Understanding Medicaid Home and Community Services: A Primer, 2010 Edition. Reasons for Developing MLTC Programs


The key feature of risk-based managed care is that a contractor bears financial risk for services provided over time and across settings. The contractor is paid a capitation rate per enrollee and is responsible for providing all contracted benefits under this rate. If the actual cost of providing services exceeds the aggregate capitation amount, the contractor experiences a loss, but if services can be provided at or below the capitation amount, the contractor profits. As applied to long-term care, this approach creates an incentive to avoid institutional care whenever possible through the provision of cost-effective home and community services.

States commonly cite the following goals as reasons to develop MLTC.

  • Strengthen accountability for quality.When bolstered by a robust quality improvement component, MLTC can hold contractors accountable for consumer outcomes over time and across service settings. Given that many individuals who receive long-term care services have complex, multi-service needs, the ability to hold contractors accountable for a broad range of services across multiple service settings is critical to quality improvement. Absent a single, accountable contractor, it is very difficult to work on preventing avoidable hospitalization or institutionalization.

  • Streamline and coordinate access to services.A good care management system can help address the lack of coordination across primary, acute, and long-term services. Such coordination is particularly important in integrated programs for dually eligible persons. Care management is also critical in traditional HCBS waiver programs, but care managers are limited to managing waiver services and have little or no interaction or influence with primary and acute health care providers.

  • Complement state efforts to better balance their long-term service systems. States see MLTC as an effective vehicle for reducing the unnecessary use of institutional services and increasing the use of home and community services. In the fee-for-service system, such balancing efforts often face a financing obstacle: states need to increase resources for home and community services while maintaining funding for institutional care. The flexibility of capitation addresses this problem when community and institutional services dollars are blended in a single capitation rate. The contractor has the flexibility to use the capitation rate in the most appropriate way that meets the needs and preferences of the consumer. In essence, the capitation becomes a flexible, portable, and global budget.9

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