By skyforbes 
States can tailor Medicaid programs using tools called Section 1115 demonstration waivers to pilot new payment models, expand services like housing support, or better integrate behavioral and physical health services. I personally worked on one such project to integrate behavioral health services from FFS to a managed care system, and millions of dollars have been saved as a result of better care coordination. There are studies that find that Medicaid leads to earlier detection of disease, better management of chronic conditions, and more peace of mind knowing that they will be able to afford care if they get sick.
Medicaid can be a testing ground for innovation, with ideas later adopted by Medicare or private insurance. For example, the Patient-Centered Medical Home (PCMH) model spread through Medicaid. It was a model that sought to improve quality and reduce costs by coordinating care through a PCP or primary care team. As such, the system focused on comprehensive, team-based care, better access and follow-up, better management of chronic disease, and reduced unnecessary ER visits. States like Oregon, North Carolina, and Colorado pioneered this in the early 2000’s and saw success. Another system that started in Medicaid was the Delivery System Reform Incentive Payment (DSRIP) program. This fostered community care initiatives to reduce unnecessary inpatient care and drive better outcomes, and it provided states with additional performance-based hospital funding. The program influenced the Medicare Accountable Care Organizations (ACOs) and bundled payment models that we see in action today. To better incentivize care that goes uncompensated, both Medicare and Medicaid make supplemental payments to “disproportionate share” hospitals (DSH).
Many Medicaid State departments run analyses to evaluate medical and pharmacy management effectiveness. I have personally worked on projects that aim to reduce avoidable costs while retaining commitment to high quality care, including curtailing low acuity non-emergent care in the ER, readmission to hospitals, Cesarean-Section delivery rates, and potentially preventable inpatient admissions for chronic conditions like diabetes. My team and I have identified hundreds of millions of dollars in potential savings, and our analysis informs prospective State budget reductions to attempt to incentivize efficient MCO care. However, I have observed how many MCOs have little power to improve these health outcomes or change patient behavior. They typically absorb this funding loss from the State.
Medicaid MCOs have specific strategies to curtail ER overutilization, especially programs that have adopted Medicaid expansion. They can run education campaigns teaching members about which situations to use the ER vs urgent care or primary care centers, and they can send letters to members after a visit that involves “inappropriate ER use”. They can assign case managers to high-risk Medicaid members. They can contract with or expand hours at primary care centers, and this method was shown to reduce avoidable ER visits by Medicaid members in North Carolina. States with Medicaid expansion had a significant reduction in ER use compared to states without expansion.
As of January 2025, Medicare Part D enrollees benefit from a $2k annual cap on OOP prescription drug costs as part of the Inflation Reduction Act. They can even flex their costs evenly throughout the year with the Prescription Payment Plan.
MA has led to better care coordination, preventive care, and chronic disease care for the elderly. Most plans cover dental, vision, hearing, transportation, and meals. Many MA plans combine Parts A, B, and D into one plan and charge no additional premium beyond the Part B premium.
Medicaid and Medicare do have fraud prevention initiatives, like the bipartisan Fraud Prevention Act introduced recently that would establish additional checks on payments to providers. The “One Big Beautiful Bill Act” proposed funding cuts for both programs also were intended to cut down on fraudulent payments. In response to recent events, CMS has expanded its auditing efforts for MA plans. They plan to audit all 550 contracts each year, as compared to 60 previously, and hire 2k more medical coders 9. MA star ratings have taken a hit in 2025 as a result of tougher CMS scrutiny. UnitedHealthcare and other MA plans are seeing their stocks tumbling as a result.
However, despite these strategies, both of the public options remain extremely weak compared to the private insurance system. In the next part, I expand on what makes the private system superior.
NOTE: this piece is an excerpt from a broader proposal. The full white paper was originally published here.