Medicaid Managed Care: Costs, Access, and Quality of Care

Introduction to Medicaid and Managed Care

Medicaid is a type of health insurance provided and funded by the federal government and individual states to provide coverage to eligible low-income adults, children, elderly adults, pregnant women, and individuals with disabilities. Managed care is a health care delivery system organized to manage cost and quality. The use of managed care in Medicaid is intended to deliver Medicaid health benefits and additional services through contracted arrangements between state Medicaid agencies and managed care organizations (MCOs). By contracting with different types of managed care organizations, states can reduce Medicaid program costs, better manage the use of health services, and enhance health care quality (Medicaid.gov).

Medicaid Managed Care is a federally sponsored medical care system designed to deliver quality care and to reduce the cost of health care. It is jointly funded by federal and state governments. Medicaid has increased access to care and reduced the cost of care by providing covered individuals with basic health care services and other health benefits through MCOs. MCOs accept payments from state Medicaid agencies for the health care services rendered. The main objectives of Medicaid are to enhance health care quality, to improve health care performance, and to achieve better health care outcomes for American citizens (Medicare and Medicaid, 2014).

Types of Managed Care Plans and Cost Savings Evidence

There are four basic types of managed care plans used by Medicaid: Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), Point of Service plans, and Exclusive Provider Organizations (Nourie, 2013). Each type has its own rules and regulations, which generates competition among plans. For example, under an HMO plan a member must select a primary care doctor, may only use doctors or hospitals approved by the plan, and needs referrals to see specialists (Nourie, 2013). By contrast, a PPO plan is more flexible: there is no requirement for a primary care doctor and members can see any doctor they choose, even outside the plan's network, for an additional cost (Nourie, 2013). These differences among the managed care plan types offered through Medicaid create competition that affects costs, quality, and the utilization of health care services.

The majority of Medicaid enrollees are part of a Medicaid managed care plan. In fact, seventy percent of the sixty million Medicaid beneficiaries are enrolled in a Medicaid managed care plan (Charlson, Wells, Balavenkatesh, Dunn, & Michelen, 2014). Even with the increase in Medicaid managed care participants, the results on cost savings have not been uniformly strong. Certain Medicaid managed care plans have shown signs of cost savings by reducing inpatient use, but according to an analysis of Medicaid managed care mandates across all fifty states from 1991 to 2003, the overall effect on costs has been insignificant (Charlson et al., 2014). It is important to investigate the reasons behind this negligible effect. According to an analysis published in BMC Health Services Research, patients with higher comorbidity incur higher costs, suggesting that high-comorbidity patients may be a productive starting point for cost savings in Medicaid Managed Care plans (Charlson et al., 2014). A limitation of this analysis was that it was based on only one Medicaid Managed Care plan at one hospital in New York City (Charlson et al., 2014).

Other studies on the savings impact of Medicaid managed care plans have produced mixed results. They have identified two potential sources of savings: reduced use of hospitals and other high-cost health services resulting from improved primary care access, and better care management (The Henry J. Kaiser Family Foundation, 2012). In some states, fee-for-service payment rates are so low that producing savings is difficult; studies showed that Medicaid managed care contracting in those same states also failed to reduce costs significantly. By contrast, in states with higher fee-for-service payment rates, Medicaid managed care contracting did show a reduction in spending and therefore resulted in savings (The Henry J. Kaiser Family Foundation, 2012). Therefore, the primary goal for Medicaid managed care plans should be not only to focus on high-comorbidity populations but also to improve access to preventive and primary care in order to reduce the risk of hospitalization and other high-cost medical services. Attention should also be directed toward more effective management of individuals with chronic illnesses, since these conditions are long-lasting and require sustained spending. As Medicaid Managed Care plans grow and expand in the future, cost reductions and savings are expected to become more evident over the long run (The Henry J. Kaiser Family Foundation, 2012).

Primary Care Case Management vs. Risk-Based Capitation

One of the main motivations for introducing managed care into Medicaid was to reduce costs while enhancing quality and access. Two general models that were implemented, among others, are primary care case management and risk-based capitation programs (Ae-Sook & Jennings, 2012). Risk-based capitation enrollment has been increasing at a much faster rate than primary care case management enrollment. In a primary care case management plan, the enrollee must choose a primary care doctor who is responsible for the enrollee's care in exchange for a monthly fee, in addition to payments provided for medical services (National Council on Disability, 2013). This can also be considered a fee-for-service plan. The risk-based capitation model follows a different framework — similar to the HMO model — in which the plan receives a fixed payment from the state per member per month (National Council on Disability, 2013). This arrangement places the risk of any additional expenses on the health plan or the participating provider.

The risk-based capitation model is considered more widespread than the primary care case management model because it demonstrates greater efforts to control cost and utilization while also enhancing access and quality (Ae-Sook & Jennings, 2012). The majority of Medicaid Managed Care enrollees in 2008, particularly among children and adults, chose comprehensive risk-based plans, whereas primary care case management plans had the fewest enrollees across all groups (National Council on Disability, 2013). Risk-based capitation plans are more effective at controlling costs, improving quality, and enhancing access because the physicians operating under these plans are rewarded based on how much they reduce health care costs by managing patients' overutilization behaviors (Ae-Sook & Jennings, 2012). Primary care case management physicians, by contrast, have less financial incentive to provide less expensive or more effective services, since they are paid based on the volume of services they provide (National Council on Disability, 2013). The same general ease of access to quality health care facilities applies to individuals with Medicaid insurance relative to those who are uninsured.

Conclusion and Future Directions for Medicaid Managed Care

Since the 1990s, states have been transitioning their Medicaid programs to Medicaid Managed Care programs in the hope of achieving reductions in spending, better access to care, improved utilization of services, and enhanced quality of care. Medicaid covers sixty million Americans, seventy percent of whom are enrolled in a Medicaid managed care plan (Charlson et al., 2014). The two primary models that states typically choose between are primary care case management plans — which resemble fee-for-service arrangements — and risk-based capitation plans. Based on the studies reviewed, risk-based capitation plans are more effective with respect to cost savings but are also more limited in their adoption because not all states can recruit a sufficient provider network to sustain them. Overall, Medicaid managed care plans have not demonstrated significant cost savings at the national level, but have shown some modest savings in certain states.

Studies have consistently shown that states with relatively generous reimbursement fees achieve cost savings, whereas those with low reimbursement fees do not. Most of the cost reductions observed have been attributable to decreases in inpatient utilization, reductions in emergency department visits, and lower drug and medication costs — all of which are linked to better access to preventive and primary care. The results from most studies on how Medicaid managed care plans have affected cost savings have been mixed, with no evidence of large-scale national savings.

There is a clear need for additional research, particularly at the national level, since most existing studies focus on a single state, a single Medicaid managed care plan within a state, or a specific population. Future research cannot focus solely on the effectiveness of cost reductions or quality enhancement — it must also examine other factors such as the management and administrative systems that operate each program. Nearly all of the studies reviewed in this paper indicate that modifications are needed to include the disabled and elderly in Medicaid managed care plans in order to produce higher cost savings. Ongoing provisions and modifications will always be necessary to make any health care program more effective and beneficial to both the state and its enrollees.

References

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