California has taken the idea of managed care for low-income seniors and people with disabilities to a whole new level. Under an agreement with the Obama Administration announced last week, the state will begin shifting both medical care and long-term supports and services to managed care companies in just seven months.

Watch this closely. You may be looking at the future.

For a fixed, per-patient monthly rate, those firms will be responsible for providing the full spectrum of care to people who have few assets and little income, but who often require extensive levels of care. The program, called Cal MediConnect, will cover people who receive benefits from both Medicare and Medicaid (called Medi-Cal in California)—thus often called dual eligibles.

Over the next 15 months, California expects to enroll 456,000 people in managed care in what will be the biggest program of its kind ever tried. As many as 200,000 will be enrolled in Los Angeles County alone, making the just LA effort bigger than any similar state program in the nation.

Managed care for the frail elderly and younger people with disabilities has tremendous potential, since  people with complex needs are likely to do better with fully-integrated care. For instance, a package of home care services and help with diet and transportation could greatly improve the quality of life for a senior with congestive heart failure and help her avoid the kind of health crisis that would result in a hospitalization.

Of course, using well integrated care to avoid acute medical crises also has the potential to save money. That promise of better care at less cost explains why the 2010 Affordable Care Act included new incentives for such a shift to managed care. California estimates only modest savings of about 1 percent in the first year, growing to about 4 percent by the third year.

However, states are anxious to take advantage of managed care because it allows them to share in any cost savings. Under today’s system, if a well-run Medicaid long-term care program reduces medical costs, it is the federal government—which pays 100 percent of Medicare costs—that benefits. The state gets nothing.

Four other states—Illinois, Ohio, Massachusetts, and Washington—have begun similar experiments. Other states, such as Florida, are moving low-income seniors to managed care under separate programs.

However, managed care carries significant risks. For starters, no insurance company has experience in managing fully integrated care for so many people with complex medical and long-term care needs. No one knows quite how to do this. The danger for patients is that managed care companies will find it difficult to provide a high level of care and still make a profit. As a result, they may scale back the care they provide or demand higher state payments.

Can states avoid these pitfalls? Perhaps these firms learned from past mistakes. In addition, California and the care companies will be required to meet tough quality standards that were not required in older models.

While the California program is described as a three-year demonstration, it is hard to imagine an initiative this big ever fading away, unless it proves an utter failure. Interestingly, the Obama Administration scaled back the original proposal from California Governor Jerry Brown, who wanted 800,000 dual eligibles moved to the new system.

Already, three quarters of Medicaid beneficiaries who receive only medical care (mostly low-income mothers and their kids) are in managed care plans. Many other states are looking at shifting their dual eligible populations to either the fully capitated system that California has adopted or managed fee-for-service plans.

Because it is California, and because of the size of its program, this experiment is bound to receive outsized attention overt the next few years. Perhaps it will be the first step towards fully integrating medical and long-term care for all Medicare beneficiaries. Or it may turn out to be a bust. But either way, it deserves close watching.