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Privatized Medicaid Managed Care: Yet Another Health Policy Disaster

These are some of the less publicized downsides of how the ACA actually works within privatized Medicaid programs.

You might think that we learned the lesson of discredited managed care in the 1990s. The term “managed care” is confusing to many, but really amounts to managed reimbursement rather than managed care, whereby a set prospective annual payment is made by federal/state governments, as in the case of Medicaid managed care (MMC), to cover whatever services patients will receive over the coming year. There is therefore a built-in incentive for managed care organizations to skimp on care and pocket more profits. Predictably, by the end of the 1990s, there was widespread discontent across the country over denial of services by for-profit managed care organizations.

Today, this same problem is back in the form of privatized Medicaid managed care, facilitated further by the Affordable Care Act (ACA). More than one-half of Medicaid beneficiaries are now in privatized plans, which have been catching on in many states based on the unproven theory that private plans can enable access to better coordinated care and still save money. That theory is not just unproven, it is patently wrong. Privatized programs have high administrative costs, built-in profits, and do not save money or improve care. Their route to financial success is by finding more ways to limit care and deny services.

It is undeniable, of course, that millions of people have been helped by becoming newly insured, either through the exchanges or expanded Medicaid. In fact, a recent study by the Urban Institute found that the uninsured rate among adults between age 18 and 64 fell from 17.8 percent to 12.8 percent between December 2013 and December 2014. (1) But even as the Obama administration touts the ACA as a great success, with up to 16 million newly insured under the program, the Medicaid story isn’t as positive as it might appear.

For Medicaid overall, the federal government pays an average of 57 percent of the total costs of the program borne by the states. For states that expanded Medicaid under the ACA, federal funding has covered the costs of expansion at the 100 percent level for the first three years, then phasing down to 90 percent by 2020. Twenty-two states, mostly in the South under Republican leadership, rejected Medicaid expansion money. But many states, including those in the South, still welcome federal money for Medicaid, which they then often outsource to private insurers under MMC, with the supposed goal to be more efficient and save money.

These are some of the less publicized downsides of how the ACA actually works within privatized Medicaid programs:

• There were 267 mostly for-profit MMC organizations across the country in 2014; an Urban Institute study of nonelderly non-SSI adults (those not on Social Security incomes for disabilities) recently found that the higher the MMC penetration in counties, the more likely patients were to have an emergency department visit, the more difficult it was for them to see a specialist, and the higher the unmet need of getting prescription drugs; for nonelderly SSI adults, there was no evidence for improved access, use of services, or cost savings. (2)

• According to a 2015 study by HealthPocket, only one-third of health care providers are accepting Medicaid patients; typical Medicaid reimbursement is only 61 percent of what Medicare pays for the same service. The ACA made a temporary attempt to increase reimbursement for primary care, but that has had little impact on access to primary care. (3)

• A recent study by the Commonwealth Fund found that more than 40 percent of residents in Texas and Florida reported not going to the doctor when they were sick, fill a prescription, see a needed specialist, or skipped a recommended test or treatment in the previous year; the same proportion said they could not afford to pay a medical bill, had been contacted by a collection agency, or had medical debt requiring a change in their way of life. The authors of that study conclude that state decisions about not expanding Medicaid may actually be widening health care disparities in the United States. (4)

• Subcontracting of Medicaid coverage has almost doubled Medicaid’s administrative overhead, increasing from 5.1 percent of total Medicaid expenditures in 1980 to 9.2 percent today. (5)

• Some states have received federal waivers to impose premiums and/or copays to Medicaid patients; this cost-sharing has been shown to result in disenrollment and decreased access to care. (6)

• Tennessee Medicaid plans, operated by BlueCross BlueShield of Tennessee, United Healthcare, and Anthem, are a poster child for the inadequacies of MMC plans, with inadequate physician networks, long waits for care, and denials of many treatments, even as the insurers pocket new profits (7)

• There are about 5 million people falling into the “Medicaid coverage gap” in the states that opted out of Medicaid expansion; they have incomes below the federal poverty level (FPL) but above Medicaid eligibility levels. (8)

• Most non-expanding states require parents to earn less than the FPL to be eligible for Medicaid. (9)

Given all of the above problems, why do we still worship at the altar of privatization in U. S. health care, especially for the poor and most vulnerable among us? The answers are obvious, interrelated and disappointing after our experience with managed care in the 1990s. These stand out: (1) there is a lot of money to be made by insurers operating health programs subsidized by the government; (2) exploitive privatized programs are perpetuated by well-funded “free market” think tanks, their followers in Big Business, and compliant politicians responding to industry lobbyists; (3) regulations are inadequate to prevent gaming by insurers at patients’ expense; and (4) as a society, we still don’t seem to care when people have bad health outcomes and die because of failed health care policies. Yogi Berra would call this state of affairs “deja vu all over again.”

We are told that government regulators will soon initiate the biggest overhaul of Medicaid managed care rules in more than 10 years, intended to limit profits and set more rigorous requirements for quality of care and physician networks. The MMC industry lobby group, Medicaid Health Plans of America, will fight against such rules, of course, as “terrible policy”. (10) But given our track record, the power and influence of the insurance industry, don’t hold your breath. As long as health care remains so lucrative for private insurers, patients’ needs and the public interest don’t carry much weight.

It doesn’t have to be this way, as noted in earlier postings and my current book, How Obamacare Is Unsustainable, Why We Need a Single-Payer Solution for All Americans. (11) Not-for-profit single-payer financing of a one-tier system of universal coverage, based on medical need, not ability to pay, would resolve these persistent problems of failed market policies.


1. Andrews, M. Medicaid expansion helps to cut rate of older, uninsured adults from 12 to 8 percent. Kaiser Health News, May 22, 2015.

2. Tavernise, S, Gebeloff, R. Millions of poor are left uncovered by health law. New York Times, October 2, 2013.

3. Glied, S, Ma, S. How states stand to gain or lose by opting in or out of the Medicaid expansion. Commonwealth Fund, December 2013.

4. Caswell, KJ, Long, SK, The expanding role of managed care in the Medicaid program. Inquiry, April 16, 2015.

5. Coleman, K. Medicaid acceptance by healthcare providers drops to 1-out-of-3. HealthPocket, February 26, 2015.

6. Levey, N, Four largest states have sharp disparities in access to health care. Los Angeles Times, April 10, 2015.

7. Himmelstein, DU, Woolhandler, S. The post-launch problem: the Affordable Care Act’s persistently high administrative costs. Health Affairs Blog, May 27, 2015.

8. Dickson, V. Medicaid cost-sharing could reduce enrollment, experts warn. Modern Healthcare, September 16, 2014.

9. Hancock, J. Medicaid’s tension: getting corporate giants to do right by the needy. Kaiser Health News, April 28, 2015.

10. Ibid # 9.

11. Geyman, JP. How Obamacare Is Unsustainable: Why We Need a Single Payer Solution for All Americans. Friday Harbor, WA. Copernicus Healthcare. 2015.

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