There's money in Medicaid

Many states have been turning to HMOs to lower their Medicaid costs. They try to figure out what they spend on Medicaid patients and then ask an HMO to take over their patient base for a fee that is about 8% less than the state's expected costs. The assumption is that companies will be more efficient than the state.

The problem is that efficiency can be achieved in a variety of ways. Many of these companies have been accused of making it very difficult for patients to be treated. Others are spending less of their premium income on patients. States used to spend 94 - 96% of their Medicaid budget on medical benefits, HMOs spend 80 to 85%. Where does the difference go? It goes into salaries, political contributions, lobbying and getting the HMO's name plastered on a number of buildings.

The jury is still out on this issue, but the omens are not good.