Medicaid Managed Care: State Flexibility in Action

Robert E. Hurley, Stephen Zuckerman

Assessing the New Federalism is a multi-year Urban Institute project designed to analyze the devolution of responsibility for social programs from the federal government to the states. It focuses primarily on health care, income security, employment and training programs, and social services. Researchers monitor program changes and fiscal developments. Alan Weil is the project director. In collaboration with Child Trends, the project studies changes in family well-being. The project provides timely, nonpartisan information to inform public debate and to help state and local decisionmakers carry out their new responsibilities more effectively.

Key components of the project include a household survey, studies of policies in 13 states, and a database with information on all states and the District of Columbia. Publications and database are available free of charge on the Urban Institute's Web site: http://www.urban.org. This paper is one in a series of discussion papers analyzing information from these and other sources.

The project has received funding from The Annie E. Casey Foundation, the W.K. Kellogg Foundation, The Robert Wood Johnson Foundation, The Henry J. Kaiser Family Foundation, The Ford Foundation, The John D. and Catherine T. MacArthur Foundation, the Charles Stewart Mott Foundation, The David and Lucile Packard Foundation, The McKnight Foundation, The Commonwealth Fund, the Stuart Foundation, the Weingart Foundation, The Fund for New Jersey, The Lynde and Harry Bradley Foundation, the Joyce Foundation, and The Rockefeller Foundation.

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

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Contents

Medicaid Managed Care: State Flexibility in Action

Introduction
Origins of Managed Care Innovation in Medicaid
Federalism and Experimentation—Waivers as a Framework for Innovating
The Federal-State "Cold War" over Medicaid Waiver Policy
Beneficiary Protection: By Whom and From Whom?
States as Laboratories for Innovation: An Operational Appraisal
States as Laboratories for Innovation: An Evidence-Based Appraisal
Summing Up: A Balanced Scorecard on an Age of Innovation

Conclusion

References

About the Authors

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Introduction

The rapid expansion of managed care models in state Medicaid programs over the past decade presents a unique opportunity to examine how broadly-based programmatic innovation was promoted, shaped, and constrained by the evolving state-federal relationship in the 1990s. These initiatives involved nearly all states, displaying their characteristic diversity in motives, methods, and achievements. In most cases states had to petition federal officials for explicit permission to deviate from Medicaid requirements to launch managed care models. Dramatic growth quickly immersed state agencies in new, complex administrative responsibilities due to the nature of managed care purchasing. Expansion exposed states and their beneficiaries to the vicissitudes of a turbulent health care market place and the attendant uncertainties market instability has brought to all purchasers during the period. And perhaps not surprisingly, the managed care era has been marked by highly visible successes and failures that have engaged the attention of policymakers, advocates, and the general public.

Managed care experiences of the past decade have reinvigorated the debate over whether Medicaid is a national program built around a federal-state partnership, or essentially a state-based program with federally imposed conditions to be met to garner matching funds. Notwithstanding this debate, at the heart of efforts to pursue new payment and delivery arrangements has been a desire to make Medicaid a better program. It is not possible to disregard this goal as one attempts to reflect on the broader policy question of federalism. In fact, defining the dimensions on which managed care may have improved Medicaid itself is directly pertinent to the federalism issue since state and federal agencies may not be in complete congruence on the criteria or their rank order of importance. Positive and negative impacts on beneficiaries are important to both parties, but the significance of cost savings, administrative burden, and reduced program uniformity may be seen differently from federal and state vantage points.

In this chapter we examine how managed care implementation and growth has been a revealing experience for students of federalism. We explore why and how most state Medicaid agencies came to see managed care models as a valued innovation and how their aims for them have changed over time. The regulatory context within which innovation has been undertaken is explored, focusing on whether states have in fact had the necessary flexibility to proceed. Whether all states acted responsibly and federal agencies exercised due discretion while nurturing creativity is assessed, particularly given that the program strategy is a market-based one with the risks and uncertainties that implies. Next we appraise the extent and degree to which states have succeeded in transforming their Medicaid programs through these initiatives and examine empirical evidence of program effects. Finally, because the managed care intervention itself has proven to be so controversial in its own right, we offer some thoughts on how generalizable this particular experience may be to other innovations. We conclude with several important lessons to be gleaned from this illuminating era of experimentation.

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