On November 7, 2023, the Idaho Medicaid Managed Care Task Force shelved a proposal to move most of the state’s Medicaid beneficiaries to a managed care plan. This is a modest, but significant, win for advocates of small government in Idaho.

Back in March, Idaho approved a $4.5 billion budget for the state’s 2024 Medicaid program. (The original proposed budget was $4.7 billion; this budget was rejected by Idaho’s House, and the Joint Finance Appropriations Committee slashed $152 million from the plan in anticipation of the resumption of the redetermination of Medicaid eligibility in 2023).

The 2024 budget was a whopping 12.5 percent increase over the 2023 budget. Many lawmakers were alarmed, as the 2024 appropriations would be the largest budget ever approved by the state’s legislative branch. In response, lawmakers formed the Idaho Medicaid Managed Care Task Force to study whether managed care could control Idaho’s spiraling Medicaid expenses.

Managed care is one of the three ways by which states pay for Medicaid services. When Medicaid was first enacted in 1965, doctors were paid for each service they provided to a beneficiary. This payment model was called fee‐​for‐​service. However, from 1965–1981, Medicaid expenses rose substantially.

So, in 1981, Congress allowed states to experiment with two alternative payment models. The first alternative model was called primary care case management. In this payment model, states pay doctors a monthly fee to provide primary care to a Medicaid beneficiary. States then reimburse all non‐​primary care services on a fee‐​for‐​service basis. The second alternative model was called managed care, where states pay an insurer a fixed monthly premium per member to provide care for Medicaid beneficiaries.

The theory behind managed care seemed sound: the government could save money by shifting any unanticipated expenses of Medicaid care to a third‐​party insurer. The problem is that this usually has not worked in practice. In a 2012 meta‐​analysis, Columbia Professor Michael Sparer found a “paucity of evidence on cost savings from Medicaid managed care.”

A more recent 2020 meta‐​analysis conducted by researchers at Emory University found that “a unique model of managed care (i.e., the Oregon Health Plan) was associated with reduced costs and improved access and quality, but results varied by comparison state.”

Put simply, managed care is not a silver bullet that reduces Medicaid spending. Rather, the cost‐​savings potential of managed care depends on the specifics of each plan and each state.

This brings us back to Idaho. In 1993, Idaho enrolled most Medicaid beneficiaries into Healthy Connections, a primary‐​care case management plan. However, in 2014 Idaho experimented with a new plan called the Medicare Medicaid Coordinated Plan (MMCP). The MMCP was a comprehensive managed care plan for dual eligibles: individuals who are eligible for both Medicaid and Medicare. In 2018, Idaho extended this experiment by requiring most dual eligibles to enroll in one of two comprehensive managed care plans (Idaho Medicaid Plus and MMCP). After this transition, annual per beneficiary spending for dual eligibles exploded from $16,563 in 2018 to $29,092 in 2020.

Given this dire performance, there is reason to believe that extending managed care to the broader universe of Idaho Medicaid beneficiaries who are not eligible for Medicare could backfire.

The effort to stop Idaho from switching to managed care was spearheaded by the Idaho Freedom Foundation (the Idaho member of the State Policy Network), which argued, correctly, that the only way to lower Medicaid expenses is to “to reduce enrollment, use, or service costs.” (This argument is supported by Cato Institute research and inter‐​state comparisons. Cato research focused on the state of Connecticut, which was able to realize substantial savings after transitioning away from managed care in 2012.)

That proposal was opposed by many in Idaho’s medical community, who argued that implementing new “value‐​based care” elements into Idaho’s primary‐​care case management plan may lead to some savings. But this is unlikely, as similar programs have failed to contain expenses in Medicare.

Ultimately, the Idaho Medicaid Managed Care Task Force made the correct decision on November 7 to stick with Idaho’s status quo.

However, if Idaho’s lawmakers are serious about reducing Medicaid expenses, they should heed the words of Idaho Freedom Foundation’s policy analyst Niklas Kleinworth:

True cost control, budget stability, and program improvement can only be achieved through lowering the cost of services, reducing the amount of use in the program, or lowering the number of people enrolled. These initiatives would require considering solutions like the repeal of Medicaid expansion, addressing program integrity and improper payments, and reducing the high use of services like prescription drugs.