Managed care has become the predominant strategy for delivering healthcare services to a significant portion of the population, particularly within government-funded programs. Understanding What Government Programs Use The Managed Care Model Today is crucial for anyone involved in healthcare policy, administration, or service delivery. This article delves into the widespread adoption of managed care within government initiatives, primarily focusing on Medicaid, and explores the key aspects of this healthcare delivery system.
1. Medicaid’s Reliance on Capitated Managed Care: A Dominant Delivery System
Within the landscape of government-sponsored healthcare, Medicaid stands out as a major adopter of managed care. States, operating under federal guidelines, have significant autonomy in designing and administering their Medicaid programs. A core decision for each state is how to deliver and finance healthcare for Medicaid beneficiaries. The overwhelming trend across the nation is the implementation of managed care models, encompassing both comprehensive risk-based managed care and primary care case management (PCCM) programs. As of July 2023, a significant 41 states, including the District of Columbia, have contracts with comprehensive, risk-based managed care plans. These plans are tasked with providing care to a segment, if not the majority, of their Medicaid recipients. Notably, Oklahoma expanded its adoption of capitated, comprehensive Medicaid managed care in April 2024, further solidifying this trend.
Medicaid Managed Care Organizations (MCOs) are at the heart of this system. They deliver comprehensive acute care, and increasingly, long-term services and supports to Medicaid beneficiaries. The financial structure is based on a capitated model, where MCOs receive a fixed per-member, per-month payment for these services. States have historically turned to managed care to enhance budget predictability, control Medicaid spending, and improve both access to and the value of healthcare services. While managed care has indeed provided states with greater budget predictability, the evidence concerning its impact on access to care and overall costs presents a more complex and varied picture.
2. Medicaid Managed Care Enrollment: Reaching a Significant Majority
The extent to which government programs use the managed care model is clearly demonstrated by Medicaid enrollment figures. By July 2021, a remarkable 74% of all Medicaid beneficiaries were receiving their healthcare through comprehensive risk-based MCOs. This translates to 66 million individuals enrolled in managed care across the nation. Furthermore, in 31 states with MCO programs, at least 75% of their Medicaid beneficiaries were enrolled in these plans, highlighting the deep penetration of managed care within state Medicaid systems.
Image alt text: Map of the United States showing Medicaid Managed Care Enrollment as a Share of Total Medicaid Enrollment by state in July 2021, indicating high managed care penetration across many states.
The COVID-19 public health emergency further influenced these numbers. During this period, states were prohibited from disenrolling individuals from Medicaid, leading to a substantial increase in overall Medicaid enrollment and, consequently, MCO enrollment. Medicaid enrollment peaked in April 2023 at 94.5 million, a 32% increase from pre-pandemic levels. As the “unwinding” of continuous enrollment began, Medicaid enrollment saw a decline, but managed care remains a critical component of the program. The Centers for Medicare and Medicaid Services (CMS) emphasizes the crucial role of managed care plans in ensuring eligible individuals maintain their Medicaid coverage during this transition. Strategies and waivers are in place to assist states in minimizing coverage disruptions, leveraging MCOs to update enrollee information and streamline the renewal process.
3. Managed Care Enrollment by Population: Expanding to Diverse Beneficiary Groups
While managed care is broadly used across Medicaid, enrollment patterns vary among different beneficiary groups. Children and adults are more likely to be enrolled in MCOs compared to adults aged 65 and over and individuals eligible due to disability. However, a significant trend is the increasing inclusion of beneficiaries with complex healthcare needs into managed care arrangements. As of July 2022, in 36 MCO states, 75% or more of children were covered through MCOs. Similarly, in states that expanded Medicaid under the Affordable Care Act (ACA), MCOs are widely used to cover newly eligible adults, with most states covering over 75% of this population through managed care. Coverage rates are also high for low-income adults in pre-ACA expansion groups, such as parents and pregnant women.
Image alt text: Bar chart displaying Managed Care Penetration Rates by Medicaid Eligibility Group in July 2022, showing higher penetration among children and ACA expansion adults compared to elderly and disabled populations.
Although adults aged 65+ and people with disabilities have historically had lower MCO enrollment rates, states are progressively integrating these populations into managed care systems. This shift reflects a broader recognition of managed care’s potential to coordinate care and manage costs even for individuals with complex and long-term healthcare needs.
4. Medicaid Spending on Managed Care: A Significant Portion of Total Expenditures
The financial scale of government programs using managed care is substantial. In Fiscal Year 2022, payments to comprehensive risk-based MCOs accounted for over half of all Medicaid spending. Out of the total Medicaid service expenditure exceeding $804 billion, approximately 52% was directed towards MCOs. This proportion remained consistent with the previous fiscal year, indicating a stable and significant financial commitment to managed care within Medicaid.
Image alt text: Map of the United States illustrating Medicaid MCO Spending as a Share of Total Medicaid Spending by state in FY 2022, highlighting the significant financial allocation to managed care across states.
The share of Medicaid spending allocated to MCOs varies across states, influenced by factors such as the proportion of the Medicaid population enrolled in managed care, the health needs of this population, and the inclusion of high-risk beneficiaries and long-term services within MCO contracts. As states continue to expand managed care to encompass higher-need, higher-cost beneficiaries and services, the financial allocation to MCOs is likely to continue its upward trend.
5. Actuarial Soundness and Risk Mitigation in MCO Capitation Rates
A critical aspect of government programs utilizing managed care is the financial mechanism of capitation rates. States pay Medicaid MCOs a predetermined per-member, per-month fee for the contracted Medicaid services. Federal law mandates that these payments must be actuarially sound. This means the capitation rates must be projected to cover all reasonable, appropriate, and attainable costs associated with the contract terms and the operation of the managed care plan for the specified period and population. Unlike fee-for-service models, capitation provides upfront fixed payments, covering expected service utilization, administrative costs, and plan profits.
Image alt text: Map of the United States showing states with Medicaid agencies that have implemented or expect recoupment of payments from MCOs under COVID-19 risk corridors, indicating financial adjustments during the pandemic.
States employ various strategies to adjust for risk, incentivize plan performance, and ensure rate appropriateness. These include risk-sharing arrangements, risk and acuity adjustments, medical loss ratios (MLRs), and incentive or withhold arrangements. During the COVID-19 pandemic, CMS allowed states to modify managed care contracts in response to enrollment increases and utilization decreases. Many states implemented “risk corridors” to share profits or losses with health plans, allowing for fund recoupment. The financial uncertainty due to the unwinding of continuous enrollment is again prompting close scrutiny of these financial mechanisms.
6. Service Carve-Ins and Carve-Outs in MCO Contracts: State Variations
While MCOs generally provide comprehensive services, states retain the flexibility to carve specific services out of MCO contracts, delivering them through fee-for-service systems or limited benefit plans. Common services carved out include behavioral health, pharmacy, dental care, and long-term services and supports (LTSS). However, a significant trend is the movement towards carving these services back into MCO contracts to promote more integrated care. For example, while most states with MCOs include pharmacy benefits within managed care, a number of states still carve out pharmacy benefits. New York, as of April 2023, became the latest state to implement a full pharmacy carve-out. These decisions on service carve-ins and carve-outs reflect state-specific priorities and strategies for managing different service areas within their Medicaid programs.
Image alt text: Map of the United States showing the status of the Medicaid Pharmacy Benefit in Managed Care by state as of July 2023, differentiating between states with pharmacy benefits carved in and carved out of managed care.
7. Market Concentration in Medicaid Managed Care: Dominance of Major Firms
The landscape of government programs using managed care also involves significant market dynamics. As of July 2021, states contracted with a total of 287 Medicaid MCOs. These MCOs encompass a mix of private for-profit, private non-profit, and government-run plans. A notable trend is the concentration of enrollment among a relatively small number of large firms. Fifteen parent firms operated Medicaid MCOs in multiple states, accounting for 62% of total enrollment in 2021. Among these, six are publicly traded, for-profit firms, while nine are non-profit. The top five firms – Centene, UnitedHealth Group, Anthem (Elevance), Molina, and Aetna/CVS – alone account for 50% of all Medicaid MCO enrollment. These are all major, publicly traded companies, highlighting the significant role of large private insurers in delivering Medicaid managed care. Despite recent Medicaid enrollment declines in the unwinding period, these firms have generally reported continued revenue growth in their Medicaid business lines.
Image alt text: Bar chart illustrating Medicaid MCO Enrollment by Parent Firm in July 2021, showing the top firms and their share of total enrollment, emphasizing market concentration in Medicaid managed care.
8. Strengthening Access and Prior Authorization: CMS Final Rules in 2024
Recognizing the need to enhance the effectiveness of government programs using managed care, CMS finalized rules in April 2024 aimed at strengthening access standards and improving the prior authorization process within Medicaid managed care. Historically, states had considerable flexibility in defining network adequacy standards and monitoring MCO compliance. The new rules introduce key provisions to standardize and strengthen access, including:
- National Maximum Wait Time Standards: Establishing maximum wait times for routine appointments, such as 15 business days for primary care and OB/GYN services, and 10 business days for outpatient mental health and substance use disorder services.
- Secret Shopper Surveys: Requiring states to conduct independent secret shopper surveys to validate compliance with wait time standards and the accuracy of provider directories.
- Enrollee Experience Surveys: Mandating annual enrollee experience surveys for each managed care plan to capture enrollee perspectives on access and care.
- Payment Rate Analysis: Requiring states to annually compare managed care provider rates to Medicare rates to assess the potential impact of payment rates on access.
- Remedy Plans: Obligating states to implement remedy plans to address areas where managed care plans need to improve access.
- Enhanced Transparency: Building upon existing reporting requirements and establishing new state website requirements to increase transparency.
Image alt text: Map of the United States indicating states with minimum provider rate requirements in Medicaid Managed Care Contracts, showing geographical distribution of these payment policies.
In January 2024, CMS also finalized a rule focused on improving the prior authorization process, aiming to reduce wait times and enhance transparency. Concerns about prior authorization in Medicaid managed care have been raised, with higher denial rates compared to Medicare Advantage. OIG reports and MACPAC analyses have highlighted the need for stronger state monitoring of denials and appeals processes.
Image alt text: Bar chart comparing Prior Authorization Denial Rates by Coverage Type in 2021, showing higher denial rates in Medicaid Managed Care compared to Medicare Advantage and Marketplace plans.
9. Financial Incentives for Quality: Driving Performance Improvement
To further optimize government programs using managed care, states are increasingly using financial incentives linked 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. These incentives include performance bonuses or penalties, capitation withholds, or value-based state-directed payments tied to specific quality metrics. Frequently targeted performance areas include behavioral health, chronic disease management, and perinatal/birth outcomes. However, transparency remains a challenge, as detailed plan-level performance information is often not publicly available.
Image alt text: Map of the United States showing states using financial incentives linked to quality measures in Medicaid Managed Care, indicating the prevalence of quality-focused payment strategies across states.
Beyond financial incentives, states also utilize non-financial methods to incentivize managed care plan performance, such as Quality Rating Systems (QRSs). CMS regulations mandate that states implement QRSs to allow for performance comparisons across plans. The 2024 Managed Care final rule further establishes the CMS framework and state requirements for QRSs, with mandatory quality measures and a public website requirement by 2028. States are also focusing on alternative payment models (APMs) within managed care contracts to shift away from fee-for-service and incentivize value-based care.
10. Addressing Social Determinants of Health and Health Equity: A Growing Focus
A significant evolution in government programs using managed care is the increasing emphasis on addressing social determinants of health (SDOH) and reducing health disparities. The current Administration has prioritized advancing health equity within Medicaid. CMS has released guidance and waiver opportunities to support state efforts in addressing health-related social needs (HRSN) through managed care. Most MCO states reported leveraging MCO contracts to promote strategies addressing SDOH in FY 2023. Common strategies include requiring MCOs to screen enrollees for behavioral health and social needs, provide referrals to social services, and partner with community-based organizations (CBOs).
Image alt text: Map of the United States showing states reporting Social Determinants of Health (SDOH)-related policies required in Medicaid Managed Care Contracts, highlighting the geographic spread of SDOH-focused initiatives.
Financial incentives are also being directed towards reducing health disparities, with some states tying MCO financial incentives to this goal. Beyond financial levers, states are requiring MCOs to implement health equity training for staff, meet health equity reporting requirements, and participate in Performance Improvement Projects (PIPs) focused on health disparities. These initiatives reflect a growing recognition of the critical role managed care can play in promoting health equity and addressing the broader social factors that impact health outcomes.
Conclusion
Managed care has become the cornerstone of numerous government healthcare programs today, with Medicaid at the forefront of this transformation. Driven by the goals of budget predictability, cost containment, and improved access and quality, states have overwhelmingly adopted managed care models for their Medicaid programs. While challenges and areas for improvement remain, particularly around access standards, prior authorization processes, and health equity, ongoing policy developments and a growing focus on quality and social determinants of health signal a continued evolution and refinement of managed care within government-sponsored healthcare. As government programs continue to utilize and refine the managed care model, understanding its nuances and impacts will be essential for shaping a more effective and equitable healthcare system.
