Medicaid Insurance Contracts--Problems in Procuring, Administering, and Monitoring

HRD-77-106: Published: Jan 23, 1978. Publicly Released: Jan 23, 1978.

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States have the primary responsibility for creating and operating their Medicaid programs, and the Federal Government pays 50 percent to 78 percent of costs for providing services for programs which conform to legislative provisions. Some states, trying to have better control over Medicaid costs, used insurance contracts for administering their Medicaid programs.

Many private firms declined to participate in Medicaid programs under insurance contracts because of lack of accurate data on program costs and the belief that ventures were too risky. The Department of Health, Education, and Welfare (HEW) reviewed and approved contracts for federal financial participation, but inadequate review resulted in its approval of one contract that violated regulations, one that was ineligible for federal sharing, and federal sharing at incorrect rates under two contracts. States generally did not follow federal Medicaid standards for procurement on insurance contracts. They did not follow competitive practices, evaluate proposals adequately, maintain contract negotiation records, nor evaluate alternatives. There was little federal contract monitoring and no contractor financial assessments because HEW got involved only if states requested it, and the states generally did not have sufficient staff to adequately perform these functions. Information used by states for assessing contractor performance and determining shares of contract savings often contained inaccurate and unreliable data.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: HEW should: improve its assistance to States procuring Medicaid insurance contracts, improve its contract approval and monitoring functions, and revise its Medicaid contracting regulations. The subcommittee should develop legislation to amend the law to prevent Federal sharing in the cost of Medicaid contracts when State laws have restricted competition.

    Agency Affected:


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