- Associated Press - Sunday, April 13, 2014

RICHMOND, Va. (AP) - Some of the biggest health insurance companies in the country are poised to benefit from the debate over expanding Medicaid in Virginia, regardless of its outcome.

If Gov. Terry McAuliffe and the Democratically controlled Virginia Senate prevail, the state will expand Medicaid eligibility to about 400,000 low-income residents. The money to insure them - hundreds of millions of dollars a year - will be paid by the federal government to private insurance companies. Understandably, those insurers strongly favor this option.

But even if expansion efforts fail as most Republican lawmakers want, private insurance companies will still benefit. That’s because the debate over expansion has helped accelerate efforts at reforming the state’s current $8 billion a year Medicaid program.

And reforming Medicaid in large part means putting as many current Medicaid enrollees into private insurance plans - called managed care organizations - as possible.

“It’s the best of times for managed care because both sides are calling for us,” said Doug Gray, executive director of the Virginia Association of Health Plans.

Of the $2.6 billion paid spent on managed care last year, about 40 percent went to the subsidiaries of major insurers Wellpoint and Aetna.

Anthem is the largest managed care organization in the state and was paid nearly $900 million in Medicaid premiums last year. It’s owned by Wellpoint, the second-largest health insurer in the country. Aetna, the third-largest health insurance company in country, owns CoventryCares, which was paid $146 million in premiums in 2013.

Virginia’s Medicaid system operates under two systems. In the so-called “fee for service” system, health care providers are reimbursed by the state for the costs of care provided to Medicaid enrollees. The aged, blind and disabled are typically cared for in this system, which accounts for about two thirds of all Medicaid spending.

Under managed care, insurance companies are paid a flat fee to help administer care for enrollees. Healthier low-income adults and children are typically enrolled in the managed care system, which covers 70 percent of Medicaid enrollees but accounts for about a third of the cost.

Hospitals, nursing homes, state officials and others are typically supportive of managed care systems because they supposedly help lower costs while also helping provide more coordinated care for patients.

“We believe it’s a service that adds value, that’s why we’re willing to pay for it,” says Dr. William A. Hazel Jr., secretary of health and human services.

The Medicaid expansion debate, said Hazel, has helped speed up the push to move more current Medicaid enrollees into managed care.

“It made it a lot more critical,” he said.

Both Wellpoint and Aetna have purchased managed care organizations as part of an effort to capitalize on expanded Medicaid coverage, which is a key part of President Barack Obama’s health care overhaul. A Supreme Court ruling allows states to opt out of expanding Medicaid, a route chosen by about half the states, including Virginia.

Jennifer Lynch, an analyst at BMO Capital Markets, said the impact of Virginia’s decision on Medicaid expansion would be minor for both Wellpoint and Aetna because they are so large and the profit margins on managed care are modest. But from an investors’ standpoint, she added, “more coverage is generally good.”

Several states have tried to make Medicaid expansion more politically palatable to Republicans opposed to the president’s signature legislation by using private insurers.

Arkansas enacted a so-called “private option” that uses the federal money designated for Medicaid expansion to buy private insurance for low-income residents. Iowa, New Hampshire and Pennsylvania have all implemented or considered similar plans.

The Virginia Senate, with the support of three Republican senators, has proposed an Arkansas type plan called Marketplace Virginia. But since Virginia already has a well-established managed care system, its ultimate outcome would look largely like an expansion of the current system. House Republicans have rejected the Senate’s plan.

The General Assembly is currently deadlocked on what to do about Medicaid expansion. The impasse has delayed passage of a state budget and threatens a possible state government shutdown.

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