Managed care plays a significant role in Medicaid. By 2003, approximately one-half of all Medicaid recipients some 27 million individuals were in a managed care program [Hurley and Retchin 2006]. The vast majority of these recipients are women and children; managed care is much less common among the disabled and elderly Medicaid populations. One reason for this is that many states require that children and pregnant women be enrolled in a health maintenance organization [HMO] or other form of Medicaid managed care plan.
The Medicaid managed care market has some key differences from the private market. As Draper, Hurley, and Short reported, some managed care plans have specialized in the Medicaid market. This involves several features. First, the plans tend to have narrower networks, unlike the expanded networks that arose as a result of the managed care backlash in the private sector.
However, these narrower networks often have to include federally qualified health centers and traditional Medicaid inpatient providers in the community. The plans also maintain relatively broad service offerings.
Second, while commercial plans have moved away from utilization management, Medicaid managed care plans have not. Part of this reflects an inability to use anything other than nominal copays to limit moral hazard [see Box 23-2].
Finally, while Medicaid managed care plans have continued to use capitation more aggressively than have plans that focus on the private market, whether they have been able to selectively contract with providers is unclear. Early work by Leibowitz, Buchanan, and Mann [1992] demonstrated that Medicaid populations voluntarily enrolled in a managed care plan had substantially lower Medicaid expenditures than did those who were assigned to a managed care plan or who were voluntarily in a fee-for-service arrangement.
They concluded that apparent Medicaid cost savings from Medicaid managed care was, in fact, the result of favorable selection. If the savings are the result of favorable selection, then requiring all Medicaid eligibles to participate in the managed care program will not save money. It is not clear that Medicaid managed care plans have done this.
In 2005, Congress gave states the authority to charge copayments up to 10% of the cost of services for those individuals with family income between 100 and 150% of the FPL. Those with higher incomes may be charged up to 20%. However, total cost sharing may not exceed 5% of the family's income [Congressional Budget Office 2006]. It is not clear, however, how many Medicaid managed care plans have introduced increased cost sharing.
The State Children's Health Insurance Plan [SCHIP] was created as part of the 1997 Balanced Budget Act. In essence, it provides federal matching funds for the provision of health insurance to lower-income children up to 300% of the poverty line. The legislation provides a capped amount of funding for each state through 2007.
If they choose to participate, the states have three ways to provide coverage: [1] they can expand their existing Medicaid program, [2] they can create a new separate program, or [3] they can develop a combined Medicaid-private program. As of 2001, 19 states had expanded their Medicaid program, 15 had created a separate program, and the remainder had taken a combination approach [LoSasso and Buchmueller 2004].
One of the reasons why many states adopted a separate private program was a concern that Medicaid was stigmatizing. It was believed that parents with eligible children would be more likely to enroll their children in private programs. The National Health Policy Forum reported that 40 states have expanded eligibility for children up to at least 200% of the FPL as a result of SCHIP. If the states expanded their Medicaid program, the benefits offered had to be the same as those in their state program. If they took another, private, option, the benefits could be:
The states may impose premium sharing and copays on services, but the payments may not exceed 5% of the family's income. The cost of the program is shared by federal and state taxpayers. In general, the federal match on SCHIP is 15%age points higher than for Medicaid, within the range of 65 to 83% of total costs up to the dollar cap established for each state. If the state's allocation is not spent within three years, the moneys are reallocated to other states.
More recently, LoSasso and Buchmueller examined the effects of the SCHIP expansion on coverage and crowd-out. Using much the same methods as Cutler and Gruber, they found that approximately 9% of the children meeting the income eligibility criteria gained health insurance coverage through SCHIP. They also concluded that, if anything, the straight Medicaid expansions were more effective that the separate programs. Thus, they concluded that the stigma of Medicaid was not an issue, or at least no different under the separate programs.
They argued that the growth in coverage was more likely the result of explicit outreach programs that SCHIP used. However, over 46% of those who gained SCHIP coverage gave up private coverage. The extent of crowd-out was about the same as that found in the earlier Medicaid SOBRA expansion. Not surprisingly, those eligibles with higher family incomes were more likely to move from private coverage to SCHIP. They are the ones more likely to have had employersponsored coverage. Thus, one obvious way to reduce crowd-out is to target the program to only low-income families.
Another way to reduce crowd-out is to impose waiting periods before coverage takes effect. LoSasso and Buchmueller found that a fivemonth waiting period essentially eliminated crowd-out, but it also reduced the take-up rate by 3.7%. Work by others suggests that premium sharing can also be an effective means of reducing crowd-out [Davidson, Blewett, and Call 2004]. The SCHIP out-of-pocket premium reduces the gains from dropping private coverage.
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