March 2012 Volume 8 Number 7

Dual Eligibles: Proposed Cost Saving Changes and Integration of Care Models

By Sarah Wehrwein, Fort Wayne, IN

Dual eligibles are those individuals who qualify for both Medicare and Medicaid. They are often the most vulnerable and poorest individuals covered by either program due to the nature of the qualifications for each program. There are nearly 9 million individuals who are dual eligibles enrolled in both Medicare and Medicaid.1 They are generally low income senior citizens or those younger than 65 with disabilities or major, chronic health conditions.

Coverage and care for dual eligibles has tended to be fragmented and challenging, at the very least. Dual eligibles are essentially enrolled in two separate entities, with separate coverage policies. Medicare covers most basic and acute health services, including doctor visits and hospital care, while Medicaid is used to cover benefits Medicare does not cover, including long term care, dental, and eye care, and is also used to pay for Medicare premiums and cost-sharing.

The Patient Protection and Accountable Care Act (“PPACA”) has included several changes for management of dual eligibles care in the hopes of lowering the cost of care and providing better care for dual eligibles. The main changes to the care for dual eligibles in PPACA concern changing existing models for coverage of dual eligibles and implementing and experimenting with new models of coverage. Most of these changes involve integrating care or creating care coordination models for dual eligible healthcare coverage.

I. Integrated Care for Dual Eligibles: Save Costs and Provide Better Care

Integration of care for dual eligibles is urgently needed in order to avoid the drastic problems of lack of coordinated care and the expense involved in dual eligible coverage. Because dual eligibles belong to two different programs, there are many overlapping problems, and a greater likelihood of such dual eligibles slipping through the cracks of both programs, as many providers assume the other program is providing the needed care. “Beneficiaries who are in both Medicare and Medicaid can face different benefit plans, different rules for how to get those benefits and potential conflicts in care plans among providers who do not coordinate with each other,” said then-administrator of the Centers for Medicare & Medicaid Services (“CMS”) Donald M. Berwick, M.D.2 The lack of coordination and dissimilar systems used by each program also contribute to the already high cost of caring for dual eligibles. “These two public health programs often work at cross purposes because each program has the incentive to shift liability to the other through coverage interpretations and other strategies that avoid costs.”3

Compounding the problem is the fact that coordinating care between the two programs depends on the level of dual benefits the beneficiary receives, i.e. full or partial duals, and whether the dual eligible is in a Medicare fee-for-service (“FFS”) or in a Medicare Advantage (“MA”) plan.4 Dual eligibles, although enrolled in both Medicare and Medicaid, are considered to be Medicare beneficiaries first, and Medicare beneficiaries can choose whether or not to enroll in managed care. Because dual eligibles enrollment in managed care cannot be mandated by states, most dual eligibles are in Medicare FFS.5 Regardless of the level of benefits or plan the dual eligible is enrolled in, there are still major gaps in care that integration of the two programs could resolve.

II. PPACA Changes Affecting Dual Eligibles

PPACA Section 2602 specifically addresses changes needed in care and coverage for dual eligibles.6 This section created the Federal Coordinated Health Care Office, now called the Medicare-Medicaid Coordination Office or Duals Office, within CMS. The purpose of the Duals Office is to help integrate benefits of Medicare and Medicaid and “improve the coordination between the Federal government and States for individuals eligible for benefits under both such programs in order to ensure that such individuals get full access to the items and services to which they are entitled.”7

The most notable change in cost savings and care that this office has implemented thus far began with the State Demonstrations to Integrate Care for Dual Eligible Individuals initiative which was launched in April of 2011.8 Through this initiative 15 states were granted federal funding to help them better coordinate care for dual eligibles. Each of the states were awarded up to $1 million in the form of design contracts to help “design strategies for implementing person-centered models that fully coordinate all care and services for dual eligibles.”9 The proposed models are designed to fully integrate primary, acute, behavioral, and long-term support and services for dual eligibles, furthering the two main goals of lowering costs and providing better care. The states selected for this initiative are California, Colorado, Connecticut, Massachusetts, Michigan, Minnesota, New York, North Carolina, Oklahoma, Oregon, South Carolina, Tennessee, Vermont, Washington, and Wisconsin.10 Each state submitted an initial proposal and are now in a 12-month design period, which began in April and May of 2011. Significantly, the 12-month period directs participating states “to engage in significant work with their stakeholder community during the design phrase to ensure broad and ongoing stakeholder input on their implementation period.”11 After the design phase, CMS will review the models and begin the implementation of plans that best meet the goals of the models and certain standards and conditions.12 In total the process is estimated to take 18 months, with some state plans ready to begin in 2012.13

In July of 2011, CMS released a letter to State Medicaid Directors which described in more detail the models CMS would like the states to follow and also expanded the demonstrations.14 CMS targeted two particular financial alignment models that CMS seeks to test with states, the capitated model and the managed FFS model of integration.15 The managed FFS model follows the existing FFS methods of delivery arrangements. The capitated model follows the basic set up for previously utilized programs and funding arrangements which had the most integration between Medicare and Medicaid. States selected for the initiative were encouraged to try either of these models or develop a model that is a combination of both.

The CMS letter also stated that the two financial alignment models were open not only to the 15 selected states but also any other state. Interested states were directed to submit a letter of intent to CMS describing the state’s interest in testing one or the other described models, or both, as long as the state “demonstrates that it can meet the established standards and conditions and would be ready to implement its proposed demonstrations by the end of 2012.” CMS would consider assisting them to begin the models within that state.16 In October of 2011, CMS announced that all 15 originally selected states and 35 other states, plus the District of Columbia, had submitted letters of intent showing their interest in testing the models.17

Both of CMS’s financial alignment models hold out the promise of cost savings and better care for dual eligibles. In order to better understand the initiative and determine whether the letters of intent from the states will help create truly integrated care for dual eligibles, it is necessary to look in more detail at what the two models are based on and the changes they propose to offer for dual eligibles.

FFS Model:

The Managed FFS model is based almost entirely on existing FFS delivery systems. As mentioned, most dual eligibles are currently enrolled in a Medicare FFS plan. Additionally, states are familiar with this system and “many states have invested significant resources to organize their delivery system to provide coordinated care for Medicaid beneficiaries through an FFS model.”18 The FFS model is different from the capitated model in that it involves retrospective performance payment to the state.

Under this model, the state would make an agreement with CMS to take on full responsibility for dual eligibles' care coordination between Medicare and Medicaid and ensure that dual eligibles received all their benefits from both programs. The state pays these costs and then would be eligible for reimbursement. States were directed to “make the upfront investment in care coordination and would be eligible for a retrospective performance payment should a target level of savings result to Medicare.”19 While providers would still be reimbursed on a FFS basis, this model would eliminate the previous problem of a state’s reluctance to invest in needed system improvements when the resulting savings would only benefit Medicare and the federal government. In order to make this model more integrated and encourage continued coordination between the programs, CMS also has new programs “focused on redesigning the primary care delivery system (e.g., accountable care organizations, Medicaid health homes) to offer opportunities for states to improve coordination of care within a managed FFS delivery model.”20 This is extremely important to ensure full integration under the managed FFS model, as many of the current FFS systems revolve exclusively around the spending and paying back rotating through Medicare and Medicaid. There is also a danger under the FFS model that inappropriate services might be encouraged or performed for dual eligibles because the model is FFS-based. Dual eligibles may be compromised by incentives within a FFS model to provide more services for increased pay under this system. However, more work on the model and the redesigned delivery systems will hopefully address these issues. Concerns regarding inappropriate or unnecessary utilization of services might be addressed by blending this model or using it in conjunction with the capitated model may also help to solve the problems and provide truly integrated care for dual eligibles.

Capitated Model:

The capitated model involves reinventing or expanding MA plans. It creates a three way contract among CMS, the state, and health plans. Plans will receive a blended rate for all of the services each plan provides. The services provided will include all benefits from both Medicare and Medicaid for dual eligibles and address all aspects of care. A goal of the capitated model is to “target aggregate savings through actuarially developed blended rates that will provide savings for both states and the Federal government.”21

This model will follow closely previous MA plan designs such as Medicare Advantage Special Needs Plans (“SNPs”) and the Program of All-Inclusive Care for the Elderly (“PACE”) program. This model has the potential to provide plenty of cost savings, and, most importantly, full integration of coverage for dual eligibles because it will be developed within the framework of SNPs and the PACE program, both of which were the most integrated plans previous to PPACA. There is a lot that can be learned from these plans and the plans are greatly in need of the improvements CMS anticipates through utilizing a capitated model.

Medicare Advantage SNPs were given authorization by the Medicare Modernization Act of 2003 (“MMA”).22 By targeting one of three high needs populations, certain Medicare Advantage plans are allowed to be designated as SNPs. The three high needs populations are: 1) institutionalized beneficiaries, 2) beneficiaries with chronic health conditions, and 3) beneficiaries who are dual eligibles. Once a plan targets one of these populations, then a managed care organization receives payments from both Medicare and Medicaid, in exchange for the organization establishing care coordination and provider networks.

Many organizations, including America’s Health Insurance Plans (“AHIP”), an insurance company trade group, have released estimates on the amount of money that could be saved if dual eligibles were enrolled in managed care plans, such as SNPs.23 However, many of these estimates count on drastic changes being made to current SNPs. The author of the AHIP’s proposal, has said that “the estimate is based on a best possible scenario, not an application of the traditional managed care model to the dual-eligible population.”24 Currently, a dual eligible’s enrollment in an SNP doesn’t ensure integrated care. Instead, the major benefits for dual eligibles in SNPs involve, “the potential relationships between these health plans and state Medicaid agencies.”25 Additionally, only a very limited number of states currently offer fully integrated SNPs for dual eligibles to even enroll in. The capitated model will build “on those experiences and is designed to address some of the remaining programmatic and fiscal challenges in current contracting models, and to ensure incentives are aligned to encourage states and plans to participate.”26

Another program the capitated model intends to learn from and to improve upon in order to offer integrated care to dual eligibles is the Program of All-Inclusive Care for the Elderly or PACE program. The PACE program was created by the Balanced Budget Act of 1997 (“BBA”).27 PACE features care integrated at the healthcare provider level and integrated financing for Medicare and Medicaid. The PACE program “boasts an established track record of widespread satisfaction and cost savings for dual eligibles.”28 However, this program also contains many drawbacks, mostly based on program requirements and availability. For instance, PACE is only available for those dual eligibles over the age of 55 who are also certified as eligible for nursing home care. The program’s services revolve primarily around adult day care and in-home and referral services. In addition, participants must be living within a PACE service area and also give up their existing medical providers since PACE’s integrated care team takes over all Medicare and Medicaid covered services.

III. Conclusion

Both financial alignment models proposed by CMS are a good step towards integrating care for dual eligibles. It is imperative that care for dual eligibles be integrated, as it should lower costs significantly and provide better care by avoiding overlapping from both programs and ensuring all providers are fully engaged in care. The expansion of CMS’s original initiative to include other states and also further define the payment models, means the government and states are continuing to develop integration concepts for duals. From the letters of intent submitted by the 37 states, it is clear the integration of care for dual eligibles is something that most states are highly interested in pursuing.29

The predecessor programs, which CMS based its two models on, have shown that integration of care is possible for dual eligibles. They have also demonstrated that integration of care is most likely the ideal matrix of care for dual eligibles. However, expansion of all programs, including expansion into rural or less populated areas, must be done before mandatory enrollment should be considered. Currently, “Medicaid service delivery models vary significantly both across states and within states across populations and geographic areas.”30 This remains quite a problem as integration is impossible without the proper networks and mechanisms in place. It remains to be seen whether states will be able to create their own new models and/or expand their existing programs (SNPs, PACE, FFS) sufficiently in order to serve most of the nine million dual eligibles. Hopefully, expansion and integration of care will continue in spite of budget pressures.

More importantly, the benefits to dual eligibles and the coordination of care that can be achieved between Medicare and Medicaid through the proposed financial alignment models must be more closely studied and monitored. While the managed care plans in existence have had some positive results, more research is needed to continually assess whether the models are in fact still benefiting dual eligibles in terms of proper care and services. As stated in a recent Kaiser Commission policy brief, “[t]here is a need to also ascertain that the Medicare and Medicaid benefits to which the dual population is entitled are not compromised in the financial models being tested.”31 Therefore, close watch should be kept as the models continue to be tested and tweaked. It must be ensured that the cost savings argued for such models will actually benefit dual eligibles in terms of better health care and services.

*For more Resources on Dual Eligibles:


Kaiser Commission on Medicaid and the Uninsured, “Dual Eligibles: Medicaid’s Role for Low-Income Medicare Beneficiaries,” Kaiser Family Foundation, February 2009.

2 U.S. Department of Health and Human Services, HHS News, Press Release, “New Flexibility for States to Improve Medicaid and Implement Innovative Practices,” April 14, 2011.

Davenport, Karen; Hodin, Renee Markus; Feder, Judy. “The “Dual Eligible” Opportunity: Improving Care and Reducing Costs for Individuals Eligible for Medicare and Medicaid” Center for American Progress, December 2010.


For more information on full or partial dual eligibles see Kaiser Commission on Medicaid and the Uninsured, “Medicaid Financial Eligibility: Primary Pathways for the Elderly and People with Disabilities,” Kaiser Family Foundation, February 2010. or Moore, Judith D., “Medicare and Medicaid Dual Eligibles: Two Programs, Twice the Challenge?” National Health Policy Forum.


MedPac 2004, “Dual Eligible Beneficiaries: An Overview” Report to the Congress: New Approaches in Medicare, July 2004.


The Patient Protection and Affordable Care Act, Public Law 111-148, 124 Stat. 119 (2010) as amended by The Health Care and Education Reconciliation Act of 2010, Public Law 111-152, 124 Stat. 1029 (2010). There are other sections of PPACA that also involve or effect dual eligibles. One example is PPACA § 3021, which created the Center for Medicare and Medicaid Innovation Center (“CMI”) to “test innovative payment and service delivery models” for duals and other beneficiaries. See CMI’s website for more information at


PPACA § 2602 (b)(2).


This initiative is provided for under PPACA § 2602 (d)(1), (2), & (3), (d)(1): “Providing States, specialized MA plans for special needs individuals…for developing programs that align benefits under the Medicare and Medicaid programs for dual eligible individuals.” (d)(2) “ Supporting State efforts to coordinate and align acute care and long-term care services for dual eligible individuals.”


“15 States Win Contracts to Develop New Ways to Coordinate Care for People with Medicare and Medicaid” CMS Office of Public Affairs, Fact Sheet.




CMS, “State Design Contract Summaries.”


“Financial Models to Support State’s Efforts to Integrate Care for Medicare-Medicaid Enrollees” CMS, Medicare-Medicaid Coordination Office.


For more information on each state’s design, downloads in PDF of each state’s Design Contract Summary can be found at the CMS website at the above link, under “State Design Contract Summaries.”


Centers for Medicare & Medicaid Services, Medicare-Medicaid Coordination Office, Letter to State Medicaid Directors, “Regarding Financial Models to Support State Efforts to Integrate Care for Medicare-Medicaid Enrollees” July 8, 2011.






CMS, “States Submitting Letters of Intent-Financial alignment Models,” October 2011, and for more information on each state’s letter of intent, an informative brief is available from The Henry J. Kaiser Family Foundation, The Kaiser Commission on Medicaid and the Uninsured, Policy Brief: “Financial Alignment Models for Dual Eligibles: an Update” November 2011, available at


Centers for Medicare & Medicaid Services, Medicare-Medicaid Coordination Office, Letter to State Medicaid Directors, “Regarding Financial Models to Support State Efforts to Integrate Care for Medicare-Medicaid Enrollees” July 8, 2011.




Id. For more information on Medicaid health homes see the Integrated Care Resource Center, available through CMS at or Justice, Diane, “Long Term Services and Supports and Chronic Care Coordination: Policy Advances Enacted by the Patient Protection and Affordable Care Act,” National Academy for State Health Policy, April 2010.




Medicare Prescription, Drug, Improvement, and Modernization Act (“MMA”), Public Law 108-173, of 2003.


“AHIP Proposal: Achieving Medicare/Medicaid Integration for Dually Eligible Beneficiaries” America’s Health Insurance Plans, October 2011.


Berry, Emily. “Health Plans Say They Can Save Money on Dual Eligibles” American Medical News, October 6, 2011 .

25 “Supporting Integrated Care for Dual Eligibles,” Center for Health Care Strategies, Inc., Policy Brief, July 2009.
26 Centers for Medicare & Medicaid Services, Medicare-Medicaid Coordination Office, Letter to State Medicaid Directors, “Regarding Financial Models to Support State Efforts to Integrate Care for Medicare-Medicaid Enrollees” July 8, 2011.
27 Balanced Budget Act of 1997, Public Law 105-33.
28 Davenport, Karen; Hodin, Renee Markus; Feder, Judy. “The “Dual Eligible” Opportunity: Improving Care and Reducing Costs for Individuals Eligible for Medicare and Medicaid” Center for American Progress, December 2010.
29 “Of the States that addressed which benefits would be encompassed in their proposed financial alignment model demonstrations, nearly all indicated that they planned to include all Medicare and Medicaid benefits.” The Kaiser Commission on Medicaid and the Uninsured, Policy Brief: “Financial Alignment Models for Dual Eligibles: an Update” Kaiser Family Foundation November 2011, available at
30 Kaiser Commission on Medicaid and the Uninsured, “Proposed Models to Integrate Medicare and Medicaid Benefits for Dual Eligibles: A Look at the 15 State Design Contracts Funded by CMS” Kaiser Family Foundation, August 2011.
31 The Kaiser Commission on Medicaid and the Uninsured, Policy Brief: “Financial Alignment Models for Dual Eligibles: an Update” Kaiser Family Foundation, November 2011, available at

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