Arizona Medicaid:

Competition Among Managed Care Plans Lowers Program Costs

HEHS-96-2: Published: Oct 4, 1995. Publicly Released: Oct 4, 1995.

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Pursuant to a congressional request, GAO reviewed Arizona's Medicaid program, focusing on: (1) how the program contains costs; (2) how health plan competition contributes to its cost containment success; (3) the effect of cost containment on beneficiary access to care; and (4) lessons learned from Arizona's cost containment success that could apply to other states' Medicaid programs.

GAO found that: (1) Arizona's Medicaid program mandates managed care enrollment and pays health plans a capitated fee for each beneficiary served; (2) although the program initially experienced problems, it now successfully contains health care costs and provides access to mainstream medical care; (3) while other states' Medicare costs have risen, Arizona's capitation rates have steadily declined; (4) although the cost to administer Arizona's Medicaid program is relatively high, the program saves both the federal and state government millions of dollars annually in acute care costs; (5) the program has successfully contained costs by developing a competitive Medicaid health care market; (6) the program's emphasis on cost containment and competitive billing has not adversely affected beneficiary access to appropriate care; and (7) other states could learn from Arizona's cost containment success by deviating from constraining managed care regulations, developing and using market forces, implementing controls to protect beneficiaries from inadequate care, investing in data collection and analysis capabilities, and revamping existing Medicaid programs.

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