It’s been five years in the making, and it’s almost free from the budget stalemate.

When Republicans quashed Gov. Roy Cooper’s veto in the House, they passed the funding for an ambitious overhaul of North Carolina’s Medicaid system. 

House Bill 555, Medicaid Transformation Implementation, would privatize the management of Medicaid by contracting it out to third-party health insurers. Its funding was trapped in the budget stalemate, delaying the transformation. Cooper also vetoed H.B. 555, a standalone measure.

But if the Senate follows the House — which overrode Cooper’s budget veto early Wednesday, Sept. 11 — the state would roll the program out in February.

In theory, the change would not only put a ceiling on spending, but also restructure how the money is spent in the first place. 

The overhaul aims to rebuild the incentives of providers and payers. In exchange for monthly payments, five health insurance companies will take over management of the state’s $14 billion Medicaid program and begin to push it toward value-based care — the hottest trend in health care today. 

“North Carolina is one of the last remaining states that hasn’t gone to managed care,” said Katherine Hempstead, Robert Wood Johnson Foundation senior policy adviser. “It’s definitely the normal now for beneficiaries in managed care, especially in the expansion populations.”

The reforms aim to gut the incentives of the current payment system to overspend on health care.

“Another entity is at risk for the costs, so they’ve got an incentive to keep costs down by keeping people healthier,” says Emily Blanford, National Conference of State Legislatures program principal. “Keeping them healthier helps prevent those more costly interventions that can come along when you don’t get that access to primary care.”

That incentive to control costs is the major reform of the new model. Under the current model, providers can rack up charges for any service they provide, even the unnecessary ones, and bill the government with impunity.

“It’s easy to game that fee-for-service system,” said Jordan Roberts, John Locke Foundation health care policy analyst. “You bill whoever, and they write a check. It’s an easy way to get more money as a provider.”

The overhaul is an ambitious project almost five years in the making. The state plans to pay the companies an estimated $30 billion over five years to cover 1.6 million North Carolinians who will make the shift. The overhaul includes aggressive reforms that aim to focus on patients’ health outcomes, the promise value-based care offers over the current system. 

“It brings budget predictability to the state. We’ll no longer have the cost overruns of literally hundreds of millions of dollars that we’ve had in the past,” Rep. Josh Dobson, R-McDowell, said. “Once we can get this thing across the finish line, I think the Medicaid population, the providers, and the state will benefit in the long run.”

But seniors and people with disabilities are concerned. Most of Medicaid spending goes to those two groups, and so each stands at risk for cost cutting. In Iowa, disabled rights advocates have filed multiple lawsuits alleging the managed care companies slashed services to disabled people.

“Over that first year, we really started to get a lot of phone calls,” Disability Rights Iowa Legal Director Cyndy Miller said. “We were seeing a pattern, seeing cut after cut of services, without a rationale, which led us to believe that the insurance company was making money on the backs of people with long-term disabilities, who are not going to go to the doctor and get better.”

In Iowa, managed care has spiraled into its own debacle. Several managed care companies have pulled out of the state, citing low reimbursement rates and uncontrollable costs.

“You might think: Contracting it out is so easy. Well, there’s a lot of things the state has to do right to make it not be a disaster,” Hempstead said. “It’s not like the state can just walk away. There’s a lot of things it has to do to get it right.”

More than two-thirds of all Medicaid beneficiaries in the U.S. are covered by managed care organizations. And in the private market, still more Americans with health insurance coverage through their employer use some form of managed care, according to the Kaiser Family Foundation. 

Medicaid managed care first took off after Uncle Sam gave states more flexibility in structuring their Medicaid programs in the 1990s. But states’ use of managed care for Medicaid skyrocketed with the adoption of the Affordable Care Act. 

“With all that new enrollment, states began looking for ways to better spend money and hopefully find savings,” Blanford said. “When done well, managed care will help people get better, more consistent access to primary care and preventative services.”

North Carolina is making its switch to managed care in an unorthodox way. While other states are looking to roll mental health into managed care, North Carolina has run a mental health managed care program for years.

North Carolina has experimented with managed care programs in Mecklenburg County, but those programs never grew into a statewide transformation, said Lanier Cansler, a former DHHS secretary. 

“In Medicaid, except for a couple pilot programs, we’ve never been in managed care before,” Cansler said. “They ultimately were eliminated, partly because not all the providers were happy with the way it was working, and secondly because there was no real data maintained to determine how effective it was.”

North Carolina plans to make the transition in February if the funding goes through.

“There’s always a transition period to learn the ropes. Patients need to learn the rules, and so do physicians,” said Deborah Freund, American Society of Health Economists executive director. “The transition is difficult for everyone, and that has nothing to do with the managed care organization.”