10 Things to Know About Medicaid Managed Care

Note: This brief was updated on March 1, 2023 to incorporate the latest available data.

Managed care is the dominant delivery system for Medicaid enrollees. With 72% of Medicaid beneficiaries enrolled in comprehensive managed care organizations (MCOs) nationally, plans have played a key role in responding to the COVID-19 pandemic and are expected to work with states in conducting outreach and providing support to enrollees during the unwinding of the continuous enrollment requirement. While managed care is the dominant Medicaid delivery system, states decide which populations and services to include in managed care arrangements which leads to considerable variation across states. Additionally, while we can track state requirements for Medicaid managed care plans, plans have flexibility in certain areas including in setting provider payment rates and plans may choose to offer additional benefits beyond those required by the state. The Administration is expected to release revised regulations about Medicaid managed care and assuring access in Medicaid in the Spring of 2023. This brief describes 10 themes related to the use of comprehensive, risk-based managed care in the Medicaid program.

1. Today, capitated managed care is the dominant way in which states deliver services to Medicaid enrollees.

States design and administer their own Medicaid programs within federal rules. States determine how they will deliver and pay for care for Medicaid beneficiaries. Nearly all states have some form of managed care in place – comprehensive risk-based managed care and/or primary care case management (PCCM) programs.1,2 As of July 2022, 41 states (including DC) contract with comprehensive, risk-based managed care plans to provide care to at least some of their Medicaid beneficiaries (Figure 1). Beginning July 1, 2021, North Carolina implemented its first MCO program, enrolling more than 1.8 million Medicaid beneficiaries in MCOs as of January 2023. Oklahoma expects to implement capitated, comprehensive Medicaid managed care in October 2023. Medicaid MCOs provide comprehensive acute care and, in some cases, long-term services and supports to Medicaid beneficiaries and are paid a set per member per month payment for these services. States have traditionally used managed care models to increase budget predictability, constrain Medicaid spending, and improve access to care and value. While the shift to MCOs has increased budget predictability for states, the evidence about the impact of managed care on access to care and costs is both limited and mixed.3,4,5

2. More than two-thirds (72%) of all Medicaid beneficiaries received their care through comprehensive risk-based MCOs.

As of July 2020, 57 million Medicaid enrollees received their care through risk-based MCOs. Twenty-eight MCO states covered more than 75% of Medicaid beneficiaries in MCOs (Figure 2).

Although 2020 data (displayed above) are the most current national data available, enrollment in Medicaid overall has grown substantially since the start of the coronavirus pandemic, resulting in growth in MCO enrollment as well. Enrollment growth has been primarily attributed to the Families First Coronavirus Response Act (FFCRA) provision that required states to ensure continuous enrollment for Medicaid enrollees in exchange for a temporary increase in the Medicaid match rate. The Consolidated Appropriations Act, 2023 ends the continuous enrollment provision and allows states to resume disenrollments starting April 1, 2023. While the number of Medicaid enrollees who may be disenrolled during the unwinding period is highly uncertain, it is estimated that millions will lose coverage. CMS has released guidance and strategies for states to help maintain coverage of eligible individuals after the end of continuous enrollment requirements, including guidance outlining how managed care plans can support states in promoting continuity of coverage.

3. Children and adults are more likely to be enrolled in MCOs than adults ages 65+ and people eligible through disability; however, states are increasingly including beneficiaries with complex needs in MCOs.

As of July 2022, 36 MCO states reported covering 75% or more of all children through MCOs (Figure 3). Of the 39 states that had implemented the ACA Medicaid expansion as of July 2022, 32 states were using MCOs to cover newly eligible adults and most covered more than 75% of beneficiaries in this group through MCOs. Thirty-five MCO states reported covering 75% or more of low-income adults in pre-ACA expansion groups (e.g., parents, pregnant women) through MCOs. Only 16 MCO states reported coverage of 75% or more of adults ages 65+ and people eligible through disability. Although this group is still less likely to be enrolled in MCOs than children and adults, over time, states have been moving to include adults ages 65+ and people eligible through disability in MCOs.

4. In FY 2021, payments to comprehensive risk-based MCOs accounted for over half of Medicaid spending.

In FY 2021, state and federal spending on Medicaid services totaled over $728 billion. Payments made to MCOs accounted for about 52% of total Medicaid spending (Figure 4), an increase of three percentage points from the previous fiscal year. The share of Medicaid spending on MCOs varies by state, but over three-quarters of MCO states directed at least 40% of total Medicaid dollars to payments to MCOs (Figure 5). State-to-state variation reflects many factors, including the proportion of the state Medicaid population enrolled in MCOs, the health profile of the Medicaid population, whether high-risk/high-cost beneficiaries (e.g., persons with disabilities, dual eligible beneficiaries) are included in or excluded from MCO enrollment, and whether or not long-term services and supports are included in MCO contracts. As states expand Medicaid managed care to include higher-need, higher-cost beneficiaries, expensive long-term services and supports, and adults newly eligible for Medicaid under the ACA, the share of Medicaid dollars going to MCOs could continue to increase.

5. Each year, states develop MCO capitation rates that must be actuarially sound and may include risk mitigation strategies.

States pay Medicaid managed care organizations a set per member per month payment for the Medicaid services specified in their contracts. Under federal law, payments to Medicaid MCOs must be actuarially sound. Actuarial soundness means that “the capitation rates are projected to provide for all reasonable, appropriate, and attainable costs that are required under the terms of the contract and for the operation of the managed care plan for the time period and the population covered under the terms of the contract.” Unlike fee-for-service (FFS), capitation provides upfront fixed payments to plans for expected utilization of covered services, administrative costs, and profit. Plan rates are usually set for a 12-month rating period and must be reviewed and approved by CMS each year. States may use a variety of mechanisms to adjust plan risk, incentivize plan performance, and ensure payments are not too high or too low, including risk sharing arrangements, risk and acuity adjustments, medical loss ratios (MLRs, which reflect the proportion of total capitation payments received by an MCO spent on clinical services and quality improvement), or incentive and withhold arrangements.

CMS allowed states to modify managed care contracts in response to unanticipated COVID-19 costs and conditions that led to decreased utilization. Many states implemented COVID-19 related risk corridors leading to the recoupment of funds. Analysis of National Association of Insurance Commissioners (NAIC) data for the Medicaid managed care market show that average loss ratios in 2021 (in aggregate across plans) remained lower by three percentage points from 2019 (implying increased profitability) (Figure 6). When the continuous enrollment provision ends and states resume disenrollments, Medicaid MCOs may see the overall acuity of their membership increase, with implications for per member utilization and costs, and the return of member churn (i.e., the temporary loss of coverage in which enrollees disenroll and then re-enroll within a short period of time).

6. In recent years, many states have moved to carve in behavioral health services, pharmacy benefits, and long-term services and supports to MCO contracts.

Although MCOs provide comprehensive services to beneficiaries, states may carve specific services out of MCO contracts to fee-for-service systems or limited benefit plans. Services frequently carved out include behavioral health, pharmacy, dental, and long-term services and supports (LTSS). However, there has been significant movement across states to carve these services in to MCO contracts. While the vast majority of states that contract with MCOs report that the pharmacy benefit is carved in to managed care (34 of 41), six states report that pharmacy benefits are carved out of MCO contracts as of July 2022 (Figure 7). California carved the pharmacy benefit out of managed care as of January 1, 2022. Two states report plans to carve out pharmacy from MCO contracts in FY 2023 or later (New York6 and Ohio7).

7. A number of large health insurance companies have a significant stake in the Medicaid managed care market.

States contracted with a total of 285 Medicaid MCOs as of July 2020. MCOs represent a mix of private for-profit, private non-profit, and government plans. As of July 2020, a total of 14 firms operated Medicaid MCOs in two or more states (called “parent” firms),8 and these firms accounted for 62% of enrollment in 2020 (Figure 9). Of the 14 parent firms, six are publicly traded, for-profit firms while the remaining eight are non-profit companies. Five firms – UnitedHealth Group, Centene, Anthem (renamed “Elevance” in 2022), Molina, and Aetna/CVS – each have MCOs in 12 or more states (Figure 8) and accounted for 50% of all Medicaid MCO enrollment (Figure 9). All five are publicly traded companies ranked in the Fortune 500.9 Earnings reports from 2022 for these five for-profit parent firms (Centene, Molina, Elevance, UnitedHealth Group, and Aetna/CVS) showed growth in Medicaid membership (2022 over 2021) ranging from 6 to 17% and for the three firms that provided Medicaid-specific revenue information (Centene, Molina, and UnitedHealth Group) growth in Medicaid revenues ranging from 11 to 21% (2022 over 2021).

8. Within broad federal and state rules, plans often have discretion in how to help ensure access to care for enrollees and how to pay providers.

Plan efforts to recruit and maintain their provider networks can affect enrollees’ access to care through factors such as travel times, wait times, or choice of provider. Federal rules require that states establish network adequacy standards, but states have flexibility to define those standards. The 2020 CMS Medicaid managed care final rule removed the requirement that states use time and distance standards to ensure provider network adequacy and instead lets states choose any quantitative standard. Plans can use a variety of strategies to address provider network issues, including direct outreach to providers, financial incentives, automatic assignment of members to PCPs, and prompt payment policies. However, networks can be affected by overall provider supply shortages. In 2022, CMS released guidance, reporting templates, and toolkits related to monitoring and oversight of Medicaid managed care programs. CMS announced a Request for Information (in early 2022) to inform development of a comprehensive access strategy across Medicaid fee-for-service and managed care delivery systems. The Administration is expected to release revised regulations about Medicaid managed care and assuring access in Medicaid in the Spring of 2023.

To help ensure participation, many states require minimum provider rates in their contracts with MCOs that may be tied to fee-for-service rates (Figure 10). States that contract with managed care plans may also have uniform dollar or percentage increase payment requirements in place, most commonly for hospitals. In response to the COVID-19 pandemic, states had options and flexibilities under existing managed care rules to direct/bolster payments to Medicaid providers and to preserve access to care for enrollees.

9. States are using an array of financial incentives linked to quality measures.

States incorporate quality metrics into the ongoing monitoring of their programs, including linking financial incentives like performance bonuses or penalties, capitation withholds, or value-based state-directed payments to quality measures. Over three quarters of MCO states reported using at least one financial incentive to promote quality of care as of July 2021 (Figure 11). Financial incentive performance areas most frequently targeted by MCO states include behavioral health, chronic disease management, and perinatal/birth outcomes. Despite activity in this area, detailed performance information at the plan-level is not frequently made publicly available by state Medicaid agencies, limiting transparency and the ability of Medicaid beneficiaries (and other stakeholders) to assess how plans are performing on key indicators related to access, quality, etc.

As part of managed care plan contract requirements, state Medicaid programs have also been focused on the use of alternative payment models (APMs) to reimburse providers and incentivize quality. Alternative payment models (APMs) replace FFS/volume-driven provider payments and lie along a continuum, ranging from arrangements that involve limited or no provider financial risk (e.g., pay-for-performance (P4P) models) to arrangements that place providers at more financial risk (e.g., shared savings/risk arrangements or global capitation payments). As of July 2021, about half of MCO states identified a specific target in their MCO contracts for the percentage of provider payments or plan members that MCOs must cover via APMs. Of these states, about half reported that their MCO contracts included incentives or penalties for meeting or failing to meet APM targets. For most states, the requirements for APMs were in the 25 – 50% range. States reported setting different percentage requirements depending on the services and population served under the managed care contract.10 Thirteen states11 reported that their APM targets were linked to the Health Care Payment Learning & Action Network’s (LAN’s) APM Framework that categorizes APMs in tiers.12

While there is some evidence of positive impacts from state use of financial incentives to engage managed care plans around quality and outcomes, the results are more mixed and limited at the provider level.13,14,15

10. States are looking to Medicaid MCOs to develop strategies to identify and address social determinants of health and to reduce health disparities.

Many states are leveraging MCO contracts to promote strategies to address social determinants of health and to improve health equity and reduce health disparities. The current Administration has identified advancing health equity as an important priority for the Medicaid program. In January 2023, CMS released guidance on the use of “in lieu of” services (ILOS) in Medicaid managed care to reduce health disparities and address unmet health-related social needs (HRSN). In December 2022, CMS released guidance about how states can address HRSN through Section 1115 demonstration waivers.

Most MCO states reported leveraging Medicaid MCO contracts to promote at least one strategy to address social determinants of health in FY 2022 (Figure 12). More than half of MCO states reported requiring MCOs to screen enrollees for social needs, screen enrollees for behavioral health needs, provide referrals to social services, and partner with community-based organizations (CBOs). Fewer states reported requiring MCO community reinvestment (e.g., tied to plan profit or MLR) compared to other strategies.

States use an array of financial incentives to improve quality including linking performance bonuses or penalties, capitation withholds, or value-based state-directed payments to quality measures. About one-quarter of MCO states reported at least one MCO financial incentive tied to a health equity-related performance goal (e.g., reducing disparities by race/ethnicity, gender, disability status, etc.) in place in FY 2022. In addition to financial incentives, states can leverage managed care contracts in other ways to promote health equity-related goals (Figure 13). In FY 2022, similar numbers of states (about one quarter) reported requiring MCOs to have a health equity plan in place, meet health equity reporting requirements, and train staff on health equity and/or implicit bias. States may also require MCOs to participate in Performance Improvement Projects (PIPs) focused on reducing health disparities. In FY 2022, states reported a range of state-mandated PIP focus areas with an emphasis on reducing disparities and improving health equity including related to maternal and child health; diabetes education and management; substance use disorder (SUD); and access to culturally and linguistically appropriate services.

  1. PCCM is a managed fee-for-service (FFS) based system in which beneficiaries are enrolled with a primary care provider who is paid a small monthly fee to provide case management services in addition to primary care.

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  2. While MCOs are the predominant form of Medicaid managed care, millions of other beneficiaries receive at least some Medicaid services, such as behavioral health or dental care, through limited-benefit risk-based plans, known as prepaid inpatient health plans (PIHPs) and prepaid ambulatory health plans (PAHPs).

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  3. Sparer M. 2012. Medicaid managed care: costs, access, and quality of care. Res. Synth. Rep. 23, Robert Wood Johnson Found., Princeton, NJ

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  4. Daniel Franco Montoya, Puneet Kaur Chehal, and E. Kathleen Adams, “Medicaid Managed Care’s Effects on Costs, Access, and Quality: An Update,” Annual Review of Public Health 41:1 (2020):537-549

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  5. Medicaid and CHIP Payment and Access Commission (MACPAC), “Managed care’s effect on outcomes,” (Washington, DC: MACPAC, 2018), https://www.macpac.gov/subtopic/managed-cares-effect-on-outcomes/

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  6. In New York, effective April 1, 2023, the pharmacy benefit will be transitioned from managed care to FFS. This was previously scheduled for implementation on April 1, 2021 but was delayed for two years by the state legislature.

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  7. Ohio is “unbundling” many components of pharmacy benefit administration from MCO responsibilities and contracting with a single PBM instead. It is also contracting with a Pharmacy Pricing and Audit Consultant (PPAC) who provides operational and consulting support in the areas of pharmacy reimbursement, benefit design, oversight, and auditing. Additional information about the program change is available at Ohio Medicaid Managed Care, “Ohio Medicaid Single Pharmacy Benefit Manager (SPBM),” https://managedcare.medicaid.ohio.gov/wps/portal/gov/manc/managed-care/single-pharmacy-benefit-manager

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  8. A parent firm is a firm that owns Medicaid MCOs in two or more states.

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  9. WellCare was acquired by Centene in January 2020.

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  10. For example, in Pennsylvania, the APM target for the HealthChoices physical health MCO program and the behavioral health managed care program is 50% and 20%, respectively, for calendar year 2021. Likewise, Virginia sets a lower percentage (10%) for its MLTSS program, Commonwealth Coordinated Care Plus, than for its Medallion 4.0 Medicaid physical and behavioral health managed care program that serves the state’s low-income children and families and the APM target is set at 25%.

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  11. The thirteen states are Arizona, District of Columbia, Hawaii, Louisiana, Michigan, New Hampshire, North Carolina, Oregon, Pennsylvania, South Carolina, Texas, Virginia, and Washington.

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  12. Health Care Payment Learning & Action Network, “Alternative Payment Model (APM) Framework,” (McLean, VA: The MITRE Corporation, 2017), https://hcp-lan.org/workproducts/apm-refresh-whitepaper-final.pdf. CMS launched the LAN in 2015 to encourage alignment across public and private sector payers by providing a forum for sharing best practices and developing common approaches to designing and monitoring of APMs, as well as by developing evidence on the impact of APMs.

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  13. Aaron Mendelson et al., “The Effects of Pay-for-Performance Programs on Health, Health Care Use, and Processes of Care: A Systematic Review,” Annals of Internal Medicine 166 no. 5 (March 2017): 341-353, doi:10.7326/M16-1881

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  14. California Health Care Foundation, “Making Quality Matter in Medi-Cal Managed Care: How Other States Hold Health Plans Financially Accountable for Performance,” (Sacramento, CA: California Health Care Foundation, February 2019), https://www.chcf.org/wp-content/uploads/2019/02/MakingQualityMatterMediCalManagedCare.pdf

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  15. New York State Department of Health, 2017 Quality Incentive for Medicaid Managed Care Plans, Albany, NY: New York State Department of Health, 2017, https://www.health.ny.gov/health_care/managed_care/reports/docs/quality_incentive/quality_incentive_2017.pdf

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