Managed care has fundamentally reshaped the landscape of healthcare delivery for individuals enrolled in Medicaid. Recent data from 2022 reveals that a significant majority, 75% of Medicaid beneficiaries, are now part of comprehensive managed care organizations (MCOs). This dominance underscores a major shift in how states administer and provide healthcare services to this vulnerable population. While managed care has become the prevailing model, the specifics of its implementation, including which populations and services are included, vary considerably across different states. Furthermore, despite state-level regulations on Medicaid managed care plans, these plans retain considerable autonomy, particularly in setting payment rates for providers and offering supplementary benefits beyond state mandates.
As we navigate early 2025, several factors are poised to significantly influence Medicaid managed care plans and the individuals they serve. States and plans are grappling with substantial rate-setting uncertainties in the wake of the Medicaid continuous enrollment provision unwinding, which led to millions losing coverage. Concerns are rising that current capitation rates may not adequately reflect the increased member risk and healthcare utilization patterns observed. Consequently, numerous states have sought federal authorization to adjust these rates to accommodate these shifts, amidst ongoing fluctuations in state fiscal conditions. At the national level, discussions in Congress regarding potential cuts to federal Medicaid spending could have far-reaching consequences for coverage, plans, and healthcare providers. Adding to this complex picture, major Medicaid regulations introduced by the Biden administration, aimed at enhancing care quality and access, face potential repeal by Congress or possible delays or revisions under a new administration. This context sets the stage for examining ten key themes central to the role of comprehensive, risk-based managed care within the Medicaid program.
1. Managed Care Dominance: How States Deliver Medicaid Services
States possess considerable autonomy in designing and managing their Medicaid programs, operating within a framework of federal guidelines. A crucial aspect of this state control is deciding how to deliver and finance healthcare for Medicaid beneficiaries. Today, managed care is almost universally adopted across states, primarily through comprehensive risk-based managed care and/or Primary Care Case Management (PCCM) programs.[1] Comprehensive MCOs stand as the dominant form of Medicaid managed care. As of July 2024, 42 states, including the District of Columbia, have contracts with these risk-based managed care plans to serve at least a segment of their Medicaid population (Figure 1). Oklahoma is the most recent addition to this group, having launched capitated, comprehensive Medicaid managed care for the majority of children and adults on April 1, 2024.
Alt text: Map of the United States showing states with and without comprehensive risk-based Medicaid managed care programs in July 2024, highlighting the widespread adoption of managed care across the nation.
Medicaid MCOs are responsible for providing comprehensive acute care, encompassing most physician and hospital services, and sometimes extending to long-term care. They operate under a capitated payment model, receiving a fixed payment per member per month for these services. Over the past three decades, states have increasingly turned to managed care delivery systems. These Managed Care Programs Have Led To the aim of improving access to specific services, enhancing the coordination and management of care, and increasing predictability in future healthcare expenditures. While the transition to MCOs has indeed brought greater budget predictability for states, the evidence regarding the actual impact of managed care on access to care and overall costs remains inconclusive and varied.[2],[3],[4]
2. Medicaid Spending: The Significant Share Allocated to Managed Care Organizations
In fiscal year 2023, total spending on Medicaid services, encompassing both state and federal contributions, exceeded $880 billion. A substantial portion of this expenditure, approximately 52%, was directed towards payments to MCOs (Figure 2). This percentage has remained consistent with the previous fiscal year, indicating the sustained financial significance of managed care in Medicaid.
Alt text: Bar chart illustrating that over half of all Medicaid spending in fiscal year 2023 was attributed to payments to managed care organizations, demonstrating the financial prominence of managed care in the Medicaid system.
The proportion of Medicaid spending allocated to MCOs exhibits variation across states (Figure 3). However, in over three-quarters of states utilizing MCOs, at least 40% of their total Medicaid funding is channeled towards payments to these organizations. This state-level variation is influenced by several factors, including the proportion of the state’s Medicaid population enrolled in MCOs, the overall health status of this population, the inclusion or exclusion of high-risk/high-cost beneficiaries (such as individuals with disabilities or dual-eligible beneficiaries) in MCO enrollment, and whether MCO contracts encompass long-term care services. Managed care programs have led to states increasingly incorporating higher-need, higher-cost beneficiaries, expensive long-term care services, and adults newly eligible under the ACA into managed care. This trend suggests that the share of Medicaid funds directed to MCOs may continue to grow in the future.
Alt text: State-level map of the U.S. visualizing the variation in the percentage of Medicaid spending allocated to managed care organizations across different states during fiscal year 2023, highlighting the diverse financial approaches to managed care implementation.
3. Enrollment in Managed Care: Reaching the Majority of Medicaid Beneficiaries
As of July 2022, nearly 72 million Medicaid enrollees, representing 75% of all beneficiaries, received their healthcare through risk-based MCOs. In thirty MCO states, the penetration of managed care is even higher, with at least 75% of Medicaid beneficiaries enrolled in MCOs (Figure 4).
Alt text: Geographic map of the United States indicating the percentage of Medicaid beneficiaries enrolled in managed care organizations in each state as of July 2022, illustrating the high penetration rates of managed care in many states.
While 2022 data provides the most recent national snapshot, it’s important to note that overall Medicaid enrollment experienced substantial growth during the COVID-19 public health emergency due to the suspension of disenrollments. This led to a corresponding increase in MCO enrollment. At the beginning of the “unwinding” period in April 2023, total Medicaid enrollment peaked at 94.5 million, a significant 32% increase (or 23 million individuals) compared to pre-pandemic levels. Despite millions of disenrollments during the unwinding process, national Medicaid/CHIP enrollment in October 2024 remained nearly 8 million higher than in February 2020, before the pandemic. Managed care programs have led to a significantly larger population being served under this model.
4. Enrollment Demographics: Expanding Managed Care to Diverse Populations
Children and adults are the demographic groups most commonly enrolled in MCOs. As of July 2022, 36 MCO states reported enrolling 75% or more of all children in managed care plans (Figure 5). Among the 39 states that had adopted ACA Medicaid expansion by July 2022, 32 were utilizing MCOs to cover newly eligible adults, with the majority covering over 75% of this group through MCOs. Similarly, 35 MCO states reported covering 75% or more of low-income adults in pre-ACA expansion categories (e.g., parents, pregnant women) through MCOs.
Alt text: A U.S. map visually representing the percentage of children enrolled in Medicaid managed care organizations per state in July 2022, showing high enrollment rates for children in managed care across many states.
Enrollment rates are comparatively lower for adults aged 65+ and individuals eligible due to disability. However, there is a discernible trend of states increasingly including these populations with complex needs in MCOs over time. While these groups are still less likely to be enrolled in MCOs than children and younger adults, the long-term direction points towards broader inclusion. Managed care programs have led to an evolving approach to covering diverse populations within Medicaid, including those with more complex healthcare needs.
5. Market Concentration: The Dominance of Large Firms in Managed Care
States contracted with a total of 282 Medicaid MCOs as of July 2022. These MCOs represent a mix of private for-profit, private non-profit, and government-operated plans. As of the same date, 16 parent firms operated Medicaid MCOs in two or more states, collectively accounting for over 63% of total enrollment in 2022 (Figure 6).
Alt text: Pie chart depicting the market share of Medicaid MCO enrollment by parent firm type in July 2022, highlighting the significant concentration of enrollment among the top five firms and the distribution between publicly traded and non-profit entities.
Among these 16 parent firms, six are publicly traded, for-profit entities, while the remaining ten are non-profit organizations. Notably, five firms – Centene, UnitedHealth Group, Elevance (formerly Anthem), Molina, and Aetna/CVS – together account for 50% of all Medicaid MCO enrollment (Figure 6). All five are publicly traded companies and are ranked within the Fortune 500, with four even reaching the top 100. Managed care programs have led to the emergence of a highly concentrated market, dominated by a few major for-profit corporations.
6. Service Carve-outs: State Decisions on MCO Contract Scope
While MCOs are designed to provide comprehensive services to beneficiaries, states retain the option to “carve out” specific services from MCO contracts, delivering them instead through fee-for-service systems or limited benefit plans. Commonly carved-out services include behavioral health, pharmacy, dental, and long-term care. However, a significant trend has emerged with states increasingly carving these services into MCO contracts, aiming for more integrated care delivery.
Despite this trend towards integration, as of July 2024, eight states reported carving out pharmacy benefits from MCO contracts (Figure 7). Conversely, the majority of states with MCO contracts (31 out of 42) report that pharmacy benefits are integrated into managed care. Furthermore, three additional states – Kentucky, Louisiana, and Mississippi – have adopted a “hybrid” model for pharmacy benefits. In this model, MCOs remain financially responsible for pharmacy benefits but must contract with a single state-designated Pharmacy Benefit Manager (PBM) to process claims and prior authorizations according to a standardized formulary and preferred drug list. Managed care programs have led to diverse approaches in how states define the scope of services covered within MCO contracts, reflecting varying priorities and strategies for healthcare delivery.
Alt text: United States map indicating states that carve out pharmacy benefits from Medicaid managed care contracts as of July 2024, highlighting the states that maintain separate pharmacy benefit management outside of comprehensive managed care.
7. Capitation Rates and Risk Mitigation: State Payment Strategies for MCOs
States pay Medicaid managed care organizations a predetermined “capitation rate,” a fixed per member per month payment for the Medicaid services outlined in their contracts. Unlike commercial and Medicare Advantage markets where plans set their rates, Medicaid managed care rates are established by states and their actuaries, subject to review and approval by the Centers for Medicare & Medicaid Services (CMS). Federal law mandates that payments to Medicaid MCOs must be actuarially sound. Actuarial soundness, in this context, signifies 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.”
Capitation, in contrast to fee-for-service (FFS), provides plans with upfront fixed payments to cover expected service utilization, administrative expenses, and profit. Plan rates are typically set for a 12-month period. States employ various mechanisms to adjust for plan risk, incentivize performance, and ensure appropriate payment levels. These include risk-sharing arrangements, risk and acuity adjustments, medical loss ratios (MLRs), and incentive and withhold arrangements. MLRs, which represent the proportion of capitation payments spent on clinical services and quality improvement, are a key metric. To limit administrative spending and profits, states are required to set capitation rates aiming for an MLR of at least 85% in the rate year.[5] However, there is no federal mandate for Medicaid plans to remit payments to the state if they fail to meet this MLR standard.[6] Despite this, as of July 2024, 34 MCO states reported always requiring remittance payments when an MCO falls short of state minimum MLR requirements (Figure 8), while two states indicated they sometimes require remittances. Managed care programs have led to the development of complex state-level rate-setting and risk management strategies to ensure financial stability and accountability within Medicaid managed care.
Alt text: Map of the United States displaying states that mandate remittance payments from Medicaid managed care organizations when they do not meet minimum medical loss ratio standards, indicating state efforts to enforce financial accountability in managed care.
8. Federal Regulations and Access Standards: Strengthening Oversight, Future Uncertain
The Biden administration finalized significant Medicaid regulations aimed at enhancing the quality of care and improving access for Medicaid enrollees. The 2024 Managed Care rule addresses critical aspects of Medicaid managed care, including access, financing, and quality. It strengthens standards for timely access to care, such as establishing national maximum wait time standards for certain routine appointments, and reinforces states’ monitoring and enforcement responsibilities. These regulations are multifaceted and are slated for implementation over several years.
However, the future of these rules is uncertain. Congress may attempt to overturn them, or a new administration could delay their implementation or introduce new regulations to reverse them. During the previous administration, CMS took steps to modify Medicaid managed care rules, including relaxing regulations concerning network adequacy and beneficiary protections. States are generally restricted from directing how managed care plans compensate their providers.[7] However, subject to CMS approval, states can implement “state directed payments” (SDPs) that require managed care plans to adopt minimum or maximum provider payment fee schedules, provide uniform rate increases, or implement value-based provider payment arrangements.[8] Introduced in 2016, SDPs were intended to help states ensure adequate provider networks and promote value-based payment models. Many states with MCO contracts utilize SDPs to implement uniform rate increases, similar to FFS supplemental payments. SDPs must adhere to federal requirements, including being linked to service utilization, distributed equitably, and not conditioned on intergovernmental transfer (IGT) agreements.[9]
The 2024 managed care rules permit states to use directed payments to pay hospitals and nursing facilities at the average commercial payment rate (ACR), which is higher than the Medicare payment ceiling used for other Medicaid FFS supplemental payments. The 2024 rules also tightened SDP requirements to enhance oversight, evaluation, and transparency, requiring states to report provider-level directed payment data and ensuring SDPs are tied to actual utilization. Recent reports indicate that SDPs have been a major factor in Medicaid expenditure growth in recent years, and CBO projections for 2025-2034 attribute further increases in SDPs as a factor driving up spending. Managed care programs have led to increased federal regulatory attention and evolving rules regarding payment structures and access standards, with ongoing debates about the appropriate level of federal oversight.
In 2024, CMS also finalized a rule focused on improving the prior authorization process, aiming to reduce approval wait times and enhance transparency. A 2023 KFF survey revealed that approximately one in five Medicaid enrollees reported experiencing issues with prior authorization, a higher rate than for most other types of insurance. A July 2023 OIG report found that Medicaid MCOs had an overall prior authorization denial rate of 12.5%, more than double the Medicare Advantage rate (Figure 9), raising concerns about access within Medicaid managed care. OIG recommendations to CMS include strengthening state monitoring of denials. Recent MACPAC analysis of denials and appeals in Medicaid managed care led to seven recommendations in the March 2024 Report to Congress, focusing on improving the appeals process and enhancing MCO monitoring and oversight. Managed care programs have led to increased scrutiny of prior authorization practices and federal efforts to streamline and improve this process.
Alt text: Comparative bar chart showing that Medicaid managed care organizations have a significantly higher prior authorization denial rate compared to Medicare Advantage plans in 2023, highlighting potential access barriers in Medicaid managed care.
9. Quality Incentives and Social Determinants: Leveraging Contracts for Broader Goals
States increasingly incorporate quality metrics into the ongoing evaluation of their Medicaid programs, including linking financial incentives, such as 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 10). Common performance areas targeted by these incentives include behavioral health, chronic disease management, and perinatal/birth outcomes.
Alt text: Bar graph illustrating that a large majority of Medicaid managed care states utilized financial incentives to encourage improvements in the quality of healthcare services as of July 2021, demonstrating a commitment to linking payment to performance.
Despite this activity, detailed plan-level performance data is often not publicly available from state Medicaid agencies, limiting transparency and the ability of beneficiaries and other stakeholders to assess plan performance on key indicators related to access and quality. In fiscal year 2024, most MCO states reported leveraging Medicaid MCO contracts to promote at least one specific strategy to address social determinants of health (Figure 11). States can also utilize managed care contracts to help reduce health disparities. Managed care programs have led to states increasingly using contract requirements and financial incentives to advance broader health policy goals, such as improving quality and addressing social determinants of health.
Alt text: Map of the U.S. showing states that reported including social determinants of health related policies in their Medicaid managed care contracts during fiscal year 2024, indicating a growing focus on addressing broader social factors influencing health outcomes through managed care.
10. Transparency and Monitoring: CMS Initiatives for Program Improvement
The 2016 Medicaid managed care final rule established new reporting requirements for states. CMS, under the Biden administration, further developed standard reporting templates and a range of toolkits to assist states in enhancing their monitoring and oversight of managed care programs. Transparency is viewed as a key mechanism for promoting accountability. To improve transparency, CMS began publicly posting the Managed Care Program Annual Report (MCPAR) and the MLR Summary Reports on Medicaid.gov in 2024. Managed care rules finalized in 2024 include provisions aimed at further strengthening managed care transparency and monitoring, although the future of these rules remains uncertain.
Publicly available data on individual MCO performance has the potential to enable comparisons within and across states. However, limitations and challenges persist, including reporting delays and incomplete data. For example, a GAO report found that six states had not submitted required MCPARs for 2022, and an OIG report identified missing required data in MLR reports prepared by plans. States are required to post the MCPAR and Network Adequacy and Access Assurances Report on their websites, but compliance may vary. It remains unclear whether the current trend towards strengthening managed care oversight and transparency will continue. Managed care programs have led to increased federal efforts to improve program monitoring and transparency, but the effectiveness and sustainability of these efforts are still evolving.
