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Update on Demonstrations for Dual-Eligible Medicare-Medicaid Beneficiaries

Executive Summary

Characteristics of Individuals Dually Eligible for Medicare and Medicaid

Policymakers have long sought ways to improve quality of care and reduce costs for Medicare beneficiaries with complex medical conditions. Among the most expensive individuals are low-income Medicare beneficiaries who also qualify for Medicaid, or “dual-eligible” beneficiaries.

  • Dual-eligible beneficiaries have significantly greater need for acute medical care, long-term care, and other non-clinical supports and services.
  • Full-benefit dual-eligible beneficiaries have average Medicare spending that is twice as high as average per-beneficiary spending for all other Medicare beneficiaries.
  • Most dual-eligible beneficiaries currently receive medical care in an unmanaged, fee-for-service (FFS) delivery model, which does not provide incentives for care coordination across programs, providers, or care settings.
  • Since Medicare-covered services are financed through the federal government, while Medicaid-covered services are paid for with state government dollars (with significant financial support to the states from the federal government), it can be difficult for each program to focus investments on care delivery changes that will accrue savings overall across programs.

Financial Alignment Initiative Demonstrations

The Financial Alignment Initiative, a series of demonstrations launched in 2011 by the Medicare-Medicaid Coordination Office (MMCO) and the Center for Medicare and Medicaid Innovation within the Centers for Medicare and Medicaid Services (CMS), was designed to test new approaches that address the siloed contracting and reimbursement issues that result in fragmentation of care delivery of Medicare and Medicaid benefits.1 The Financial Alignment Initiative established a Capitated Model and a Managed FFS Model. States could elect to participate in either model, or both.

State Participation

As of 2016, 13 states had agreed to participate in the Financial Alignment Initiative, ten states had chosen to participate in the Capitated Model exclusively, and two states had elected to participate in the Managed FFS Model. Minnesota participates in a novel alternative arrangement, rather than in either the Capitated Model or the Managed FFS Model.2

Approximately 458,000 dual-eligible beneficiaries received care through the Financial Alignment Initiative,3 including more than 373,000 beneficiaries enrolled in the Capitated Model.4 About one-third of all Capitated Model enrollees resides in California, while Illinois, Ohio, and Texas together account for another 29 percent of the population enrolled in the Capitated Model.5


Early Challenges with Potential for Improved Quality and Savings Over Time

While results of the early evaluations are inconclusive, and may cause policymakers to question the success of the demonstrations, experience from states such as Minnesota and Massachusetts?which had a fifteen-year history of integrating Medicare and Medicaid services for dual-eligible beneficiaries aged 65 and over?indicates that care integration may lead to improved outcomes. Positive outcomes include: a reduction in emergency department visits and hospital admissions. Further, structural changes in the demonstrations, such as better alignment of program administration and permitting up-front infrastructure investments in the early years, can result in long-term savings, improved quality of care, and greater availability of services in the home, rather than costlier institutional care.

Early challenges can be remedied with revisions in law and program guidelines, including:

  • Better alignment of coverage standards for Medicare and Medicaid overlapping benefits and the grievance and appeals processes;
  • A longer phase-in of required savings to allow states to become more experienced with the new integrated financing model;
  • If appropriate, adjustments in capitation rates to reflect unanticipated costs, provided there is no added federal cost over the life of the demonstration; and
  • Quality-based payment adjustments for high-performing states.

Whether full integration of Medicare and Medicaid services will improve quality and lower the total cost of care for dual-eligible beneficiaries will vary based on numerous factors, including the care delivery model and state implementation. The demonstrations present an opportunity to better integrate Medicare and Medicaid services, to improve value, quality of care, and access to services, and should be continued and expanded over time.


1 Centers for Medicare & Medicaid Services, Financial Models to Support State Efforts to Integrate Care for Medicare-Medicaid Enrollees, CMS Letter to State Medicaid Directors, July 2011. Available at:
2 CMS Center for Medicare and Medicaid Innovation, CMS Innovation Center: Report to Congress, 61-64, December 2016. Available at:
3 CMS Center for Medicare and Medicaid Innovation, CMS Innovation Center: Report to Congress, 61-64, December 2016. Available at:
4 Integrated Care Resource Center, Monthly Enrollment in Medicare-Medicaid Plans by Plan and by State, January 2016 to January 2017, January 2017. Available at:
5 Ibid.
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