Moving All Medicaid to Managed Care Could Save Billions
Managed care models already are saving more than $7 billion this year in Medicaid. Moving all Medicaid fee-for-service to managed care could save $63 billion over a decade, a study concludes.

Managed care models already are saving more than $7 billion this year in Medicaid. Moving all Medicaid fee-for-service to managed care could save $63 billion over a decade, a study concludes.

Moving all Medicaid fee-for-service spending to a capitated managed-care model could produce total savings of $63 billion over 10 years, including $35 billion in federal savings, according to a newly released analysis.

A report from the Association for Community Affiliated Plans (ACAP) analyzes the current and potential savings to Medicaid programs around the country from the adoption of the managed care model.

The report estimates that in 2016, Medicaid managed care already results in nationwide savings of $7.1 billion, and it projects savings from these existing managed care programs to total $94.4 billion over the next 10 years.

Managed care is poised to become the dominant payment model for Medicaid, the report notes. As recently as 2010, capitated managed care represented only a quarter of total Medicaid spending nationwide. That figure rose to 48.9% of national Medicaid expenditures by 2016, and this percentage will likely continue to increase, the report says.

ACAP CEO Margaret A. Murray says the report "puts in black and white the fact that managed care can save precious Medicaid resources while at the same time maintaining a high level of access and quality care. Should Congress continue to turn to managed care's predictable budgeting and quality management tools to effect further savings, they must assure that Medicaid managed care plans are reimbursed in an actuarially sound manner."

Legislators should be pushing states to adopt the manage care model more extensively, the report suggests, targeting the potential savings of transitioning remaining Medicaid fee-for-service expenditures and beneficiary subgroups into the capitated model.

"These costs currently represent roughly half of the nation's Medicaid spending. Transitioning these fee-for-service costs to the capitated setting to the fullest extent possible is estimated to yield care coordination savings of $63.2 billion across the 2017 to 2026 10-year timeframe," the report says."

The majority of these 10-year savings ($35.7 billion or 56.5% of the total) are estimated to accrue to the federal government. The savings potential for remaining non-capitated costs is lower than for existing capitation programs because some Medicaid costs—such as [disproportionate share hospital] and [graduate medical education] payments and coverage of retrospective eligibility periods—are not 'impactable' by managed care techniques."

Managed care organizations (MCOs) bring improved quality along with the savings, the report says.

"MCO and provider performance on these access and quality fronts is being measured with ever-increasing sophistication, and these measurements are increasingly tied to performance-based payments both in state contracts with MCOs and in MCO contracts with their front-line providers," the report says.

"The results of these efforts are evident in the ongoing improvement in Medicaid MCOs' quality scores across time, both at the individual plan level and program-wide."

Murray notes that further adoption of the managed care model could save significant sums without the nearly $800 billion in cuts to Medicaid spending currently under consideration on Capitol Hill.

"There are ways to improve the efficiency of the Medicaid program, to be sure," Murray says. "$800 billion in budget cuts are simply a different order of magnitude than what innovation and system reform can provide. These cuts aren't just trimming fat from the Medicaid program. They get at muscle and bone."