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Connecticut Medicaid Prospers Post Capitated Managed Care

March 25, 2022

Summary: In 2012, advocates in Connecticut won a battle to switch from the predominant implementation model for Medicaid – capitated managed care organizations owned by usually for-profit private insurers – to fee-for-service care payments to providers with added resources to coordinate care. Removing profit-seeking intermediaries both lowered costs and raised quality of care.

How Connecticut Eliminated Capitated Managed Care in Medicaid
February 2019 talk (just released)

[W]hen the capitated managed care model rolled out, there were eleven MCOs, Managed Care Organizations. We were told that the state was going to save money by paying them 95% of what we would otherwise have paid for the same health services under Medicaid. You won’t be surprised that the managed care industry managed to convince the state not to reduce its fees, but to pay it 100% of current spending. And you’ll not be surprised to hear the industry said that actually it’s not getting enough, so it needs more money, even though the whole premise was that it’s going to save money.

MCOs would say they’re going to coordinate care so that the state saves money, improves access to care, and thus improves the quality of care.

However, in practice, what we saw constantly was routine lack of access to services. It was horrendous in the case of behavioral health, where kids who had been abused would be told they get a limited number of sessions and, if their provider was willing, they could beg for more.

The federal Medicaid statute offers an alternative type of managed care that doesn’t involve capitation [of health care services] at all. It’s called Primary Care Case Management. What this means is the state pays primary care providers extra to manage care.

[I]n early 2011, Governor Malloy announced that he was going to show the door to the MCOs and adopt some form of Primary Care Case Management, using primary care providers to coordinate care, and also contract with a non-risk Administrative Service Organization (ASO) … Connecticut chose a non-profit entity, Community Health Network of Connecticut, to take on that role …. [Specialized ASOs were contracted with for dental and behavioral health services.]

[F]ast forward to where we are today. … Connecticut Medicaid member per month costs are down 14% from $706 in the first quarter of 2012 to $610 in the first quarter of 2018. So, that’s six years, and the costs went down. As a result, Connecticut, which is one of the highest health care cost states in the country — our per-enrollment costs had been the 9th highest, now they’re 22nd. …

The other question is, how much of those total costs are actually going to health care? As we all know, there are huge administrative costs that go into the private risk-based insurance system. When we had managed care companies, it was hard to get the data, but we found routinely 20%, even 25% or higher administrative overhead. We actually saw about 40% at one point for administrative costs for one of the plans, under the CHIP program. Based upon the data that has been available now for a few years, we have done really well on both the total costs and the medical loss ratio, which is now about 96.5% [97% as of 2021]. Only 3.5 cents on the dollar goes to administrative costs, paying for the ASO and the state’s own administrative costs. The rest is all going to health care. So it’s a win-win in terms of the cost and where the money goes.

We really care about quality, about access to care. The data there is pretty good as well. Some really basic stuff like significant increases in preventive care, 16.3% from 2015 to 2017, hospital admissions per thousand down 6.29%, readmissions down 3.52%.

There are several reasons, but one of them is the use of patient-centered medical homes. Close to half of our Medicaid population is now attributed to accredited patient-centered medical homes. They have the infrastructure for adequately coordinating care so people don’t end up in the hospital, and they provide routine care and the child visits and screenings and so on. Under the new system, the state has the data on what is being done and doesn’t have to beg an insurance company to give them the data.

Comment by: Jim Kahn

The transformation of Connecticut Medicaid from the main implementation model (capitated for-profit managed care plans) to fee-for-service with enhanced support for care coordination is incredibly important. It demonstrates the greater efficiency (14% drop in per-person costs 2012-18 while Medicaid as a whole rose 10%) and higher quality of care achieved with payment directly to providers. Strong performance continued through the latest data (FY 2020).

This experience demolishes the myth that commercial insurers can magically reduce costs and raise quality while extracting huge profits. And it serves as an object lesson in how committed and resourceful advocates can overcome the influence of corporate money in order to advance the proper purposes of public funds for health care.

Two evaluations favorably review this experience – from Harvard Law School and the Connecticut Health Policy Project. For more information, contact Sheldon Toubman sheldon.toubman@gmail.com.

Recently I complained about “Medicaid News Noise”. This isn’t more noise – it’s revelatory. The truly impressive Connecticut Medicaid story should inspire similar broad reforms in other states, and ultimately inform provider payment under single payer.

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