Information Sheet: The Ohio Medicaid Savings Act

Ohio Medicaid insures 3 million people, roughly 25% of the state’s population. The program provides coverage for children from low-income families and their caretakers; the working poor between 19 and 64 years of age who earn less than 138% of the federal poverty limit; low-income people of all ages with blindness, disabilities, and other chronic conditions. Medicaid additionally covers home-based and nursing home services for the elderly and disabled as well as premium coverage for low-income Medicare recipients.

The Medicaid Savings Act, introduced this past spring in the state Senate (SB 386) by Senators Bill Blessing (R) and Beth Liston (D) and in the House of Representatives (HR 780) by Representative Karen Brownlee (D), intends to save Ohio taxpayers between $450 and $850 million per year by reducing wasteful overhead expenses in the administration of the program. The money saved will be used to strengthen existing Medicaid programs and improve access to care for Medicaid recipients.

Here’s what you need to know:

  1. The state of Ohio contracts with seven insurance companies (AmeriHealth Caritas, Anthem, Buckeye, CareSource, Humana, Molina, and United HealthCare) to administer and manage the Medicaid program at a cost of $16 billion/year. These seven companies are known as Managed Care Organizations, or MCOs.
  2. The administrative cost or overhead for the MCOs running Medicaid is 9.1% of the $16 billion, or roughly $1.45 billion/year. Overhead costs include employee and executive salaries and benefits, advertising and administration, and stockholder dividends.
  3. The contracts that MCOs sign with the state are paid a Fixed amount annually for each person enrolled.
    1. This means that the insurance companies can increase their profits by limiting the amount of care they authorize and/or pay for. On the flip side, they lose money if they authorize and pay for care that exceeds the amount of money they receive from the state.
    2. With this kind of contract, the MCOs are incentivized to restrict the number of services they authorize. Many tactics are used to accomplish this, the most well-known of which is denials or pre-authorizations for provider-recommended referrals, testing, medications and surgical procedures.
  4. The Ohio Medicaid Savings Act intends to reduce the $1.45 billion overhead of MCO administration by replacing the seven MCOs with a set of program managers (known as Administrative Service Organizations or ASOs) Ohio Medicaid will be responsible for how much is paid to health care providers. The ASOs will be paid only for their administrative work. But they will have no financial incentive to allow or deny procedures. The state will save money because this type of administration is much simpler. No state money will be spent on advertising or stockholder dividends.
    1. The state of Connecticut made this transition 13 years ago and successfully decreased the overhead for managing their Medicaid program from 13% to 3.5%. Over the course of the next 12 years, Connecticut saved over $4 billion which they then used to expand their Medicaid program.
    2. Ohio should be able to make similar savings of more than half of the $1.45 Billion in administrative costs per year, which is where the estimated savings of $450 Million to $850 Million come from.
    3. Direct consequences would include, as it did in Connecticut, higher reimbursement for provider and hospital-based services, an increase in the numbers of providers and dentists participating in Medicaid, fewer rural hospitals going out of business, and expanded home and community-based services for the elderly and disabled.
  5. ULTIMATELY: The Medicaid Savings Act reduces wasteful overhead spending in the Medicaid program and ensures that a higher percentage of taxpayer dollars allocated by the legislature to Medicaid is spent on direct patient care.

Please join us in promoting these bills. For more information on how to help, contact one of the two following organizations:

  1. Healthcare for All Ohioans/Span Ohio at span@spanohio.org or (614) 233-1406)
  2. Physicians for a National Health Program: State chapter Chair, Dr. Phil Lichtenstein, lichtensteinphil1@gmail.com