The federal Government Accountability Office (GAO) has reported a definite trend toward states utilizing managed care organizations (MCO) in their Medicaid programs. (here) Federal taxpayers paid $107 billion for Medicaid managed care in 2014 compared to $27 billion in 2004.

What’s going on here?

In reality, MCOs have been around for decades. In the 1980s and 1990s they were called health maintenance organizations (HMO). HMOs are very effective at holding down health care expenditures by using a gate-keeper system that essentially rations care. HMOs lost popularity with both patients and providers because of the restrictions on access to care.

In an attempt to hold down expenditures and control costs in their Medicaid programs, states, including Washington state, have turned to MCOs. States can pay an insurance company a fixed amount of money per Medicaid enrollee and thereby put the financial responsibility of cost-control on the insurance company. Any cost overrun is essentially absorbed by the insurance company.

There is a definite trend toward more private insurance companies participating in Medicaid MCOs. (here)

Obamacare has accelerated this movement into managed care. Before the Affordable Care Act, traditional Medicaid was a safety net for children of low-income families, the disabled, and some long-term care. It was funded by both state and federal taxpayers. The federal government match was 50 to 75 percent of the overall cost, depending on state wealth.

The ACA expanded Medicaid in 2014 to any able-bodied adult age 18 to 64 years of age. Obamacare also changed the funding mechanism for the expansion enrollees. Federal taxpayers will ultimately pay 90 percent of the cost, while states will pay only 10 percent.

From an insurance company standpoint, the Medicaid expansion enrollees are much healthier than the traditional enrollees and are a cash-cow compared to the traditional patients. In Michigan alone, the spread between medical expenses and taxpayer-paid premiums in the Medicaid program more than doubled between 2013 and 2015.

States can plan their budgets by using capitated MCOs, regardless of how limited patient access becomes. Insurance companies can profit from taxpayer-paid premiums, while the Medicaid rolls enlarge with healthier, Medicaid expansion patients. The losers in this trend toward MCOs are those patients who are the sickest, most vulnerable in the Medicaid program.