Research & Commentary: Advantages of Managed Care for Medicaid

Published August 25, 2011

The skyrocketing costs caused by Medicaid’s fee-for-service approach have states struggling to meet their government budgets, and access to quality health care is becoming scarcer. In hopes of improving access and reducing costs, many states are considering turning to managed care.

Under a managed care system, health care providers would receive a bundled payment for each patient. By contrast, fee-for-service, the current system, pays practitioners for the amount of services delivered, leading at times to waste and abuse. Moreover, Medicaid’s fee-for-service approach has unsustainably low reimbursement rates, which cause physicians to refuse to accept Medicaid patients.

Opponents of managed care claim such systems fail to improve access to care and put health care decisions in the hands of business people instead of doctors and patients. However, studies show the opposite is true. Managed care improves access by encouraging a partnership between patients and health care providers and allowing them to allocate care within each patient’s overall budget. It has been found to generate better health outcomes than fee-for-service, as the doctor-patient relationship allows more attention to long-term and preventative care.

Managed care also reduce states’ Medicaid financial burden by holding providers accountable for fraud and abuse through Managed Medicaid contracts. According to the American Action Forum, “Studies indicate that waste and duplication may account for up to 50% of the nation’s healthcare spending, … [and] unnecessary medical tests alone contributed $210 billion to the U.S. healthcare costs in 2008.” Managed Medicaid contracts allow and in fact require providers to practice fiscal responsibility. Through monitoring of patient satisfaction scores, states can create additional incentives for providers to act responsibly.

If effectively implemented and practiced, managed care can improve health care for the nation’s neediest patients while reducing costs for both patients and states.

The following documents offer additional information on managed care.


Moving Beyond Fee-For-Service: The Case for Managed Care in Medicaid
Michael Ramlet and Carey Lafferty of the American Action Forum outline the advantages of a managed care system, from improved access to care to facilitating care coordination.

California Shifts to Managed Care For Medicaid
Health Care News reports on California’s decision to switch to a managed care Medicaid system and its potential benefits.

Managed Care Planned for Georgia Medicaid
Health Care News reports on Georgia’s debate over whether to implement a managed care system to control Medicaid costs.

The Case for Managed Care
In a three-part series, Stuart A. Wesbury Jr., Ph.D., discusses the history and evolution of managed care and explains the differing effects of managed care and fee-for-service on health outcomes.

Medicaid Managed Care Cost Savings—A Synthesis of 24 Studies
The Lewin Group outlines the advantages and challenges of implementing a managed care system.


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Health Care News Web site at, The Heartland Institute’s Web site at, and PolicyBot, Heartland’s free online research database, at

If you have any questions about this issue or the Health Care News Web site, contact the Heartland’s Institute’s health care legislative specialist, Kendall Antekeier, at [email protected].