The structure of Medicare and Medicaid creates conflicting incentives regarding dually eligible beneficiaries without coordinating their care. Both Medicare and Medicaid have an interest in limiting their costs, and neither has an incentive to take responsibility for the management or quality of care. Examples of misaligned incentives are Medicare's cost-sharing rules, cost shifting within home health care and nursing homes, and cost shifting across chronic and acute care settings. Several policy initiatives—capitation, pay-for-performance, and the shift of the dually eligible population's Medicaid costs to the federal government—may address these conflicting incentives, but all have strengths and weaknesses. With the aging baby boom generation and projected federal and state budget shortfalls, this issue will be a continuing focus of policymakers in the coming decades.