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Executive Summary

Capitation spending is poised to become the dominant mode of Medicaid expenditures going forward. As of 2016, capitation spending represented 48.9% of national Medicaid expenditures, and this percentage has been increasing rapidly. As recently as 2010, capitation represented “only” 27.3% of Medicaid spending, for example.

We were asked by the Association for Community Affiliated Plans (ACAP) to estimate the current savings of the managed care model in Medicaid, as well as the additional savings that can occur if remaining fee-for-service (FFS) expenditures were moved into a capitated MCO setting.

Our report estimates that the MCO model delivered nationwide Medicaid savings of $7.1 billion in 2016, assuming that provider unit prices paid by Medicaid MCOs are equivalent in the aggregate to Medicaid fee-for-service (FFS) levels. The $7.1 billion figure represents an overall savings of 2.6% on all the funds paid via capitation. The 10-year savings from existing capitation programs across the 2017-2026 timeframe are projected to total $94.4 billion. The derivation of these nationwide figures is summarized in Exhibit ES-1.

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