Coordinated Care Management for Medicare and Medicaid Beneficiaries

Grace-Marie Turner, Galen Institute, and Robert Helms, Ph.D., American Enterprise Institute

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Helping the Most Vulnerable

Medicaid’s historic and most important job is to take care of the nation’s most vulnerable and truly needy citizens. It was created in 1965 to finance care for certain lower-income Americans through a program that is jointly funded by the federal and state governments. Medicaid was designed to complement the Medicare program, which was created at the same time as a federal program to finance health care services for senior citizens.

But the Medicaid program is aging. States must petition Washington to make even minor changes in their Medicaid programs, and state officials complain that the red tape and bureaucracy wastes taxpayer money, health care resources, and often leaves recipients with substandard care. Changes are needed so the program has the resources and states have the flexibility they need to meet the challenges of a new century. Today, more than 63 million Americans are enrolled in Medicaid, and combined federal and state spending in 2010 was nearly $400 billion. Because Medicaid expenditures represent a large and growing share of state budgets, taxpayers need relief from the program’s rising costs and assurances that Medicaid money is being spent to get the best value for the dollar.1

An important group for policymakers’ attention should be those who need Medicaid the most, those who have the fewest resources to receive care outside the program, and those who consume the greatest share of Medicaid’s resources. That would suggest that those dually eligible for Medicare and Medicaid should be the first focus of attention. Dual-eligibles are patients who are eligible for Medicaid by virtue of their low incomes and for Medicare based upon their age or disability status.

Dual eligibles are Medicaid’s most vulnerable recipients, yet they often fall into a fragmented care delivery system that perpetuates episodic rather than coordinated care. Patients may have difficulty accessing the medical care they need, and information about their care can be scattered among providers and facilities facing two or more different payment systems and sets of program rules.

More than nine million Medicaid recipients (15%) are dual eligibles, accounting for 39% of Medicaid spending.2 On average, total spending for duals, including Medicare and Medicaid contributions, is twice as high as that for non-duals – $28,518 a year compared to $14,204.3 Most dual eligibles have very low incomes, substantial health needs, and are more likely to live in nursing homes compared to other beneficiaries. Long-term care services account for the majority (69%) of Medicaid expenditures for dual eligibles.4

Because physicians and others treating these patients often don’t have the patient’s complete medical profile, patients can face gaps as well as duplication in treatments with no one to help coordinate their care. Too often, they fall between the cracks of the two cumbersome and highly-regulated programs. In addition, providers are paid for procedures, regardless of outcomes and without rewards for improving quality. This often leads to worse care for patients and a waste of taxpayer dollars.

Medicaid will be most effective if these patients are managed at the state and local level. To achieve that goal, changes are needed in federal Medicaid policy to adopt new incentives to implement more flexible and more effective care-coordination and disease-management programs for recipients, especially those with disabilities and chronic illnesses.

Our Expertise

We served on the federal Medicaid Commission from 2005-2006, attending more than 14 hearings. In many of them, patients and state officials testified about the need for better-coordinated care for dual-eligible patients. We heard numerous examples of state experiments that provide better care and lower costs and were convinced that policy changes are needed to facilitate more such programs. In this paper we outline the changes that would be required in federal programs and financing to facilitate improved systems of care for millions of the most vulnerable patients on the Medicaid and Medicare programs.

Some of the ideas that we offered in the initial policy proposals, which we summarize below, have been adopted in an early demonstration program by the Medicare-Medicaid Coordination Office at the Centers for Medicare and Medicaid Services. One of our fellow commissioners from the Medicaid Commission, Melanie Bella, is the new director of the Office and is very familiar with our policy recommendations.

So far, 25 states,5 including Massachusetts, have notified Washington they are making plans to participate in the new federal demonstration program which Ms. Bella is directing to facilitate integrated care for dual-eligible beneficiaries. The goal is to develop “person-centered models that promote coordination missing from today’s fragmented system.” (A meeting was held in Boston on February 16, 2012, to discuss the specifics of care coordination.)

While describing the details of the new federal program is outside the scope of this paper, we will describe our larger vision for care coordination, components of which are being implemented by the Medicare-Medicaid Coordination Office. We outline our vision and the core recommendations for changes in federal health policy which we believe will allow dual-eligible patients to get better care by giving states more resources and flexibility involving their care. Much work remains to be done.

The Solution

A comprehensive program that integrates Medicare and Medicaid coverage allows providers to focus on the best way to design and provide benefits to dually-eligible beneficiaries so they receive the right care in the right setting.

New funding mechanisms must be tied to the success of providers and health plans in coordinating patient care, gathering sharable data on the patient’s medical care, and giving patients more information and resources that enable them to become partners in managing their health and health care.

Coordinated, patient-centered care, facilitated by electronic data gathering, would provide an important foundation to improve the quality of care. This new program would offer dual-eligible recipients a medical home where they can receive a seamless continuum of medical care which is managed in one program under the direction of the state.

An integrated Medicare and Medicaid program for dually-eligible beneficiaries would:

  • Integrate acute and long-term care benefits into a single program.
  • Allow competing private plans (or the states) to provide care that is both coordinated and managed so dually-eligible beneficiaries are not subjected to the fragmented care many receive today through multiple physicians in numerous care settings without access to a shared medical record.
  • Streamline Medicaid’s cumbersome rules that govern marketing, enrollment, performance monitoring, quality reporting, rate setting, bidding, and grievances and appeals and which consume enormous resources that should be devoted to providing medical care.
  • Eliminate redundant and inefficient spending in which Medicare and Medicaid pay for duplicative drugs, treatments, and tests because information is not being shared among the numerous providers through shared medical records. States that adopted the new program would be able to:
  • Share with the federal government in the savings achieved through innovative programs, such 1100 as disease management for patients with chronic conditions, and in the efficiencies of better coordinated care that avoids duplication and waste. Today, if states manage their Medicaid programs more efficiently, that generally means they simply lose federal dollars. Shared savings would give them new incentives for efficiency.
  • Provide both the federal and state governments more predictability in budgeting for the significant part of their Medicare and Medicaid spending on dual eligible patients.

States that adopted the new program would be able to:

  • Share with the federal government in the savings achieved through innovative programs, such as disease management for patients with chronic conditions, and in the efficiencies of better coordinated care that avoids duplication and waste. Today, if states manage their Medicaid programs more efficiently, that generally means they simply lose federal dollars. Shared savings would give them new incentives for efficiency.
  • Provide both the federal and state governments more predictability in budgeting for the significant part of their Medicare and Medicaid spending on dual eligible patients.

Dual Financing for Dual Eligibles

Dual-eligible recipients would participate in a single program, which we call Medicaid Advantage, where they would receive comprehensive, coordinated care rather than the fragmented care many receive today. The states, rather than the federal government, would be the primary managers of the programs.

Medicaid Advantage plans would provide the services currently financed separately through Medicare and Medicaid, including hospitalization and skilled nursing care, physicians’ visits, personal care, home and community based services, prescription drugs, diagnostic and laboratory tests, etc.

The states and the federal government would continue to share the costs of caring for duals, as they do today. The federal government would continue to provide financial support to the states for Medicare benefits, but through a risk-adjusted, capitated system of Medicare payments. The states would continue to pay their Medicaid portion of the benefit.

States or the plans they select could manage services for dual-eligible beneficiaries. Many states likely would choose to contract with private health plans that would be responsible for providing the full spectrum of Medicare and Medicaid benefits. There was a backlash against other forms of “managed care” in the 1990s, but care coordination can be valuable and even essential for the most vulnerable patients who have multiple health problems and limited abilities to navigate a complex health care system on their own.

In addition, the plans would be responsible for collecting and evaluating treatment and outcomes data and for providing this information to the states. States would, in turn, audit the reports and monitor the plans to make sure that Medicaid dollars are being spent to provide the best quality of care for beneficiaries.

The federal government would set and monitor goals, not micromanage processes, so that the states, in conjunction with health plans, can work to improve the quality of care and design plans to fit the needs of patients.

How the New Medicaid Advantage Program Works

The states would have the option of participating in the new Medicaid Advantage program to develop a system that provides more efficient, coordinated care for their dually-eligible residents. The enhanced Medicaid Advantage program would require plans to provide core Medicaid and Medicare services to dually-eligible patients, but would give states more authority and flexibility to tailor benefit packages to the specific needs of patients without having to request waivers. Dually-eligible patients would choose from among competing plans and would have the right to opt-out of Medicaid Advantage and back in to traditional Medicare and Medicaid coverage.

The new Medicaid Advantage program would allow participating states to have much more control over the delivery of care to the most expensive patients in their Medicaid programs by giving them more control over financing and how and by whom care is coordinated and delivered. Specifically, states would be able to:

  • Contract with competing health plans to provide the full spectrum of care for dually-eligible populations and enroll individuals into integrated Medicaid Advantage care management plans.
  • Decide whether or not to automatically enroll dual-eligible patients in a Medicaid Advantage plan if patients do not actively enroll or are not enrolled by a family member or guardian.
  •  Decide which health plans or other care providers with which to contract to deliver services to dually-eligible beneficiaries.
  • Provide incentives for these plans to compete on the basis of quality and value and reward health plans that provide higher quality care at a reduced price. States could also set up the contracts so they share in a portion of these savings.

Rather than contract with private plans, some states may decide to manage the care and assume the risks themselves, as Kentucky is doing with its new KyHealth Choices Medicaid reform plan. Kentucky developed amendments to its Medicaid program to reduce state expenditures by tailoring benefits packages to the needs of specific patient populations, introducing cost sharing, and improving health outcomes by instituting rewards for healthy behavior.

The federal program would require that states closely monitor plans and networks to make sure they meet their contractual obligations, and also monitor and audit their reports.

For their part, private health plans would participate in a bidding process to offer services in Medicaid Advantage, submitting bids representing their cost of providing Medicare and Medicaid-covered services to dual eligibles as well as other services specified by the states. Further, they would have flexibility to partner with recipients by offering incentives that encourage patients to participate in their care management.


The states and the federal government would each contribute, as they do today, to the costs of providing services currently financed separately through Medicare and Medicaid for dually-eligible beneficiaries. A new pool of funds would be created that includes federal and state Medicaid contributions plus federal Medicare and Part D contributions. These would be combined into one funding stream to finance care for duals through the new Medicaid Advantage plans.

States would gain new flexibility in designing benefit packages in exchange for receiving a capitated, risk-adjusted payment from Medicare, which would have fewer strings attached. These payments would allow “dollars to follow the patient” so that both states and the federal government would know how much would be allocated each year for care for a particular patient. The payments would be adjusted based upon various risk factors, such as health status, age, and income.

States and the federal government already have some experience with the basic mechanisms that would be needed to calculate payments for this new program. The rate-setting and risk-adjustment systems that Medicare currently uses to pay Medicare Advantage plans and that states use to pay for standard Medicaid managed care programs would provide a foundation for calculating payments.

The Centers for Medicare and Medicaid Services is developing a system of risk adjustment that includes not only health status but also geographic payment variation, the age and health status of patients, and other factors which could be employed to set payments in this new program. The agency would use its actuarial data and payment history in determining the capitated rate it pays per dual-eligible patient. This funding stream would be updated annually.

Funding: There would be three funding streams for the new Medicaid Advantage program:

  • Federal Medicare payments, which are generally provided through Medicare’s defined benefit structure, would be allocated to the states through a new funding mechanism. The federal government would develop a system of capitated, risk-adjusted Medicare payments. Subsidies would be adjusted to avoid selection bias and to assure access and quality treatment to the sickest beneficiaries. These payments would be sent from the federal government to the states to fund the Medicare portion of services for dual-eligible residents. This is not a block grant because funds would follow each recipient and would be adjusted for that patient’s risk profile.
  • State funds: States would continue to pay their share of Medicaid costs. They would have two options in setting their payments for the Medicaid portion of services for their dual-eligible residents:

Those states that decide to contract with private plans to provide coordinated care for their dual populations could calculate an actuarially-sound capitated rate for the state’s share of Medicaid services. The plans, not the state, would be at risk.

Those states that decide to operate the program themselves and assume the risk (as well as potentially garnering more savings) could make contributions based upon their own Medicaid payment experience for services for duals. While many states have experience in setting payments for Medicaid managed care, their experience is primarily with acute care services, not long-term care support. As a result, they would need assistance in calculating these payments to fund their share of Medicaid services for duals.

In either case, a transition period would be required where the federal government and the states would share the risk until they have gathered enough information to refine this new system of payments.

Whether a state chooses to contract with Medicaid Advantage managed care plans or to operate the program itself, it would still receive a federal match for its Medicaid contribution based upon existing formulas.

  • Drug coverage, currently paid by Medicare, would be integrated into the Medicaid Advantage plans. Medicare would calculate a Part D allocation that would be returned to each state in the form of a capitated, risk-adjusted payment. This would be another part of the patient’s Medicaid Advantage funding stream.Since implementation of Part D that assigned duals to drug plans, skilled nursing facilities have had many problems tracking many different drug plans and formularies for these residents. Medicaid Advantage would provide a mechanism to coordinate drug coverage, as well as medical care, through one plan.States would have access to the pharmacy data that they lost after the transition to Part D in January 2006.


Once the Medicaid Advantage plan has agreed on a fee, the plans contracted by the states would be at risk for providing care to dual eligibles (except for those states that decide to carry the risk themselves). The plans or state contractors would be responsible for providing care, for collecting and providing performance data on treatments and outcomes for each patient, and for reporting this information to the states for their monitoring activities. These plans would be accountable for outcomes with close oversight by the states, but they would have greater flexibility to provide the care that meets the needs of patients.

The federal government and the states would be responsible for carefully monitoring the plans and for bringing action against plans that do not meet their contractual obligations.

Improving quality of care for dual eligibles is an important goal of this new Medicaid Advantage proposal. But in order to pay for quality, we first must be able to measure it. Therefore, payments to Medicaid providers should be tied to objective measures of medical outcomes. To make outcome measurements fair, risk adjustments must be incorporated into the measurements so medical professionals are not discouraged from accepting higher risk patients.

Particularly challenging are managing patients with serious and chronic mental illness. Providing targeted case management, rehabilitation services, medication management, community mental health center services, and other less-costly services through a Medicaid Advantage medical home could reduce the use of expensive hospital and emergency room services while providing improved care for these patients.

An integrated program would minimize the current incentive for providers to avoid caring for the most costly patients and would better align incentives for Medicare, Medicaid, and plans to provide the best care for recipients.

The Future

We believe that doctors and patients, not government, should control health care decisions. Two massive health care financing programs – Medicaid and Medicare – were created at the same time, but they have evolved in very different ways, with tens of thousands of pages of regulations that confuse providers, patients, and payers. States are constrained by federal regulations that force them to go to extraordinary lengths to get federal permission to make any changes to their Medicaid programs. The most vulnerable patients, who are often poor and elderly and with lower-incomes, are most ill-served by the current system – victims of bureaucracy run amok.

Changes are needed at the federal level to loosen these regulatory reins and give states more flexibility and control over resources so they can develop programs to better serve patients who are dually-eligible for Medicare and Medicaid. States are much closer to them than federal officials, and they have much better information about the options and resources that are available to innovate and improve care delivery. Real change never will be accomplished with more rules and regulations from Washington, but it can be accomplished with greater flexibility for the states.

Our experience with the Medicaid Commission allowed us to see the tremendous potential for state innovation in improving the quality of care delivered. State and local governments are in a Coordinated Care Management for Medicare and Medicaid Beneficiaries better position to improve care that better serves patients and gets better value in health spending for taxpayers.

The policies we have outlined in this paper to provide better care for dually-eligible patients already are beginning to be tested in demonstration programs around the country, and what we learn can provide a roadmap to state and federal officials to improve the programs for the future. States are ready to take the lead.

Contact the Authors:
Grace Marie-Turner
Founder & President, Galen Institute
Phone: 703-299-8900
Robert Helms Resident
Scholar, American Enterprise Institute
Phone: 202-862-5877
  1. The Affordable Care Act called for states to add an additional 16 million people to Medicaid to expand health coverage to those earning up to 133 percent of poverty, or about $30,657 a year for a family of four. While the U.S. Supreme Court’s decision in June of 2012 made the expansion voluntary for the states, many are considering expanding their programs, making it all the more important to begin reforming the program now.
  2. Katherine Young, Rachel Garfield, MaryBeth Musumeci, Lisa Clemans-Cope, and Emily Lawton, “Medicaid’s Role for Dual Eligible Beneficiaries,” Kaiser Commission on Medicaid and the Uninsured, April 2012,
  3. Medicare Payment Advisory Commission, “A Data Book: Health Care Spending and the Medicare Program, Section 3: Dual-Eligible Beneficiaries,” June 2011,
  4. Young, et al., “Medicaid’s Role for Dual Eligible Beneficiaries,” Kaiser Commission on Medicaid and the Uninsured.
  5. AZ, CA, CO, CT, HI, IA, ID, IL, MA, MI, MN, MO, NC, NY, OK, OH, OR, RI, SC, WA, WI, TN, TX, VA, and VT.


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