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Cost Savings Strategies for the South Carolina Medicaid Program
October 2001

FOLLOW-UP (PDF)     REPORT (PDF)     SUMMARY (PDF)

This is our second report on the Department of Health and Human Services’ (DHHS) management of the state Medicaid program. Medicaid provides health care for eligible recipients, and is jointly funded by federal and state dollars. Eligible recipients are those who receive cash assistance, as well as children, pregnant women, the disabled, and the elderly who meet income and resource requirements.

Our first report focused on issues involving Medicaid fraud and abuse, prescription drugs costs, and state funding. Based on additional concerns of the audit requesters, we reviewed three other areas, with the goal of identifying cost savings without cutting back on services to Medicaid recipients.

The following questions were examined in this report.

  • Would greater use of managed care improve the cost-effectiveness of the Medicaid program?
  • How could the current Health Insurance Premium Payment (HIPP) program result in cost avoidance for DHHS?
  • Is the contract with the Department of Social Services the most efficient and cost-effective way to perform the Medicaid eligibility function?

Our findings include the following.

  • Compared to other states, a very low percentage of Medicaid recipients in South Carolina were enrolled in managed care programs such as HMOs (health maintenance organizations). South Carolina, with only 5% of Medicaid recipients enrolled in managed care, ranked the lowest among ten southeastern states, which averaged 50% of Medicaid recipients in some form of managed care.
  • While many states have encountered problems in expanding managed care to greater numbers of recipients, officials in the states we surveyed believed that managed care has reduced costs and expanded access to medical services. Research has shown that states typically discount managed care rates at 5% – 15% of regular Medicaid costs. Based on a 10% savings estimate, an expansion of the managed care program to include all Medicaid-eligible children and families in 19 counties could save an estimated $21 million in federal and state funds.
  • DHHS’s own policies may have limited the expansion of Medicaid managed care in South Carolina. For example, DHHS has no "lock-in" policy. Medicaid recipients are allowed to terminate their enrollment in a managed care plan at any time and to change their enrollment status on a monthly basis. This can destabilize plan membership.
  • DHHS has contracted for an independent, third-party review to study the cost-effectiveness of its managed care program. However, this study may not be completed for several months.
  • The Health Insurance Premium Payment (HIPP) program allows DHHS to pay for employer-based group health insurance for Medicaid-eligible individuals when it is cost-effective. By paying the premiums and deductibles for private health insurance, DHHS can shift some healthcare costs from Medicaid. Using the experience of successful HIPP programs in other states, we estimated that South Carolina could save $1,314 per recipient. DHHS staff believe that this program can be expanded to cover up to 5,000 recipients, but the current structure of the program limits its expansion. If the HIPP program were expanded to 5,000 participants, an estimated $6.57 million in federal and state funds could be saved.
  • One of the largest administrative expenses incurred by DHHS is the cost of determining eligibility for Medicaid. The bulk of this cost is a $33.8 million contract between DHHS and the Department of Social Services (DSS). DHHS pays Medicaid funds to DSS to provide staff in county DSS offices to take applications and determine eligibility for Medicaid.
  • More than 50% of the expenditures charged to Medicaid under the eligibility contract are for DSS’s allocated and indirect costs. DHHS does not know how many DSS workers it is paying for, and how many workers are actually needed to perform the job efficiently. Workloads by county are not standardized, ranging from an average of 9.5 applications per worker to an average of 57 applications per worker per month.
  • DSS eligibility staff located at the county social services offices cost on average $60,151 per person in FY 99-00, while out-stationed DSS staff located at hospitals and healthcare facilities cost on average $39,513.

If the contract with DSS was revised and some of the staff costs were eliminated, we estimated that $4.8 million in federal and state funds could be saved.