On October 19, 2005, U.S. Department of Health and Human Services (HHS) Secretary Michael O. Leavitt and Florida Gov. Jeb Bush (R) announced the federal government has approved Florida's Medicaid transformation plan.

The state's formal Medicaid waiver application was submitted to the Centers for Medicare and Medicaid Services (CMS) on October 3 for federal approval. A state-run program, Medicaid is funded in part by the federal government (in Florida, about 60 percent), and states must receive a waiver to proceed with reform.

"This federal approval is recognition of the value of patient choice, coordination of care, and the healthy competition spurred by Florida's Medicaid program," said Bush. "By overhauling Medicaid, Florida is creating a system that empowers patients and expands access to best serve our most vulnerable citizens for years to come."

The first significant overhaul for the state Medicaid program in three decades, Florida's reform plan attempts to modernize an outdated program and bring predictability to state spending. Currently costing Florida and federal taxpayers $15 billion a year, the cost could consume nearly 60 percent of the state's budget by 2015 if left unaddressed, according to the state's Agency for Health Care Administration (AHCA).

Patient-Centered System

Guiding principles of the plan include:

• Customized benefit packages: With the help of independent choice counselors, participants will be able to select a health plan that best meets their needs.
• Medicaid participants will be able to opt out of Medicaid entirely and use their state-allocated Medicaid premium to participate in their employer-sponsored health care plan.
• Credits for approved health-related expenses--such as over-the-counter medications, smoking cessation classes, and other currently non-covered health services--will encourage participants to make healthy lifestyle choices, improving health and lowering acute-care costs while providing access to health services not covered by Medicaid.
• Transparency: All plans will be required to collect and report information such as consumer satisfaction, percentage of children who receive annual physicals and preventive dental care, and waiting times for customer assistance.

Provider Flexibility, Incentives

Under the reform, provider groups will have greater flexibility in forming and designing benefit plans that serve the medical needs of enrollees, under strict oversight from the state. According to the AHCA Web site, providers will attract membership on the basis of their benefit packages, innovative care, convenient networks, and optional services.

For example, said Levine, an insurer might choose to provide a plan for children covering 25 days of in-patient hospitalization rather than the current 45 days and set aside the actuarial premium dollars (the dollars set aside specifically for payment of benefits)or other services--such as respite services for families of critically ill children, something not previously offered. "Then the plan must show that the dollars are going to increase benefits elsewhere if experience has shown that children don't generally use 45 days of hospitalization," Levine said.

Consumer satisfaction data collected by the state will help participants make informed choices about which plan best fits their needs. Because the old Medicaid system "pa[id] claims first and identifie[d] fraud later," there was virtually no certain way to control fraud and abuse, according to the AHCA Web site. The reforms will give health plans a financial incentive to guard aggressively against fraud. Plans will be required to report overpayments to the state and will be able to identify fraudulent providers within their networks.

"Reforming Medicaid is critically important," said Jonathan Burns, spokesman for AHCA. "We believe strongly in the importance of transforming Medicaid into a system centered around the patient. By giving patients choice, and providers incentives for preventive care, early identification of illness, and effective disease management, we'll create a sustainable Medicaid program that can truly meet the needs of patients."