Meeting the Moment: Cost Avoidance Strategies for Medicaid

There is no doubt that Medicaid programs across the country are facing uncertain times—from the implementation of changes to the program enacted through the One Big Beautiful Bill (OB3) in July 2025 that are beginning to be implemented by states, to the Rural Health Transformation Program (RHTP) grants and continued challenges with the affordability of healthcare.  

This comes at a time when states are likely to face tight budgets due to economic uncertainties and constraints, compounding the difficulties for Medicaid programs, since tight state budgets typically come at a time when more individuals require the support of the Medicaid program.  

As an entitlement program, Medicaid programs must enroll all eligible members—regardless of a state’s budget issues. Given this, states are often faced with needing to make difficult decisions to manage to their state budget realities. As a former Medicaid director, I know from experience that states do not take these decisions lightly and try to minimize any direct impact to Medicaid members and the safety net providers that support them.  

Cost avoidance: protecting Medicaid as the payer of last resort 

One area where states can focus on reducing Medicaid spend without reducing eligibility, access or coverage is by undertaking cost avoidance activities. By that I mean activities and initiatives that Medicaid programs can take to ensure that Medicaid is appropriately the payer of last resort and the state pays only for medically necessary services for eligible Medicaid members.  

While these efforts require investment of resources, they can reduce cost growth in the Medicaid program, which is always important within the context of the Medicaid program, but particularly during lean economic times.  

Two critical cost avoidance mechanisms: Third Party Liability and Program Integrity 

States have several options to reduce their Medicaid expenses. First, states can dedicate resources to identify other viable health insurance coverage, commonly known in Medicaid-speak as third party liability (TPL).  

• Medicaid programs can reduce their overall spending on their members by identifying when an individual enrolled in Medicaid may also be eligible for other coverage through Medicare and/or commercial insurance offered through an employer, and then assisting those members in accessing and enrolling in these benefits.  

• Once coverage is identified and obtained, states then need to commit resources to maintaining that coverage by payment of member premiums and cost-sharing, and to supporting the coordination of benefits across Medicaid and the other insurance.  

While many states allow members to determine whether they enroll in these other coverage options, some states are beginning to require members to take steps to enroll in these benefits to maintain their Medicaid coverage.  

For example, ForHealth Consulting worked with one state that required its Medicaid members who appeared to be eligible for Medicare, but were unenrolled, to take steps to sign up. Our team supported these TPL activities and helped more than 4,000 members successfully enroll in Medicare by identifying those eligible and providing one-on-one assistance throughout the enrollment process, including: 

1. Notifying them of their requirements to try to enroll in benefits, 
2. Facilitating the scheduling of appointments with the Social Security Administration,  
3. Reminding members of those appointments, and 
4. Implementing continuous monitoring of member status to allow for targeted assistance throughout the process. 

These efforts resulted in more than $65 million in estimated new annual gross savings for the state.  

Second, states can focus on program integrity activities for both members and providers. Under OB3, states are required to tighten their eligibility and redetermination processes—and there are several activities that states can take to ensure that ineligible members cases are completely closed across all Medicaid systems. This work helps ensure, for example, that when a person’s Medicaid eligibility ends in one state system, that information is accurately updated across all related systems.  

In the spring of 2025, several states received letters from the Centers for Medicare & Medicaid Services and Congress, requesting information on how they approached program integrity activities. States typically focus on either: 

1. High-cost procedures and high-volume providers, and/or  
2. Increase in services used, typically with non-traditional healthcare providers (e.g., durable medical equipment, applied behavioral analysis, home health, personal care attendants, etc.).  

By dedicating resources to these efforts, states ensure that providers diligently work to comply with Medicaid rules and bill only for appropriate services and members and quickly identify providers that may be billing incorrectly (such as due to misunderstanding of requirements) or fraudulently.  

At ForHealth Consulting, we help states operationalize program integrity activities related to both members and providers. While these initiatives require some upfront resource investment from states, they can deliver a strong return both in actual dollars (with recoveries and cost avoidance of nearly $100 million in the past year) and by putting providers on notice that program integrity is closely monitored and enforced.  

If you are interested in learning how ForHealth Consulting can support your state in implementing these cost avoidance activities, please connect with me at the NAMD meeting or through our website, or message me via LinkedIn.