Unbiased Analysis of Today's Healthcare Issues

Do Medicaid Managed Care Organizations Save Money?

Written By: Jason Shafrin - Sep• 28•10

In the 1990s, State Medicaid programs turned to Managed Care Organizations (MCOs) to reduce costs.  States such as Florida, Indiana, Kentucky, Louisiana, Missouri, Ohio, South Carolina and Texas attempted to turn over their entire Medicaid programs to MCOs through waivers.  For instance, in 2007 MO HealthNet mandated managed care for all participants by 2013.

Some of the larger Medicaid MCOs are subsidiaries of large insurance groups.  Two examples include WellPoint Health Networks and AmeriChoice (a Medicaid-only subsidiary of United Health Group, Inc.).

Do MCOs offer better care at lower costs than State governments?  Laura Katz Olson believes not.  Many Medicaid MCOs instituted “gag rules” which controlled what physicians could disclose to their patients about treatment options.  Other MCOs gave bonuses to physicians who limited services to their patients.

A study by Mark Duggan (2004) found that “the resulting switch from fee-for-service to managed care was associated with a substantial increase in government spending but no corresponding improvement in infant health outcomes. The findings cast doubt on the hypothesis that HMO contracting has reduced the strain on government budgets.”

Another study by Landon et al. (2007) found that “the performance for the commercial population exceeded the performance for the Medicaid population on all measures except 1, ranging from a difference of 4.9% for controlling hypertension (58.4% for commercial vs 53.5% for Medicaid; P = .002) to 24.5% for rates of appropriate postpartum care (77.2% for commercial vs 52.7% for Medicaid; P = .001). Differences of similar magnitude were observed for commercial and Medicaid populations treated within the same health plan.”

One alternative to compelling  beneficiaries to enroll in MCOs is to allow them to choose which MCO they want.  In 2006, Florida Governor Jeb Bush began an “empowered care” pilot which gives Medicaid beneficiaries a subsidy based on their health status and prior use of health services.  Beneficiaries could use the subsidy to buy their own health insurance if they wished.  Because of limited government oversight, low physician participation rates, and a lack of clarity of the benefits which were covered, the Florida inspector general found that MCOs have “too few specialist, untimely access to care, inaccurate information about resources and patient needs, and inaccessible drug coverage information and consumer service phone numbers.”

Although I am in favor of additional patient choice, additional transparency is needed in order for patient choice to work.  Even if beneficiary choice improve satisfaction, one must still worry that risk adjustment will be imperfect and MCOs will “select” the healthiest beneficiaries to enroll in their plan.

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One Comment

  1. [...] of shredding the safety net, Jason Shafrin over at the Healthcare Economist asks the question Do Medicaid Managed Care Organizations Save Money? He cites several studies showing that managed care options within the ultimate patient safety [...]

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