NCPA - National Center for Policy Analysis

Benefits and Challenges of Medicaid Managed Care

October 25, 2012

The rising cost of Medicaid has created a crisis for the program that places many beneficiaries at risk. To address the problems of insufficient access to health care and lack of coordination, states began to contract with private insurers with what is now known as Medicaid Managed Care Organizations (MCO), says Robert Book in Forbes.

  • Individual beneficiaries select the MCO plan of their choice, which may provide additional benefits beyond what Medicaid requires.
  • These MCOs provide some services that can't be provided by the fee-for-service framework, such as disease management and innovations in care coordination.
  • By 2010, these MCOs provided coverage for 53 percent of all Medicaid beneficiaries in 35 states.
  • One study found that in 24 states, Medicaid managed care resulted in a reduction in per-beneficiary spending.

States regulate these MCOs in order to ensure they are actuarially sound. Actuarial soundness refers to the concept that monthly rates paid for a health plan are sufficient enough to cover its population to ensure that it doesn't go bankrupt. In the case of Medicaid managed care, the Centers for Medicare and Medicaid Services are charged with approving how much states pay to MCOs. However, it is difficult to assess how much money is actually needed, which could result in inadequate funding.

Setting actuarially sound rates is of utmost importance to beneficiaries. Insufficient rates would force MCOs to reduce payments to providers which would make it difficult to enroll further providers. Moreover, MCOs may cut back on services or go bankrupt altogether.

To set correct rates, states have several options at their disposal. In order to prevent MCOs from only attracting healthy enrollees, some risk adjustment needs to take place in which the state pays higher rates for enrollees that have higher costs. One way this is accomplished is through establishing risk cohorts for patients with similar health needs. These cohorts would put similar people in one category and create different rates for each cohort. Another method would be to do risk adjustment at the individual patient level.

Source: Robert Book, "Benefits and Challenges of Medicaid Managed Care," Forbes, October 18, 2012.


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