Dual-eligible beneficiaries are a particularly vulnerable group. In general, these individuals are among the poorest and sickest beneficiaries enrolled in Medicare and Medicaid. For example, compared to other Medicare beneficiaries, they are more likely to be disabled; report poor health status and limitations in their activities of daily living, such as bathing and toileting; and have cognitive impairments, mental disorders, and certain chronic conditions, such as diabetes and pulmonary disease. Therefore, dual-eligible beneficiaries tend to have higher rates of service use and consequently, higher spending, compared to other Medicare and Medicaid beneficiaries. (See fig. 1.) Although dual-eligible beneficiaries have a higher rate of service use compared to other Medicare and Medicaid beneficiaries, as a group, they vary in terms of their need for health care services, reflecting differences in the prevalence of disabilities and other health conditions. Under Medicare, dual-eligible beneficiaries have coverage for most acute care services, such as care provided by physicians or inpatient hospitals, post- acute skilled nursing facility care, and prescription drugs. Under state Medicaid programs, dual-eligible beneficiaries also have coverage for long-term nursing facility care and home and community-based services. These beneficiaries may also qualify for payment of Medicare premiums and cost sharing. Medicaid is the health care payer of last resort, meaning that Medicare pays to the extent of its liability before Medicaid makes any payments. Because dual-eligible beneficiaries receive care through separate programs with different benefits and payment processes, they are likely to be treated by many different health care providers that may not coordinate their care, which can lead to increased costs and poorer patient outcomes. Prior to the implementation of the Financial Alignment Demonstration in 2013, the Medicare and Medicaid programs were separately responsible for covering certain services for most dual-eligible beneficiaries, and there may not have been an incentive for one program to help control costs in the other program. As we previously reported, any savings that were achieved often resulted from services that were largely paid for by Medicare, such as reductions in the number and length of hospital stays, and therefore accrued to the Medicare program. Therefore, state Medicaid programs did not have an incentive to better coordinate care or reduce spending since they did not benefit from any savings that were achieved. However, increasingly there have been efforts to try to improve integration of care between these two programs. For example, one specific effort to integrate care for dual-eligible beneficiaries was the establishment of dual-eligible special needs plans (D-SNP) in 2003. D- SNPs are a type of Medicare Advantage plan exclusively for dual-eligible beneficiaries that provide specialized services targeted to the needs of their beneficiaries, including a health risk assessment and an ICT for each enrolled beneficiary. About 1.9 million of the dual-eligible population was enrolled in D-SNPs in 2014. CMS’s goal for the Financial Alignment Demonstration is to integrate Medicare and Medicaid services and financing and improve care coordination for beneficiaries, therefore resulting in improved care and savings to Medicare and Medicaid. CMS gave the states flexibility in designing their demonstrations because of the different needs of their target populations, the geographic coverage areas, and the number of eligible beneficiaries. For example, while Massachusetts chose to limit its target population to dual-eligible beneficiaries from age 21 through 64, California, Illinois, and Virginia chose to include all dual-eligible beneficiaries aged 21 and older as their target populations. CMS required states to involve dual-eligible beneficiaries and other stakeholders, such as beneficiary advocacy groups, in the development of their demonstrations to help design a person-centered system of care. Before any state’s demonstration becomes operational, CMS oversees a multistep approval process of the state’s demonstration design. First, states interested in participating in the demonstration submit proposals to CMS that provide a description of the demonstration’s design. CMS then reviews the proposals and works with the states to develop a memorandum of understanding that further outlines the parameters of the demonstration, which both the state and CMS sign. As part of their proposals, states generally opted to test one of two models—the capitated or managed fee-for-service (MFFS) models. Under the demonstration’s capitated model, following CMS approval of the memorandum of understanding, the states work with CMS to select qualified integrated care organizations to participate in the demonstration. Then, the state, CMS, and an integrated care organization enter into a three-way contract, and the integrated care organization receives a prospective blended capitated payment, which includes both Medicare and Medicaid payments, to provide coordinated care across both programs. CMS reduces payment rates to organizations up front each year based on a predetermined Medicare and Medicaid savings estimate, with the amount of savings increasing each year, typically from 1 percent in the first year to 4 percent in the third year of the demonstration. For example, in Massachusetts, contracted managed care health plans provide care coordination services and integrate care between the two programs and receive one combined payment from both Medicare and Medicaid for each enrollee. For states opting for the MFFS model, following CMS approval of the memorandum of understanding, the state and CMS enter into an agreement by which providers continue to receive fee-for-service reimbursement for both Medicare and Medicaid services. The state is then eligible for a portion of any retroactive savings resulting from state initiatives designed to improve quality and reduce spending for dual-eligible beneficiaries. One state, Washington, is using Medicaid health home agencies to coordinate Medicare and Medicaid services among existing fee-for-service providers for dual-eligible beneficiaries. The organizations in the capitated model, and the states in the MFFS model, then undergo a CMS review to ensure they are prepared to begin enrolling dual-eligible beneficiaries. Once they have passed CMS’s review, they can begin enrolling beneficiaries. In general, under the capitated model, eligible beneficiaries—those dual-eligible beneficiaries who meet the state’s age, geographic residency, and other requirements for the demonstration—can enroll voluntarily into the demonstration and choose a participating integrated care organization. Dual-eligible beneficiaries who choose not to enroll voluntarily can be assigned by the state Medicaid agency to a participating organization, in a process known as “passive enrollment.” Once a beneficiary is enrolled into the demonstration, the state will send the beneficiary’s contact information to the relevant integrated care organization. The state or CMS may also provide Medicaid or Medicare claims data, medical history, hospitalizations, and pharmacy use for the beneficiaries. The organization then typically assigns a care coordinator and begins coordinating the beneficiary’s care. In the MFFS model, beneficiaries are automatically enrolled in the demonstration, and following enrollment, the care coordinator will perform outreach to the beneficiary and give the beneficiary the option to elect to receive care coordination services. Under both models, beneficiaries can opt out of the demonstration at any time. Implementation of the Financial Alignment Demonstration began in July 2013 when the first state, Washington, began enrolling beneficiaries. Since then, CMS has approved 12 other state demonstrations and all but one of these states has begun enrolling beneficiaries. Two states— Connecticut and New York—had proposals pending approval from CMS as of September 2015. (See fig. 2 for a demonstration map.) The agency is no longer accepting new proposals from states. One of the key goals of the demonstration is to improve care coordination for beneficiaries using a person-centered care delivery model based on the preferences and needs of the beneficiary, which CMS anticipates will improve the quality of care and reduce costs. CMS requires states and organizations participating in the demonstration to incorporate a care coordinator role, a health risk assessment, an ICP, and an ICT into their care delivery model for the demonstration. (See table 1.) Under the demonstration, any savings will be shared equally by Medicare and Medicaid, regardless of whether the savings were achieved primarily by Medicare or Medicaid. Although CMS projects that approximately 60 to 70 percent of savings from the demonstration will come from reductions in costly Medicare-covered services, such as fewer hospital admissions (including readmissions), and approximately 1 to 5 percent of savings will come from fewer emergency room visits, the agency requires that as part of a more integrated approach, both the Medicare and Medicaid programs adjust their payment rates to plans based on aggregate savings percentages. Organizations in the five states in our review used state- and CMS- required care coordinators, health risk assessments, ICPs, and ICTs to coordinate care. Due to the flexibility states have in designing these elements in their demonstrations, implementation varied among the organizations in these five states. Staff from organizations in our review reported different ways that they assigned care coordinators to beneficiaries. Some organizations assigned care coordinators on the basis of geographic proximity to the beneficiary or the beneficiary’s primary care provider. Others assigned care coordinators a mix of low-, moderate-, and high-risk beneficiaries, or assigned care coordinators based on the coordinator’s qualifications and areas of expertise. Care coordinators varied in their qualifications and backgrounds, and in the types of care they coordinated. Organization staff said care coordinators had degrees or licensures in fields such as nursing, social work, or behavioral health. Staff from the organizations said they hired care coordinators with backgrounds in care management and assessment, and who were comfortable reaching out to and engaging with beneficiaries. In addition, some organizations had separate care coordinators assigned to handle medical needs versus behavioral health needs, but others had care coordinators who were responsible for coordinating care across medical, behavioral, and social realms. Care coordinators for the organizations in our review reported interacting with beneficiaries, using a range of methods and in a variety of settings, to conduct health risk assessments, develop ICPs, and lead ICTs. Care coordinators we spoke with reported interacting with beneficiaries by mail, e-mail, telephone, and in person, but most care coordinators said they interacted with beneficiaries by telephone or in person.