Growth of Medicaid-Dominated HMOs

Originally published by the Center for Studying Health System Change (HSC). HSC was a nonpartisan policy research organization funded principally by the Robert Wood Johnson Foundation.

Data Bulletin No. 11 | Spring 1998

Medicaid enrollment in health maintenance organizations (HMOs) expanded rapidly during the mid-1990s, growing from 2.6 million beneficiaries (8 percent of the total) in 1993 to 7.7 million (23 percent) by 1996. A striking feature of this growth was the prominence of Medicaid-dominated plans -- those in which Medicaid beneficiaries made up at least 75 percent of total enrollment. Nearly half of all Medicaid HMO enrollees in 1996 were in such plans. Among new plans entering the market during this period, more than half were Medicaid-dominated.

Characteristics of Medicaid-Dominated Plans

In 1996, 156 Medicaid-dominated HMOs were operating in the United States, accounting for 48 percent of all plans serving Medicaid beneficiaries. These plans shared several notable characteristics.

Most of these plans were small in size -- 90 percent had fewer than 50,000 members. The vast majority were not just Medicaid-dominated but essentially Medicaid-only: 92 percent (144 plans) served exclusively Medicaid populations in 1996. More than half of the new plans entering the market between 1993 and 1996 were Medicaid-only plans. Whether these plans intended to eventually enroll commercial members remained unclear.

Plans serving Medicaid tended to be either heavily committed to the Medicaid market or only minimally involved. Roughly half of all HMOs did not participate in Medicaid at all. Among those that did, 15 percent had Medicaid enrollment below 5 percent of their total membership, while 44 percent had Medicaid enrollment of 75 percent or more.

Medicaid-dominated plans were more likely than other plans to serve the Medicaid disabled population receiving Supplemental Security Income (SSI) benefits. Fifty-eight percent served SSI recipients, compared with 45 percent of other Medicaid-serving plans in states where at least one plan reached the Medicaid population. Ownership of Medicaid-dominated plans was diverse, encompassing provider-based plans, subsidiaries of commercial health plan companies, plans formed by companies focused specifically on Medicaid, and plans owned wholly or in part by federally funded community health centers.

Characteristics of Participating Health Plans

Despite the large number of small plans, the majority of Medicaid enrollees (54 percent) in 1996 were in large plans with 100,000 or more members, and nearly one-third were in very large plans with 250,000 or more members. Enrollees in large plans were roughly evenly divided between independent plans and those affiliated with a major health plan system.

Commercial health plan participation in Medicaid was relatively widespread nationally, though concentrated more heavily in the Mid-Atlantic and Pacific states, with lower participation in the South-Central and South-Atlantic regions. Eighty-seven percent of Medicaid HMO enrollees lived in just 16 states: Arizona, California, Connecticut, Florida, Illinois, Michigan, Minnesota, Missouri, New Jersey, New York, Ohio, Oregon, Pennsylvania, Tennessee, Virginia, and Washington. As of June 1996, 15 states had no full-risk plan serving Medicaid.

The composition of plans new to the Medicaid market shifted over time. In 1994, plans entering the market for the first time were evenly split between plans that had been operational in 1993 and newly formed plans. But in 1995 and 1996, newly formed plans came to heavily dominate the mix of new entrants.

While the total number of plans participating in Medicaid more than doubled between 1993 and 1996, 62 plans exited the market during that period. There was concern about whether commercial-based plans would pull out as states reduced their capitation rates, but the 1996 data did not show that commercial plans represented a growing share of departures. Some plans that appeared to have left may still have been serving Medicaid under a different name following a merger.

Implications for Policymakers

From a public policy standpoint, whether Medicaid-dominated plans were a positive development remained unclear. If traditional safety net providers were more involved in these plans than in plans with a broader enrollment mix, they were likely better attuned to the needs of Medicaid enrollees. However, the role of safety net providers in these plans relative to other plans was not yet well understood. Because Medicaid-dominated plans might lack the resources -- or the pressure from employers -- to deliver all contracted services or to develop state-of-the-art quality improvement systems, state policymakers bore a greater responsibility to monitor the quality of care these plans provided.

This Data Bulletin is based on data from Health Care Financing Administration Medicaid managed care enrollment reports for June 1993-1996, the Group Health Association of America Directory of HMOs for 1993-1995, the InterStudy directory for 1996, and a list of national and multiregional HMOs with more than 100,000 enrollees developed for the Center for Studying Health System Change. The term HMO is used here to encompass full-risk plans serving Medicaid, regardless of whether they were licensed as HMOs.

This Data Bulletin is adapted from "Changes in Health Plans Serving Medicaid, 1993-1996," by Suzanne Felt-Lisk and Sara Yang, which appeared in the September/October 1997 issue of Health Affairs. The research was conducted by Mathematica Policy Research, Inc., in collaboration with the Center for Studying Health System Change.

Sources and Further Reading

Felt-Lisk, S. and Yang, S. "Changes in Health Plans Serving Medicaid, 1993-1996." Health Affairs, September/October 1997. Center for Studying Health System Change, Data Bulletin No. 11, Spring 1998.