In a new NBER working paper, Tim Layton and Eran Politzer looked at how spending changed in state Medicaid programs after counties transitioned from fee for service to privatized Medicaid Managed Care programs for disabled adults. The table below is the show stopper:

While total Medicaid spending in treatment counties (Panel B) is lower at the first year post-mandate, it demonstrates a continuous and monotonic rise in each subsequent year. These results provide no support to the claim that managed care mandates save costs for the Medicaid program, outside of the first implementation year. Instead, they suggest that mandates lead to a dynamic pattern of increasing spending.

The authors argue that since actuarial rate setting is effectively past spending plus a trend factor there are almost no long term cost control incentives in these contracts.

I’m working on a project in the ACA space that is thinking about administrative/actuarial price setting so this is something that I need to chew on for the rest of the year and the start of next year.