New York State's Medicaid Redesign Team (MRT) recently published its final recommendations to the New York State Dept. of Health, proposing a model that would fully integrate Medicaid and Medicare services for those eligible for both programs (dual eligibility).

Under the proposal, the program would be managed by New York state authorities, rather than Federal organizations and it will partner with health plans and/or other provider groups through sub-capitation arrangements to implement the integrated system.

Additionally, although the federal government will continue to pay a portion of care costs, New York will take responsibility for implementing the new coordinated/integrated care model.

We view the MRT proposals as incrementally positive for Medicare and Medicaid MCOs operating in the state, notably Amerigroup Corp. (NYSE:AGP), UnitedHealth Group, Inc. (NYSE:UNH), WellCare Health Plans, Inc. (NYSE:WCG) and WellPoint, Inc. (NYSE:WLP), Susquehanna Financial analyst Chris Rigg wrote in a note to clients.

The state of New York, through the Medicaid Redesign Team, has set a goal to have virtually all Medicaid recipients enrolled in some kind of care management organization within the next three to five years. New York believes full capitation is the optimal financial arrangement but remains open to other payment models.

The recommendation specifically proposes that New York seek a waiver from the Centers for Medicare and Medicaid Services (CMS) to allow the state to take on risk for the delivery and financing of Medicare services for individuals with dual eligibility.

The state will then partner with health plans and/or integrated provider groups through sub-capitation arrangements to manage health care services of beneficiaries.

The MRT group is optimistic it can secure a waiver, noting that it estimates the federal government would realize $18.8 billion of savings from the redesign over five years.

New York, which was one of 15 states to be awarded $1 million from the CMS to develop a coordinated care program for the dual-eligible population in April of this year, has about 700,000 individuals with dual eligibility who spend a combined total of nearly $34.8 billion in Medicaid and Medicare annually. Within the state, individuals with dual eligibility represent 45 percent and 41 percent of Medicaid and Medicare spending, respectively.

Amerigroup, UnitedHealth, WellCare and WellPoint all have meaningful enrollment in New York and should be positioned well to eventually compete for dual-eligible business in the state. While MRT group's proposal has not been formally adopted, we expect managed care will play a significant role under a final proposal, Rigg said.

Of the four managed care organizations (MCOs) noted above, the analyst said UnitedHealth appears best positioned in the state given its membership base - 267,000 Medicaid and 125,000 Medicare Advantage (MA). WellPoint also has a solid mix of Medicare and Medicaid members - 63,000 Medicaid and 117,000 Medicare Advantage. That being said, pro-forma for the Health Plus acquisition, Amerigroup will be the largest Medicaid MCO in the state with 430,000 members. Finally, WellCare has 77,000 Medicaid members and 22,000 MA members in the state.