare.

By the first quarter of 2010, UHC has increased its profit margin based on expenses as a percentage of the premium up to 20.1%.  Page 5 of the report makes the interesting statement that "prior period
favorable development reflecting lower medical costs" is responsible for the increased profit margin.  Again, I am not an economist but that does sound, to me, a fancy way of saying cutting services regardless of whether or not they are medically necessary.

UHC's report does not mention the company's monthly capitation payment from the state of Hawaii.  Sources tell me it is slightly higher than Wellcare's even though Wellcare serves more people.  At about $1.2 million a day, UHC would be receiving $438 million dollars a year from Hawaii.   That figure represents about half of one percent of the company's total revenues from premiums.  Hawaii's membership in Evercare that is generating that income, however, is only one-tenth of a percent of the company's total health benefits membership. 

It's obvious that capitated Medicaid programs generate huge profits for the companies.  Those profits can only be realized if medical expenses are reduced as much as possible in relation to the set amount per month that each company receives for each individual enrollee.

I reported last week that deaths under Medicaid care had increased 36% since UnitedHealth and Wellcare took over the care of Hawaii's elderly, disabled and blind population. 

Cutting costs equals more profits equals more deaths. 

It's such an abhorrent concept that I am forced to wonder whose idea it was to institute such an inhumane system in the state of Hawaii.  And who, faced with multiple on-going federal investigations, is continuing to keep the capitated Medicaid system alive and kicking.