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Boom in Managed Care Alters Medicaid's Calculations

By Rebecca Adams, CQ HealthBeat Associate Editor

August 6, 2014 -- Health insurance companies have not always been eager to cover Medicaid recipients, in part because some low-income people have complex medical needs and don't have all the resources that help wealthier people stay healthy.

But that reluctance has turned to enthusiasm in recent years as more states have switched their Medicaid programs to managed care plans, some of which seek to control costs by, among other steps, limiting a patient's choice of physicians and the fees that doctors charge. Some health insurers cover Medicaid patients in return for a flat monthly payment from the government. The expansion of Medicaid to many more low-income Americans under the 2010 health care law is making the program even more attractive to insurers.

As a result, federal spending on Medicaid managed care is expected to increase 39 percent, from $74 billion in 2013 to $103 billion in 2015, according to the Congressional Budget Office (CBO). The higher federal spending, as well as the enrollment of 13 million people in plans through new insurance marketplaces, makes it more attractive for health plans to offer government-financed coverage.

Though states manage their own Medicaid programs and pay for part of the cost, they must get federal permission to make big changes. In the Obama administration, the Centers for Medicare and Medicaid Services (CMS) is drafting regulations for Medicaid managed care that are being closely followed by lobbyists.

Insurance companies that provide managed care coverage are lobbying for as few new regulations as possible, as are the states that run the programs.

The first step for CMS, however, has been to gather more data, because it's not clear that managed care is universally better for consumers or taxpayers than the traditional fee-for-service program that allows patients to see any doctor that accepts Medicaid.

"There's an increasing recognition that we really don't have data of the quality and rigor that are needed to answer the quality and access and cost questions that everyone is interested in," says Julia Paradise, a Medicaid expert at the Kaiser Family Foundation. "It's hard to assemble a coherent national picture. It's hard to make categorical statements about whether managed care is a good thing or bad thing, or something in between."

As part of its efforts to learn more, CMS is conducting another survey. The agency contracted with NORC, an independent research organization affiliated with the University of Chicago, to poll an additional 1.5 million Medicaid beneficiaries. The results are expected next spring. Federal officials appear to be exploring whether additional quality reviews should be added to requirements for managed care plans.

One complaint that federal officials already started to address about health plans offered in the new marketplaces under the health care law is that some plans allow patients to use only a limited number of doctors, hospitals and other medical providers. Federal officials are urging health care plans in the insurance exchange to create larger networks of providers. CMS may consider whether similar action is needed for Medicaid managed care plans.

Some states report saving money through managed care plans, which typically limit patients to a network of medical providers, but there isn't evidence that such plans save money nationwide. Some studies suggest that managed care gives patients better access to treatment, but not all reach that conclusion.

"It's an issue that's important to keep an eye on," says Joan Alker, executive director of the Georgetown University Center for Children and Families, who doesn't view managed care as inherently positive or negative. "We do want accountability for these taxpayer dollars and to ensure that beneficiaries are going to receive high-quality care."

Almost 72 percent of people covered by Medicaid now are in some kind of managed care, including a version that pays doctors and other providers largely for the services they give but also offers them more money to coordinate patients' care, according to the federal commission that provides policy and data analysis on Medicare and the Children's Health Insurance Program.

About half of Medicaid beneficiaries are in the type of managed care in which plans are paid a preset amount to cover all of a patient's medical needs. In 1995, just 15 percent were in such programs.

Most states embarked on their managed care strategies years ago by shifting families with children, who are relatively inexpensive to treat, into the plans. A growing number of states have since moved over more costly patients with complex medical problems, including disabilities.

In addition, CMS officials encouraged some states to direct people who are eligible for both Medicaid and Medicare, the federal program for seniors and people with disabilities, into managed care through a demonstration program.

Thirty-six states and the District of Columbia contract with risk-based Medicaid managed care plans, according to the Medicaid Health Plans of America, which represents managed care organizations.

The health care law (PL 111-148, PL 111-152) allows states to choose whether to expand eligibility to more people. Starting this past January, states can cover low-income people with income of up to 138 percent of the federal poverty level. The 27 states including the District of Columbia that broadened eligibility are enrolling many of those people in managed care.

"The Medicaid market has changed irrevocably," says Matt Salo, executive director of the National Association of Medicaid Directors. "We're not going back to uncoordinated fee-for-service, so now how do we pivot as government officials, state and federal, to best maximize that and prepare for the future?"

States' experiences with managed care have brought mixed results, according to an analysis of 20 studies by the Robert Wood Johnson Foundation in 2012 and a separate 2012 paper by the Kaiser Family Foundation.

"There is little evidence of national savings from Medicaid managed care," said the Robert Wood Johnson report, by Columbia University School of Public Health professor Michael Sparer.

A 2011 paper by the National Bureau of Economic Research found that "shifting Medicaid recipients from fee-for-service into [managed care] did not reduce Medicaid spending in the typical state" from 1991 through 2003. On average, moving to managed care "did not lead to lower Medicaid spending."

That 2011 study did find that in some states that already generously paid medical providers in the traditional program, health care plans were able to reduce spending somewhat. The opposite was true in states that paid low rates to providers in the traditional program.

The Kaiser Foundation found that managed care may have the potential to save money over time by avoiding expensive hospitalizations through encouraging preventive or primary care and managing patients' chronic conditions. But savings "are unlikely in the short term," the paper found, "and budget-driven efforts to achieve savings from managed care could have adverse consequences for beneficiaries' access to needed care."

Even in some states where managed care plans haven't been more cost-effective than regular Medicaid, though, state officials like managed care because they can predict their costs more accurately.

Risk-based managed care plans are paid predetermined monthly rates for each person they enroll, while under the traditional fee-for-service program, state officials pay for each medical service that a patient receives.

One concern about the managed care plans, though—and one that might lead to regulation—is that they may spend fewer of their premium dollars on medical claims than insurers that cover other populations.

The 2010 health care law requires private insurance plans to spend at least 80 percent of their premium revenues on medical costs or initiatives to improve the quality of patients' health care, instead of on administrative costs or profits. Large group plans and Medicare plans must spend at least 85 percent of premiums on medical care. But no such federal requirement, known as a medical loss ratio, exists yet for Medicaid.

Eleven of the states that responded to a 2011 survey by the nonpartisan Kaiser Family Foundation reported that they have a state requirement that Medicaid plans spend at least 80 percent of premiums on medical costs.

But the Health and Human Services inspector general found that plans that did not meet state requirements often failed to pay states back the excess revenue that the plans had inappropriately kept, as they are supposed to do.

Federal officials have told Medicaid directors privately that CMS may add a minimum spending requirement for managed care plans, to match the responsibilities of other insurers, as part of the proposed rule.

Medicaid directors have written to say they don't like that idea. But if federal officials insist on adding a medical loss ratio requirement, then state officials suggest that several types of efforts by plans, including anti-fraud initiatives and programs to manage the care of people with serious health needs, be counted as medical costs rather than administrative costs.

One area where Medicaid managed care plan lobbyists say they do better than traditional Medicaid is in paying doctors. A Government Accountability Office analysis released last month found that managed care plans paid doctors 12 percent more than fee-for-service plans did. Industry lobbyists say the extra money entices more physicians to accept Medicaid managed care patients.

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