California's Shift to Medicaid Managed Care Doesn't Save Money or Improve Outcomes

Effects of managed care on government spending and health care quality: Evidence from California's Medicaid mandates

From 2002 to 2004, Mark Duggan, PhD, at the University of Maryland—after doing initial work at the University of Chicago—evaluated how county-level mandates requiring most Medicaid recipients to enroll in a managed care plan affected government spending and health outcomes in 20 California counties.

This project was part of the Robert Wood Johnson Foundation (RWJF) national program Changes in Health Care Financing and Organization (HCFO).

Key Findings

  • Following the shift from fee-for-service to managed care, Medicaid spending increased an average of 17 percent, an effect that lasted well after the shift, suggesting that startup costs were not the cause of the increase.

  • Counties with only one managed care plan experienced significantly greater spending increases than those with multiple plans, suggesting a benefit to competition.

  • Significant improvements in health outcomes did not result.

  • Infant health outcomes showed little change.

  • Although the study did not produce administrative cost data, anecdotal evidence suggests that the shift to managed care may result in increased state administrative costs.

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