In the dark ages of Clinton Care 1.0, heath care policy gurus assured the world that managed care would save enormous sums. Medicaid clients were herded into capitated health plans. State governments salivated over the projected savings. Urged on by the Robert Wood Johnson Foundation and other “technical advisors” who were managed care boosters, Medicaid HMO capitation rates were set at 95% of fee-for-service costs.

In Colorado, the results are now coming in and the picture isn’t pretty. At the beginning of FY 02-03, the state contracted with five plans, including plans managed by Kaiser and United Health Care. Fifty percent of Medicaid clients were enrolled in managed care. In November 2002, Kaiser and United Health pulled out of the plan. In 2003, two other plans pulled out. Four out of the five original plans sued the state for inadequate payments. They won $77,810,395 in additional payments, along with legislation requiring actuarially sound calculations of capitation rates.

Enrollment in Medicaid managed care continued to fall. Even though clients enrolled after May 1, 2006 were automatically enrolled in managed care unless they actively chose fee-for-service, less than 10% of Medicaid clients were enrolled in risk-based managed care by September 2006.

In June, 2007 the last remaining capitated care provider informed Colorado that it would withdraw unless capitation rates were increased to 100% of the fee-for-service rates. The state has officially requested an emergency supplemental appropriation to raise HMO capitation rates to 100% of fee-for-service rates.

So it is now official. Analyses that project wild savings for managed care on the basis of wild assumptions that it will only cost 95% of fee-for-service care are in error. Furthermore, data coming on Medicare managed care suggests that lower reported individual costs in HMOs may be influenced by favorable enrollment of healthier beneficiaries and the fact that sicker members are more likely to disenroll.

Meanwhile, Colorado’s Consumer Directed Attendant Support program continues to save the state 10 to 20% by giving disabled Medicaid clients a budget for their attendant care and letting them keep 50% of any savings.

In other news, Colorado’s Blue Ribbon Health Care Reform Commission has just voted to endorse a plan that would require that 50% of Medicaid beneficiaries be enrolled in managed care.