No easy solution: Medicaid managed care and fee-for-service both fail


With the dramatic expansion of Medicaid under the Affordable Care Act (ACA), states have taken to outsourcing the program to private insurers. Medicaid now covers 75 million low income Americans at a cost of $600 billion annually. Traditional Medicaid contracts with doctors who provide care and are paid fee-for-service from the state. In these new Medicaid managed care arrangements, the states force people with Medicaid into private insurers who maintain a narrower network of providers. The state then pays a fixed fee per patient per month to the insurer. The insurer gets to keep what they don’t spend. Now billions of dollars are flowing to these private insurers with little accountability or evidence of quality or savings. While fee-for-service has always received a bad rap as wasteful, managed care is turning out to be not much better: States paid $300 billion annually to Medicaid insurers, up from $60 billion a decade ago. “If anything, our results suggest that the shift to Medicaid managed care increased Medicaid spending,” said researchers at the Congressional Budget Office and the University of Pennsylvania in a 2013 study. But Medicaid is excellent business. Centene, a California based Medicaid insurer, has seen its stock sore 400 percent since the launch of the ACA and its CEO is the highest paid executive in the health insurance industry.

There may be no easy solution. But giving insurers (and providers) monopolies by forcing patients into plans with narrow networks is a recipe for disaster. Only when data on price and quality is simple and transparent, and when patients can vote with their feet will insurers and providers get honest and compete. (Also, fee-for-service is an underrated and underappreciated consumer tool for imposing accountability). Those options may not be perfect, but it is better than all the alternatives.


Read: As Billions In Tax Dollars Flow To Private Medicaid Plans, Who’s Minding The Store?

Read: Has the Shift to Managed Care Reduced Medicaid Expenditures?

Read: Medicaid Managed Care Spending in 2017

Read: Total Medicaid Spending FY 2017

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