Managed care is poised to become the dominant payment model for Medicaid, projected to save the federal program tens of billions of dollars over the next decade, according to the report, “Potential Savings of Medicaid Capitated Care,” by The Menges Group on behalf of the Association for Community Affiliated Plans. 

“States contract with managed care organizations (MCOs) on a capitation basis for a variety of reasons,” the report says. “One is that capitation creates the ability to more accurately budget upcoming Medicaid costs. MCOs also allow for clear points of accountability for facilitating access to needed health care services, effectively measuring and improving quality, benchmarking with other states to see how their populations’ health compares, and attaining available cost savings.” 

The report estimates that the MCO model delivered nationwide Medicaid savings of $7.1 billion in 2016, assuming that provider unit prices paid by Medicaid MCOs are equivalent in the aggregate to Medicaid fee-for-service levels. Over the next 10 years, the savings from existing capitation programs are projected to total $94.4 billion.

However, had all remaining Medicaid fee-for-service expenditures been transitioned to managed care, the savings for 2017 would have been $5 billion — and over the next decade, the projected savings would total $63.2 billion, while the federal savings over this 10-year time period would be $35.7 billion. These projected savings are also contingent on provider unit prices remaining at Medicaid FFS levels, on average. 

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“Coordinated care is yielding significant savings to the Medicaid program when unit prices are held at Medicaid FFS levels — and the potential for large-scale additional savings through expansion of the Medicaid MCO model clearly exists,” the report says. “The capitated model has earned its emerging role as the dominant form of Medicaid coverage and Medicaid spending through its proven cost effectiveness and favorable impacts on access and quality.” 

ACAP chief executive Margaret A. Murray says that 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,” Murray says. “If states are allowed to compromise or waive actuarial soundness, plans will consider dropping out of the Medicaid program. And states and Congress will be back at square one.” 

The report also draws “a sharp contrast” to the nearly $800 billion in cuts to Medicaid spending currently under contemplation on Capitol Hill, she says. 

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