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Press Release · December 7, 2000

Health Care For Medi-Cal Population Less Costly Than Care For Privately Insured, Study Finds

But Other Factors May Prevent Commercial Plans from Accepting Medi-Cal Participants

SAN FRANCISCO, California, December 7, 2000 – A just-released study by the Public Policy Institute of California (PPIC) challenges the common notion that less affluent populations enrolled in Medicaid programs are a greater health risk and require more costly care. In fact, the study finds that the expected cost of health care for Californians enrolled in the state’s Medicaid program, Medi-Cal, is lower than the expected cost of care for privately insured residents not in an HMO.

This finding supports California’s recent decision to enhance the health care choices of many Medi-Cal participants by offering them the opportunity to enroll in private health plans, according to authors Kathleen Adams, Janet Bronstein, and Edmund Becker. “On the basis of health risk alone, commercial plans might find the Medi-Cal population a desirable client group because their expected costs appear to be less than the costs of privately insured people in non-HMO plans,” says Adams, an associate professor at the Rollins School of Public Health in Atlanta. Indeed, based on the measures of health risk used in the study, the authors find that the anticipated costs of Medi-Cal participants are nearly 20 percent lower.

However, health risk is not the sole criterion on which plans base their enrollment decisions, and the study also reports that Medi-Cal’s low payment rates could discourage private plans from accepting Medi-Cal participants. According to the analysis, the amount that Medi-Cal reimburses providers for services is only about 30 percent of the amount commercial plans pay for the privately insured. “Medi-Cal’s payment rate poses a serious challenge to private plans because they must either recruit and retain providers who are willing to accept this lower level of payment or find savings elsewhere,” says Adams. “This could ultimately deter many plans from accepting Medi-Cal clients despite the lower expected costs of care.”

Another quandary facing commercial health plans is the high number and high cost of short-term Medi-Cal users. The authors found that 16 to 25 percent of Medi-Cal participants in urban counties, and 15 to 22 percent in rural counties, were enrolled in the program for less than 6 months.

According to the study, the cost of treating short-term enrollees in California is double that of long-term participants, perhaps reflecting a pent up or urgent demand for more serious medical attention. “Short-term Medi-Cal participants appear to use more services, particularly days spent in the hospital,” says Adams. “The greater use of inpatient hospital services can be a real problem because this is typically the most expensive type of resource.” Pregnant women at or near delivery who have not received prenatal care represent a significant number of these short-term, high-cost cases.

The authors make a number of policy recommendations to address the conditions that might prevent private health plans from accepting Medi-Cal participants. According to the study, policymakers should consider using risk-adjusted rates for more sick Medi-Cal clients rather than paying commercial plans the same flat rate for all enrollees. Additionally, the authors suggest enrolling people in Medi-Cal managed care as soon as they are eligible so they can receive preventative and outpatient care and avoid costly hospital stays.

In Medi-Cal and Managed Care: Risks, Costs, and Regional Variation, the authors analyzed the 1994 administrative claims files of over two million Medi-Cal participants in seven selected counties across the state. These files were compared to claims files from a sample of privately insured California workers in non-HMO systems over the same period to identify the health care resources used by each group.

The Public Policy Institute of California is a private, nonprofit organization dedicated to objective, nonpartisan research on economic, social, and political issues that affect the lives of Californians. The Institute was established in 1994 with an endowment from William R. Hewlett.