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

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TESTIMONY OF BARBARA MARKHAM SMITH
U.S. SENATE SPECIAL COMMITTEE ON AGING
APRIL 29, 1997
The transformation to managed care may be the most important development since the
rise of modern medicine and the use of insurance to pay for health care. This transformation has
not only changed the relationship between providers and patients but also has transformed
<strong>Medicaid</strong> from a health care financing program to one of the nation's largest purchasers of
private insurance. As a result of the move to <strong>Medicaid</strong> managed care, the Center for Health
Policy Research undertook a nationwide study of the managed care contracts between states and
managed care plans.
The study -- which is in its second phase - has two purposes. The first is to present an
overview of the structure and content of the detailed service agreements which describe <strong>Medicaid</strong>
managed care arrangements, including what populations participate and how services are
structured. The second purpose is to identify key issues presented by <strong>Medicaid</strong>'s shift from payor
to purchaser of managed care.
In a transformation of this magnitude, the states face enormous challenges in their effort
to construct integrated delivery systems for poor people and people who have special health care
needs, an effort which has no parallel in the private insurance sector. Among the primary
challenges is convincing private companies to enter the <strong>Medicaid</strong> market which offers relatively
low capitation rates.
While some states have longstanding experience with managed care and operate in
mature markets, many states do not. 1The-nansformation to <strong>Medicaid</strong> managed care is thus in its
infancy and is a highly evolutionary process. Accordingly, states generally -- with some notable