Medicaid is the nation’s largest public health coverage program, though many Medicaid beneficiaries now receive their care through privately-held managed care companies. This brief describes key themes related to the use of comprehensive, risk-based managed care in the Medicaid program and highlights data and trends related to MCO enrollment, service carve-ins, spending, MCO parent firms, and state and plan activity related to quality, value-based payments, and the social determinants of health.


39 states contract with comprehensive managed care organizations (MCOs). More than two thirds (69%) of Medicaid beneficiaries nationwide receive care through MCOs, and nearly half of those are covered by six for-profit insurers.

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., As of July 2018, 39 states, including DC, contract with comprehensive, risk-based managed care plans to provide care to at least some of their Medicaid beneficiaries (Figure 1). Medicaid managed care organizations (MCOs) provide comprehensive acute care and in some cases long-term services and supports to Medicaid beneficiaries. MCOs accept a set per member per month payment for these services and are at financial risk for the Medicaid services specified in their contracts. States have pursued risk-based contracting with managed care plans for different purposes, seeking to increase budget predictability, constrain Medicaid spending, improve access to care and value, and meet other objectives. 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.

Figure 1: As of July 2018, 39 states used capitated managed care models to deliver services in Medicaid.

2. As of July 2017, over two-thirds (69%) of all Medicaid beneficiaries received their care through comprehensive risk-based MCOs.

As of July 2017, 54.1 million Medicaid enrollees received their care through risk-based MCOs. Twenty-four MCO states covered more than 75% of Medicaid beneficiaries in MCOs (Figure 2).

Figure 2: In most states with comprehensive MCOs, at least 75% of beneficiaries are enrolled in one.

3. Children and adults are more likely to be enrolled in MCOs than seniors or persons with disabilities; however, states are increasingly including beneficiaries with complex needs in MCOs.

As of July 2018, 35 MCO states reported covering 75% or more of all children through MCOs (Figure 3). Of the 32 states that had implemented the ACA Medicaid expansion as of July 2018, 27 were using MCOs to cover newly eligible adults and the large majority of these states covered more than 75% of beneficiaries in this group through MCOs. Thirty-one MCO states reported covering 75% or more of low-income adults in pre-ACA expansion groups (e.g., parents, pregnant women) through MCOs. In contrast, only 20 MCO states reported coverage of 75% or more of seniors and people with disabilities. Although this group is still less likely to be enrolled in MCOs than children and adults, over time, states have been moving to include seniors and people with disabilities in MCOs.

Figure 3: MCO managed care penetration rates have grown across Medicaid eligibility groups.

4. 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 (FFS) 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 MCOs. As of July 2018, twenty-two states also covered LTSS through Medicaid MCO arrangements for at least some LTSS populations (Figure 4).

Figure 4: As of July 1, 2018, 22 states covered LTSS under Medicaid MCO contracts.

5. In FY 2017, payments to comprehensive risk-based MCOs accounted for the largest share of Medicaid spending.

In FY 2017, state and federal spending on Medicaid services totaled nearly $577 billion. Payments made to MCOs accounted for about 46% of total Medicaid spending (Figure 5). The share of Medicaid spending on MCOs varies by state, but more than half of MCO states direct at least 40% of total Medicaid dollars to payments to MCOs (Figure 6). The MCO share of spending ranged from a low of 10% in Colorado to 87% in Kansas. 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 will continue to increase.

Figure 5: Payments to comprehensive MCOs account for almost half of total national Medicaid spending.

Figure 6: In most MCO states, spending on MCOs makes up at least 40% of total Medicaid spending.

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

States contracted with a total of 283 Medicaid MCOs as of July 2017. MCOs represent a mix of private for-profit, private non-profit, and government plans. As of July 2017, a total of 19 firms operated Medicaid MCOs in two or more states (called “parent” firms), and these firms accounted for about 57% of enrollment in 2017 (Figure 8). Of the 19 parent firms, nine are publicly traded, for-profit firms while the remaining 10 are non-profit companies. Six firms – UnitedHealth Group, Centene, Anthem, Molina, Aetna, and WellCare – have MCOs in 10 or more states (Figure 7) and accounted for about 44% of all Medicaid MCO enrollment (Figure 8). All six are publicly traded companies ranked in the Fortune 500. 

Figure 7: Six firms have a wide geographic reach in Medicaid, each with MCOs in 10 or more of the 39 MCO states.

Figure 8: In the 39 MCO states, six Fortune 500 firms have almost half of the Medicaid MCO market.

7. Although MCOs report challenges recruiting specialty providers, which may be linked to broader market trends, plans report a variety of strategies to recruit providers.

Plan efforts to recruit and maintain their provider networks can play a crucial role in determining 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. States have a great deal of flexibility to define those standards. The 2016 CMS Medicaid managed care final rule included specific parameters for states in setting network adequacy standards, although regulations proposed by the Trump administration in 2018 would loosen these requirements. Medicaid fee-for-service rates tend to be lower than Medicare rates. MCOs have some flexibility to set rates for providers, but many states require minimum provider rates in their contracts with MCOs. In a 2018 KFF survey of Medicaid directors, two-thirds of MCO states indicated that they mandate minimum provider reimbursement rates in their MCO contracts for at least some provider types.  KFF conducted a survey of Medicaid managed care plans in 2017 and found that responding plans reported more challenges in recruiting specialty providers than primary care providers to their networks. Plans were more likely to cite provider supply shortages than low provider participation in Medicaid as a top challenge in ensuring access to care. In the same survey, responding plans reported 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 (Figure 9).

Figure 9: Medicaid MCOs have a variety of strategies to recruit and retain providers.

8. Over time, the expansion of risk-based managed care in Medicaid has been accompanied by greater attention to measuring quality and outcomes.

Nearly all MCO states reported using at least one select Medicaid managed care quality initiative in FY 2018 (Figure 10). More than three quarters of MCO states (31 of 39) reported having initiatives in place in FY 2018 that make MCO comparison data publicly available (up from 23 states in 2014). More than half of MCO states reported capitation withhold arrangements (26 of 39) and/or pay for performance incentives (25 of 39) in FY 2018 (up from 18 and 19 states, respectively, in 2014). Fewer states reported use of an auto-assignment algorithm that includes quality performance measures (9 of 39) in FY 2018. The predominance of states reporting new or expanded activity in managed care quality in FY 2019 reported activity related to enhancing/expanding existing initiatives, versus establishing new ones.

Figure 10: States are implementing an array of quality initiatives within MCO contracts.

9. An increasing number of states set a target percentage of MCO provider payments that must be in alternative payment models (APMs).

Alternative payment models (APMs) replace FFS/volume-driven provider payments with payment models that incentivize quality, coordination, and value (e.g., shared savings/shared risk arrangements and episode-based payments). More than half of MCO states (23 of 39) set a target percentage in their MCO contracts for the percentage of provider payments, network providers, or plan members that MCOs must cover via alternative payment models in FY 2018 (Figure 11). KFF’s 2017 survey of Medicaid managed care plans found nearly all responding plans reported using at least one alternative payment model for at least some providers (Figure 12). The vast majority of plans use incentives and/or bonus payments tied to performance measures. Fewer plans reported using bundled or episode-based payments or shared savings and risk arrangements.

Figure 11: An increasing number of states identify a specific target for the percentage of provider payments or plan members MCOs must cover via alternative payment models (APMs).

Figure 12: Medicaid MCOs are using a variety of APMs.

10. With increased attention to social determinants of health at the federal and state levels, states are looking to Medicaid MCOs to develop strategies to identify and address social determinants of health.

States are increasingly implementing contract provisions that encourage or require MCOs to screen and/or refer enrollees for social needs. In FY 2018, 16 states required, while 10 states encouraged MCOs to screen enrollees for social needs and/or provide referrals to social services, and additional states reported plans to put such provisions in place in FY 2019 (Figure 13). KFF’s 2017 survey of Medicaid managed care plans found that a majority of plans were actively working to help beneficiaries address social determinants of health (Figure 14).

Figure 13: States are increasingly implementing contract provisions that encourage or require MCOs to screen and/or refer enrollees for social needs.

Figure 14: The majority of plans reported housing and nutrition activities to address social determinants of health.

Go to Source

10 Things to Know about Medicaid Managed Care – Kaiser Family Foundation