Has the Shift to Managed Care Reduced Medicaid Expenditures? Evidence from State and Local-Level Mandates

Abstract

From 1991 to 2009, the fraction of Medicaid recipients enrolled in HMOs and other forms of Medicaid managed care (MMC) increased from 11 percent to 71 percent. This increase was largely driven by state and local mandates that required most Medicaid recipients to enroll in an MMC plan. Theoretically, it is ambiguous whether the shift from fee-for-service into managed care would lead to an increase or a reduction in Medicaid spending. This paper investigates this effect using a data set on state and local-level MMC mandates and detailed data from the Centers for Medicare and Medicaid Services (CMS) on state Medicaid expenditures. The findings suggest that shifting Medicaid recipients from fee-for-service into MMC did not on average reduce Medicaid spending. If anything, our results suggest that the shift to MMC increased Medicaid spending and that this effect was especially present for risk-based HMOs. However, the effects of the shift to MMC on Medicaid spending varied significantly across states as a function of the generosity of the state's baseline Medicaid provider reimbursement rates. 1 Abstract From 1991 to 2009, the fraction of Medicaid recipients enrolled in HMOs and other forms of Medicaid managed care (MMC) increased from 11 percent to 71 percent. This increase was largely driven by state and local mandates that required most Medicaid recipients to enroll in an MMC plan. Theoretically, it is ambiguous whether the shift from fee-for-service into managed care would lead to an increase or a reduction in Medicaid spending. This paper investigates this effect using a data set on state and local level MMC mandates and detailed data from CMS on state Medicaid expenditures. The findings suggest that shifting Medicaid recipients from fee-for-service into MMC did not reduce Medicaid spending in the typical state. If anything, our results suggest that the shift to MMC increased Medicaid spending and that this effect was especially present for risk-based HMOs. However, the effects of the shift to MMC on Medicaid spending varied significantly across states as a function of the generosity of the state's baseline Medicaid provider reimbursement rates.JEL Classification: H51, H72, I11, I18, L33

The Effect of Medicaid Policies on the Diagnosis and Treatment of Children's Mental Health Problems in Primary Care

“…During the period I examine, the three study states – Massachusetts, New York, and North Carolina – were in the process of implementing mandatory MMC across counties and Medicaid eligibility groups. My approach is most similar to that used by Duggan () and Duggan and Hayford (); although, I do not observe specific MMC mandates. Instead, I use the penetration of MMC policies at the eligibility group‐county‐year level as an instrument for individual plan choices while controlling for numerous observable patient‐level characteristics and unobservable time‐invariant county‐ and eligibility group‐level factors.…”

A Dose of Managed Care: Controlling Drug Spending in Medicaid

“…Several prior studies compare the performance of government versus MCO-administered Medicaid health benefits (Duggan and Hayford [2013], Duggan [2004]). Our approach allows us to go inside the "black box" to break out the sources of observed performance differences.…”

“…4 While MCOs cover a large percentage of Medicaid lives, they are responsible for a relatively small share of spending. Duggan and Hayford [2013] note that 71.2 percent of Medicaid recipi-ents received some managed care in 2009, but that payments to managed care organizations were only 21.5 percent of program spending in that year. 5 This is for two reasons: states are more likely to contract with MCOs for lower-cost eligibility groups, and some expensive categories of spending are excluded from the MCOs' contracts.…”

“…Our paper is related to a growing literature exploring supply-side incentives in insurance markets, with a particular focus on public programs. While a number of studies compare public and private provision in Medicare (Town and Liu [2003]; Curto et al [2014]; Curto et al [2017]) and Medicaid (Duggan [2004], Duggan and Hayford [2013]), researchers rarely observe details of the care received by enrollees once their care is privately provided. This makes it difficult to examine what private providers are doing differently, and to what effect.…”

Effect of privatized managed care on public insurance spending and generosity: Evidence from Medicaid

“…Previous work has instrumented for the link between patient preference for managed care and Medicaid spending via geographically based mandates by assuming these mandates are orthogonal to Medicaid spending trends (Duggan, ; Duggan and Hayford, ). These studies find that increases in managed care payments offset decline in FFS provider reimbursements, without any significant reduction in total Medicaid spending (Duggan, ; Duggan and Hayford, ). The present analysis accounts for the endogeneity of managed care demand at the state level rather than the patient level, in order to consider three outcomes.…”