Limiting Managed Care to the Public Sector

This is an excerpt of a larger commentary, posted at partyhardpolitics.com 

       Managed care in Medicaid has been very effectively sold to political conservatives based on its clear fiscal benefits. There is little doubt in the mind of a prudent economic thinker that giving a for-profit company financial responsibility for a patient’s health will lead to more affordable healthcare and value than a pure entitlement program. In many cases, it has indeed turned out that way – Medicaid patients enrolled in managed care tend to use the emergency room less, and cost less on overall care than those in traditional Medicaid. Though some have expressed concern over the fact that participants self-select into managed care plans, thereby skewing the population, it is generally agreed that managed care programs can be a financial win for state governments and Washington.

            In assessing the results of managed care and particularly its possible future applicability to the private-payer healthcare market, it is necessary to be far more cautious. By and large, managed care has led to better health outcomes for Medicaid patients than traditional Medicaid. This is not surprising since MCOs provide an easy-to-navigate and small network of providers that delivers care quicker than a patient on traditional Medicaid can find a doctor who will treat him. Regular Medicaid presents the unique challenge of providing little incentive for beneficiaries (who normally pay little taxes) to keep costs down. Economically, outsourcing the management of Medicaid costs to a financially responsible third party makes sense.

However, the efficiency of managed care plans, so lauded in the health-policy community, is regarded by physicians with far greater trepidation. There are a number of reasons for this:

  • It is easy for a number-cruncher reviewing millions of cases from all over for patterns to come up with appropriate ‘quality standards for treatment’ and appropriate capitation payments for certain conditions. It is impossible, though, for the top of a hierarchical organization to know exactly what is going on at the bottom. Geographical differences, different customs, and different values create differing health needs all over a diverse nation.  
  • Managed Medicaid, aside from glossing over the diversity and messiness of human heath, has to work within the confines of a healthcare system that makes things even messier. Doctors under managed care will have less incentive to order extra (usually unnecessary) medical tests while still having to deal with the persistent threat of a medical malpractice lawsuit.
  • Managed Medicaid, while delivering greater value to the taxpayer, incentivizes providers to, in questionable situations, err on the side of providing less.