Medicaid and Medicare are government insurance programs developed to care for specific populations and the particular needs associated with that population. There are fundamental differences between the ways in which these programs are funded, the services they cover, and the people they serve. Medicare’s beneficiaries are elderly (65 or older) or disabled. It covers acute and episodic care. Medicaid covers chronic and long-term services for people with very low incomes. Medicare is federally funded, while Medicaid is partially funded by the states based on its Federal Medical Assistance Percentage (FMAP). With major difference between the two programs, problems arise when people are eligible for both.

There are 8.9 million Americans who are “dual eligibles,” qualifying for both Medicaid and Medicare. This population is very sick and therefore very costly. Dual eligibles require a broader range of medical services, including costly hospitalizations and long-term care. While dual eligibles make up only 15 percent of Medicaid enrollees and 16 percent of Medicare enrollees, they account for 39 percent of all Medicaid spending and 27 percent of all Medicare spending.

Dual eligibles are a sicker population of people, which will no doubt have high per capita costs, but there is room for improvement. The discrepancies between the payment systems and the services covered by Medicare and Medicaid has led to fragmented, costly care and high rates of potentially avoidable hospitalizations (PAH). This can best be explained through an example:

A patient on Medicaid in a skilled nursing facility (SNF) develops pneumonia. Medicaid covers the majority of this patient’s costs because it is long-term care. Medicaid, however, will not cover treatments associated with the pneumonia because it is an acute illness. While the patient would benefit more from bringing additional staff to the SNF to treat and monitor this patient, the SNF would not be reimbursed for these additional services. Without the financial incentive to care for this patient, a simple case of pneumonia causes the patient to be transferred to a hospital where Medicare will cover the services provided. Unfortunately, this happens too often, with a variety of other complications that a skilled nursing facility or nursing home could handle if properly incentivized to do so.

While the problem is frustrating, solutions are being developed. One such solution comes from Medicaid Managed Care plans. Many Medicaid managed care plans have developed innovative solutions to care for their dual eligible beneficiaries in a more coordinated, patient-centered way. Such plans align payment incentives through a variety of methods to reward streamlined care and reduce unnecessary hospitalizations. Results from early models have varied, but the possibility for real savings is undisputed. The Congressional Budget Office estimated that enrolling dual eligibles into Medicaid managed care would save the federal government $12 billion by 2020.

While the exact amount of savings is unknown, it is clear that there is real, costly fragmentation in the care of dual eligibles. Medicaid managed care plans are equipped to better align the payment incentives for this care. Developing and expanding these plans will not only provide quality care that patients deserve, it will deliver savings that our struggling economy demands.