AcademyHealth
March 2005
Managed Care Mandates Fall Short of Curbing California Medicaid Costs
By Bonnie J. Austin, J.D.
Over the past several years, growth in Medicaid spending has far outpaced the growth in state tax revenues and now accounts for nearly 22 percent of total state government spending. Rapid health care cost increases during the 1990s led many state governments to shift Medicaid recipients into managed care plans in an effort to control costs. The conventional wisdom at the time suggested that states would save money as a result. Like many other states, California sought relief through managed care; it passed legislation to foster enrollment and county by county, Medicaid recipients moved from a fee-for-service (FFS) system to managed care plans.
To shed light on the effects of transitioning beneficiaries from FFS Medicaid to Medicaid managed care, Mark Duggan, Ph.D., and colleagues from the University of Maryland and the National Bureau of Economic Research examined how mandatory enrollment in managed care has affected both spending and health outcomes for California Medicaid recipients. They found that despite a dramatic increase in Medicaid managed care enrollment-from less than 12 percent in 1993 to 51 percent in 1999-there was neither a significant reduction in spending nor improved health outcomes.
“Our findings suggest that managed care contracting reduced the efficiency of the Medicaid program in California,” says Duggan. “In fact, Medicaid spending appeared to increase by almost 20 percent following the shift to managed care and persisted long after the mandates first took effect” (suggesting that they are not simply driven by startup costs of a new plan).
The researchers also found that the switch from FFS to managed care did not lead to significant improvements in health outcomes.
Although the burden of administrative costs on the health care system is enormous, Duggan did not have data on these costs. Nevertheless, anecdotal evidence suggests that the shift from FFS to Medicaid managed care contracts resulted in increased administrative costs for the state. Therefore, the increase in Medicaid spending resulting from the shift to Medicaid managed care in this project may be understated.
Clearly, California’s goal of reducing Medicaid expenditures by shifting beneficiaries from FFS to managed care plans was not successful. While these results may not apply across the board, policymakers should consider the possibility that managed care may not be the mechanism through which to curb budget shortfalls.
http://www.hcfo.net/pdf/findings0305.pdf
Comment: Many explanations can be given as to why private takeover of publicly administered health care financing programs have failed to deliver on the promise of higher quality at lower cost. One more quote from this brief provides further insight: “…commercial plans will contract with Medicaid only if they believe that they can earn a profit…”
It may seem obvious that the lesson learned from this (and innumerable other studies) is that we should reject the private plans and work on adopting more efficient, publicly administered health care coverage for all of us. But our resistance to public solutions has caused policymakers to turn elsewhere. They have decided that we should control the costs of coverage simply by reducing what is covered. This works very well for those of us who are and will remain healthy, and it relieves us of the burden of being our brother’s keeper. Why should we assume any greater responsibility?
(That last rhetorical question was prompted, in part, by this quote from an e-mail that I received from a very dedicated physician: “Policy science is behind a lot of stuff that isn’t and won’t happen.”)
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