A randomized trial to evaluate the effectiveness of a Medicaid HMO

The value of health-care services used by AFDC Medicaid patients receiving care in a voluntary enrollment HMO is contrasted with that of health care services used by Medicaid patients receiving fee-for-service (FFS) care. The randomized assignment of Medicaid recipients to the HMO or to FFS allows the authors to conclude that the apparent lower use of HMO enrollees results from the HMO's selection of patients with lower needs for care rather than from technical efficiency. Patients had lower use while in the HMO, but disenrollees and those who refused enrollment had significantly higher use than FFS participants. In contrast to the effect of HMOs on non-Medicaid populations, the Medicaid HMO studied provided significantly fewer outpatient services, but the same level of inpatient services as the FFS sector. Overall, voluntary enrollment of Medicaid eligibles into the HMO resulted in higher state expenditures for Medicaid because of favorable selection.