Iowa saved $126 million in fiscal year 2018 by privatizing its management of Medicaid, according to a November report from the state auditor.
These savings shouldn’t be a surprise. Private companies are better at managing public funds than the government because they have an incentive to cut costs: It affects their bottom line.
In 2016, then Gov. Terry Branstad announced the state would transition responsibility for its $5 billion Medicaid program to managed-care organizations. Unlike traditional Medicaid, in which providers receive a fee for each service provided, MCOs receive a set amount of state funding per enrollee to treat patients.
Medicaid, which receives state and federal funding, was expanded under Obamacare in 37 states and Washington, D.C., to cover 76 million people. It’s in desperate need of savings like these. The program’s total spending is expected to increase 5.8 percentevery year from 2017 to 2026, according to a government report published this year.
Importantly, the savings from privatization don’t come at the expense of patient health. In many cases, care improves.
Mothers enrolled in Medicaid managed care are just as likely to deliver healthy babies as those on the fee-for-service model, according to a 2012 analysis from the Robert Wood Johnson Foundation. Children with type 1 diabetes on a managed-care Medicaid plan are less likely to be readmitted to a hospital within 90 days after being discharged, according to a 2016 studypublished in the American Journal of Managed Care.
Iowa isn’t the first state to privatize its Medicaid management. More than half of the nation’s Medicaid recipients receive benefits through MCOs. Now, more states need to look to privatize care — to save dollars and improve lives.