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Commonwealth Fund: For-Profit Medicaid Managed Care Plans Spend More on Administrative Costs

Medicaid managed care plans that are owned by publicly traded, for-profit companies spent an average of 14 percent of premiums on administrative costs, higher than the average of 10 percent spent by non-publicly traded plans, according to a Commonwealth Fund study. The non-publicly traded plans are owned by groups of health care providers, health systems, community health centers, or clinics.

"Managed care plans represent a large piece of Medicaid’s future, and plans owned by publicly traded companies will likely be a growing share of this market," said lead author Michael McCue, a professor at Virginia Commonwealth University. "In order to assure that Medicaid provides high-quality, efficient health care, it will be crucial that state Medicaid directors responsible for managed care contracts take into account publicly traded plans' commitment to Medicaid and whether they are striking the right balance between providing high-quality care to patients and increasing earnings."

State officials were discussing Medicaid and managed care at this week's National Medicaid Congress, and at least one health care official at the conference said his state was moving away from the capitated model.

Mark C. Schaefer, director of Connecticut's Medical Care Administration, said his state changing course because managed care plan officials haven’t convinced the state that model is more efficient. 

In the Commonwealth report, 27 percent of the publicly traded Medicaid-only plans reported quality measures and scored lower on these measures compared to non-publicly traded plans; they scored 13 percentage points lower when it came to managing chronic illness, and 11 percentage points lower on a composite score measuring preventive care.

According to the report, "Assessing the Financial Health of Medicaid Managed Care Plans and the Quality of Patient Care They Provide," Medicaid managed care enrollment is increasing and the authors anticipate that trend will continue.

In 2009, the Centers for Medicare and Medicaid Services reported that 72 percent of Medicaid enrollees were fully or partially covered by a managed care plan, up from 55 percent in 2000. The number of enrollees in managed care plans owned by publicly traded companies jumped significantly—from 5.6 million to 9.8 million people between 2004 and 2009.

"This report shows us that it is possible for health plans to keep administrative costs down and quality high for Medicaid beneficiaries," said Commonwealth Fund President Karen Davis. "Millions of people are already covered by managed care plans, and millions more will be added to their ranks when Medicaid is expanded in 2014 under the Affordable Care Act. Now is the time to ensure performance of private contractors to assure that scarce resources are used wisely and patients get the high quality health care they deserve."

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