Reflections on Some Failures of Medicaid Managed Care

By Frank Pasquale
In Health Law
August 28, 2011
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The Washington Post has featured two interesting pieces recently on Medicaid managed care. Christopher Weaver reported on a battle between providers and insurers in Texas. Noting that “federal health law calls for a huge expansion of the Medicaid program in 2014,” Weaver shows how eager insurers are to enroll poor individuals in their plans. Each enrollee would “yield on average $7 a month profit,” according to recent calculations. Cost-cutting legislators see potential fiscal gains, too, once the market starts working its magic.

There’s only one problem with those projections: it turns out that “moving Medicaid recipients into managed care ‘did not lead to lower Medicaid spending during the 1991 to 2003 period,'” according to a report published by the National Bureau of Economic Research this month. Sarah Kliff is surprised to find that this is “the first national look at whether Medicaid managed care has actually done a key thing that states want it to do.”

I share the frustration that we don’t have enough information on key policy issues. On the other hand, I can see why economists and other social scientists would be reluctant to pronounce on the efficacy of Medicaid managed care.

The NBER study suggested that Medicaid rates are often already “low enough that private insurers couldn’t negotiate a similar payment” rate. When the managed care insurers did manage to reduce overall spending, they usually did so in states with above-average compensation rates for Medicaid providers. So how would we judge an insurer which managed to reduce spending in a state with average or below average rates for providers? Probably not that highly if the strategy focused on delaying or denying access to needed care. Discussing past problems in managed care, one health law casebook notes that an “HMO was accused of putting its enrollment office on the third floor of a building without an elevator, and another tried to attract healthy elderly subscribers by holding square dances.”*

There are a wide range of insurer activities that can add or reduce costs to a system. But how do we assure that we are measuring the effects of an intervention correctly? Some laudable innovations, for example, may be costly upfront, but will end up saving many times the initial spend years down the road. “Meat ax” rationing of pills or procedures may reduce spending now, but worsen health conditions that eventually become extremely expensive. And when we consider quotidian decisions about denying or approving care, value judgments become even more complex. Accurate coding of whether a certain denial of coverage was actually appropriate can be very difficult. Empirical facts can be subject to widely divergent interpretations.

This is not to say that more studies on Medicaid managed care, and other health system innovations, should not be done. (It would be interesting to add up how much study spending was commissioned by the ACA (and even Dodd-Frank), as compared with policies like ELSI (which mandated a certain percentage of grants for the Human Genome Project to study its ethical, legal, and scientific implications).) I am just flagging the difficulties in obtaining “hard,” “objective” proof of the value of certain policies. There is usually plenty of room to massage the numbers.

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