Full Use Of Medicaid Capitation Model Would Create Large Savings, USA

Main Category: Medicare / Medicaid / SCHIP
Article Date: 24 Apr 2006 - 0:00 PDT


A study released today by The Lewin Group asserts that there is tremendous room for expansion of capitation contracting in the Medicaid program, and that optimal use of this model would yield savings of $83 billion across ten years.

"We engaged Lewin to obtain an objective assessment of the potential for savings," noted Thomas Johnson, Executive Director of the Medicaid Health Plans of America, one of the study's co-sponsors. Margaret Murray, Executive Director of the Association for Community Affiliated Plans, also a co-funder of the study, added: "We were interested in quantifying the degree to which capitation is currently in use as well as the large-scale savings opportunity that still remains."

Some of the study's specific findings regarding the existing use of capitation are summarized below:

-- In the most recent year in which full national data are currently available, FY2003, 16% of national Medicaid expenditures were paid in the form of capitation.

-- Only one state, Arizona at 85%, "capitates" more than 50% of Medicaid spending. Five other states capitate more than 30% of Medicaid spending -- Pennsylvania (46%), Michigan (45%), New Mexico (44%), Oregon (39%), and Hawaii (36%).

-- Seven of the nation's ten largest Medicaid programs (FL, IL, MA, NC, NY, OH and TX) rank 25th or lower in the degree of their Medicaid spending that is capitated.

-- Within the blind and disabled Medicaid population, only 14% of Medicaid spending was paid via capitation in FY2003 (even after removing all spending on dual eligibles and long term care).

Joel Menges, a Vice President at Lewin and the study's principal author, noted that this disabled subgroup creates a particularly important financial and programmatic opportunity for states. "The characteristics of the non- Medicare SSI population are more amenable to the use of the capitated model than the TANF population. Capitation contracting has been least-used for the Medicaid subgroup where this coverage model seems best-suited to have beneficial impacts."

Nationally, Lewin estimates that $67 billion of Medicaid

fee-for-service spending as of FY2003 (29% of total expenditures) can be favorably impacted by expansion of the capitated model. Regarding the specific savings estimates, Lewin's key findings are that:

-- At a national level, maximum savings of $83 billion would occur across ten years if the capitation model were immediately applied to all the Medicaid funds that this model seems well-suited to impact. (These savings are entirely attributable to expansion of the capitated model and do not include the savings already occurring through existing Medicaid capitation programs.)

-- Most of these savings ($55 billion or 67% of the national total) would occur through transitioning the non-Medicare blind/disabled population into the capitated setting.

-- 87% of the total savings would result from expanded use of the capitation model in urban areas; 13% of the total savings would be attributable to use of this model in rural areas.

-- The state and federal share of savings is determined by the match rate in each state; maximum nationwide savings would be split 56% Federal and 44% state.

"We see a tremendous opportunity for increased savings, and an equally large need to attain them given the fiscal constraints confronting both the Federal and State governments related to the entitlement programs," Murray noted. Johnson added, "If we don't take advantage of this opportunity, the alternatives for achieving Medicaid savings are all extremely unattractive. Greater use of capitation is the best tool the Medicaid program has available to ward off eligibility and benefits cuts."

An electronic copy of the study is available at: http://www.lewin.com, http://www.communityplans.net and http://www.mhpoa.org.

Medicaid Health Plans of America
http://www.mhpoa.org

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