Medicaid Capitation Expansion's Potential Cost Savings

Taken collectively, there is clearly a great deal of room for expansion of the capitated MCO model. Nationally, Lewin estimates that $67 billion of Medicaid fee-for-service spending (29% of total FY2003 expenditures) is amenable to being favorably impacted by expansion of the capitated model.

We further estimated the savings that full adoption of the capitated model on these funds would create across a ten year period. At the state level, the savings estimates vary based on the level of TANF and SSI fee-for-service spending that is deemed highly amenable to capitation, the urban/rural population mix, and the degree to which the fee-for-service population is enrolled in a primary care case management program. Key findings included:

• At a national level, maximum savings of $83 billion would occur across ten years if the capitation model were immediately applied to all the Medicaid funds that this model seems well-suited to impact. These savings are entirely attributable to expansion of the capitated model and do not include the savings already occurring through existing Medicaid capitation programs
  
   
• Most of these savings ($55 billion or 67% of the national total) would occur through transitioning the non-Medicare blind/disabled population into the capitated setting. Eighty-seven percent of the total savings would result from expanded use of the capitation model in urban areas; 13% of the total savings would be attributable to use of this model in rural areas
  
   
• The state and federal share of savings is determined by the match rate in each state; maximum nationwide savings would be split 56% federal and 44% state

A policy option was modeled whereby the federal government would increase its match rate by three percentage points for the first three years on all fee-for-service funds that are transitioned into the capitated setting. This approach still creates a modest level of short-term federal savings, but the vast majority of the savings achieved during Years 1 to 3 accrue to the state as an incentive to expand use of the capitated model.

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