Medicaid Managed Care - U.S. Senate Special Committee on Aging

States Could Experience
Adverse Selection and
Lose Money With <strong>Managed</strong>
<strong>Care</strong>
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impossible situation. However, these states had limited ability to verify or
refute such claims with any certainty.
Health plans are not the only players in the <strong>Medicaid</strong> managed care
marketplace thai can face adverse selection and financial risks. When
prepaid managed care plan enrollment is voluntary (as it is in 11 of the 17
states now using prepaid care for some or all of their disabled
beneficiaries), the state may experience adverse selection. Specifically,
where participation is voluntary, beneficiaries with relatively few health
care needs (who may have few, if any, existing relationships with
specialists) may choose prepaid care, while beneficiaries needing more
expensive care (who may have long-standing relationships with specific
providers) may choose to remain in fee-for-service care. When enrollment
is mandatory but exceptions are allowed, a state may similarly face
adverse selection
Enrollment patterns in which the users of the most expensive medical
services are in fee-for-service care and the relatively healthy in prepaid
managed care are not problematic if the rate the state pays the health
plans is adequately adjusted for the health status of the enrollees
However, in many cases, the rates paid to health plans are based on the
average cost of providing care to an entire eligibility category and may not
appropriately account for those that do not elect prepaid care.
Consequently, the state pays the ful cost of treating the expensive
beneficiaries through fee-for-service care and too high a rate for the
lower-cost health plan members. This problem may be compounded in
that it is likely that future capitation rates would be based on the costs of
serving those remaining in fee-for-service care-individuals who are likely
to be less healthy and consequently more costly.
Just as it is difficult to tell f a health plan is experiencing adverse
selection, it is very difficult to determine whether a state is experiencing
adverse selection. An Oregon <strong>Medicaid</strong> official suspects that the state's
enrollment exemption process for disabled individuals, which allows case
workers to determine if prepaid managed care is appropriate for individual
beneficiaries, may be resulting in adverse selection for the state.
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