Arizona Medicaid

Many states are converting their traditional fee-for-service Medicaid programs to managed care delivery systems. Arizona's Medicaid program offers valuable insights--especially in fostering competition and monitoring plan performance. Since 1982, Arizona has operated a statewide Medicaid program that mandates enrollment in managed care and pays health plans a capitated fee for each beneficiary served. Although the program had problems in its early years, such as the dismissal of the program administration and the state's takeover of the administration, it has successfully contained health care costs while maintaining beneficiaries access to mainstream medical care. Arizona's recent cost containment record is noteworthy. According to one estimate, Arizona's Medicaid program saved the federal government $37 million and the state $15 million in acute care costs during fiscal year 1991 alone. Arizona succeeded in containing costs by developing a competitive Medicaid health care market. Health plans that submit capitation rates higher than their competitors' bids risk not winning Medicaid contracts. Other states considering managed care programs can benefit from Arizona's experience. GAO concludes that key conditions for holding down Medicaid costs without compromising beneficiaries' access to appropriate medicare care include federal from some federal managed care regulations, development and use of market forces, controls to protect beneficiaries from inadequate care, and investment in data collection and analysis capabilities.

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.