Managed care has become the predominant approach for delivering healthcare services to individuals enrolled in Medicaid across the United States. In 2022, a significant 75% of Medicaid beneficiaries were part of comprehensive managed care organizations (MCOs). However, the specifics of these programs, including which populations and services are included, are determined at the state level, leading to considerable diversity from state to state. While states set requirements for these managed care plans, the plans themselves retain flexibility in areas such as setting provider payment rates and offering extra benefits beyond the state mandates.
Entering 2025, the landscape of Medicaid managed care is influenced by several dynamic factors. States and managed care plans are grappling with rate setting uncertainties, particularly after the significant Medicaid disenrollments following the end of the pandemic-era continuous enrollment provision. Concerns have been raised by some firms that current capitation rates are insufficient to cover the increased member risk and service utilization. Many states have sought federal approvals to adjust these rates to address these shifts, amidst fluctuating state fiscal conditions. Furthermore, potential federal Medicaid spending cuts discussed in Congress could have significant implications for coverage, managed care plans, and healthcare providers. Finally, key Medicaid regulations introduced by the Biden administration, aimed at enhancing care quality and access, face potential repeal or revision under future administrations. This report will explore ten key themes that define the current use of comprehensive, risk-based managed care within the Medicaid program.
1. Managed Care Dominates Medicaid Service Delivery
States have significant autonomy in designing and managing their Medicaid programs within federal guidelines. They decide how to organize and finance care for Medicaid beneficiaries. Nearly every state utilizes some form of managed care, whether it’s comprehensive risk-based managed care or Primary Care Case Management (PCCM) programs.[1] As of July 2024, 42 states, including the District of Columbia, have contracts with comprehensive, risk-based managed care plans to provide healthcare to a portion of their Medicaid recipients (Figure 1). Oklahoma recently joined this group, launching comprehensive Medicaid managed care on April 1, 2024, for most children and adults. Medicaid MCOs offer comprehensive acute care, encompassing most physician and hospital services, and sometimes long-term care, for a fixed per-member, per-month payment. Over the past three decades, states have increasingly adopted managed care systems aiming to improve service access, enhance care coordination and management, and achieve greater budget predictability. While MCOs have brought more predictable state budgets, evidence regarding their impact on care access and costs remains varied and limited.[2],[3],[4]
Alt text: Map of the United States showing the percentage of Medicaid enrollees in comprehensive risk-based managed care by state in July 2024. Darker shades indicate higher percentages, illustrating the widespread adoption of managed care across the nation. States like Arizona, Florida, and Tennessee show high penetration rates.
2. MCO Payments Account for Over Half of Medicaid Spending
In fiscal year 2023, total state and federal Medicaid spending exceeded $880 billion. Payments to MCOs constituted approximately 52% of this total Medicaid expenditure (Figure 2), consistent with the previous fiscal year. The proportion of Medicaid spending allocated to MCOs varies across states. However, in over three-quarters of states utilizing MCOs, at least 40% of Medicaid funds are directed towards MCO payments (Figure 3). This state-level variation is influenced by several factors, including the percentage of the state’s Medicaid population enrolled in MCOs, the overall health needs of this population, whether high-risk beneficiaries are included in MCO enrollment, and the inclusion of long-term care services within MCO contracts. As states expand Medicaid managed care to encompass individuals with more complex needs, costly long-term care services, and adults newly eligible under the Affordable Care Act (ACA), the proportion of Medicaid funding channeled to MCOs is likely to continue its upward trend.
Alt text: Pie chart illustrating the distribution of Medicaid spending in Fiscal Year 2023. A significant portion, 52%, is attributed to payments to Managed Care Organizations (MCOs), highlighting the financial significance of managed care in the Medicaid system. Fee-for-service and other programs constitute the remaining portion.
3. 75% of Medicaid Beneficiaries Are Enrolled in MCOs
As of July 2022, nearly 72 million Medicaid enrollees received their healthcare through risk-based MCOs. In 30 states with MCO programs, at least 75% of Medicaid beneficiaries were enrolled in these plans (Figure 4).
While the 2022 data is the most recent national data available, Medicaid enrollment experienced substantial growth during the COVID-19 public health emergency due to the temporary suspension of disenrollments. This enrollment growth also extended to MCOs. At the beginning of the “unwinding” period in April 2023, total Medicaid enrollment reached a peak of 94.5 million, a 32% increase from pre-pandemic levels. Despite millions of disenrollments during the unwinding process, national Medicaid/CHIP enrollment in October 2024 remained approximately 8 million higher than in February 2020, before the pandemic.
Alt text: Map of US states showing the proportion of Medicaid beneficiaries enrolled in managed care as of July 2022. States are color-coded to represent different penetration rates, from less than 50% to greater than 75%, visually demonstrating the varying levels of managed care adoption across the country.
4. Children and Adults Predominantly in MCOs, Complex Needs Enrollees Increasingly Included
As of July 2022, 36 states with MCOs reported enrolling 75% or more of all children in these programs (Figure 5). Among the 39 states that had expanded Medicaid under the ACA by July 2022, 32 utilized MCOs to cover newly eligible adults, with most 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 groups (e.g., parents, pregnant women) through MCOs. While fewer states reported covering 75% or more of adults aged 65+ and individuals eligible due to disability through MCOs, there’s a clear trend of states increasingly including these populations with complex needs in managed care over time.
Alt text: Bar chart displaying managed care penetration rates across different Medicaid eligibility groups as of July 2022. Children and ACA Expansion Adults show the highest penetration rates, followed by Traditional Adults. Seniors and people with disabilities have lower, but growing, penetration rates in managed care.
5. Five Major Firms Account for Half of MCO Enrollment
States contracted with a total of 282 Medicaid MCOs as of July 2022. These MCOs are a mix of for-profit, non-profit, and government-run plans. In 2022, 16 parent firms operated Medicaid MCOs in multiple states, accounting for over 63% of total enrollment (Figure 6). Among these parent firms, six are publicly traded, for-profit entities, while ten are non-profit. Notably, five firms—Centene, UnitedHealth Group, Elevance (formerly Anthem), Molina, and Aetna/CVS—represent 50% of all Medicaid MCO enrollment (Figure 6). All five are publicly traded companies, highly ranked in the Fortune 500, with four in the top 100.
Alt text: Chart illustrating Medicaid MCO enrollment distribution by parent firm as of July 2022. Five dominant firms—Centene, UnitedHealth Group, Elevance, Molina, and Aetna/CVS—control half of the market share, indicating significant market concentration in the Medicaid managed care industry.
6. States Decide Service Carve-Ins and Carve-Outs
While MCOs are intended to provide comprehensive services, states can choose to carve out specific services from MCO contracts, delivering them through fee-for-service systems or limited benefit plans. Common services carved out include behavioral health, pharmacy, dental, and long-term care. However, there’s a growing trend across states to integrate these services into MCO contracts. Although most states with MCO contracts report that pharmacy benefits are included in managed care (31 out of 42), eight states still carve out pharmacy benefits as of July 2024 (Figure 7). Three additional states (Kentucky, Louisiana, and Mississippi) have adopted a hybrid model, contracting with a single Pharmacy Benefit Manager (PBM) for the managed care population, rather than completely carving out pharmacy. In this hybrid approach, MCOs remain financially responsible for pharmacy benefits but must utilize the state’s PBM for claims processing and prior authorizations, adhering to a unified formulary and preferred drug list.
Alt text: Map of US states indicating whether pharmacy benefits are carved in or carved out of Medicaid managed care as of July 2024. Most states (indicated in a specific color) have carved-in pharmacy benefits, while a smaller number (different color) have carve-outs, showing the prevailing trend towards integrated pharmacy benefits.
7. Actuarially Sound Capitation Rates and Risk Mitigation
States pay Medicaid managed care organizations a fixed per-member, per-month payment for contracted Medicaid services. Unlike commercial and Medicare Advantage markets where plans set 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 means that capitation rates are projected to cover all reasonable, appropriate, and attainable costs required under the contract terms and for the operation of the managed care plan. Capitation provides upfront fixed payments, differing from fee-for-service, covering expected service utilization, administrative costs, and profit. Plan rates are typically set for 12-month periods. States employ various strategies to adjust plan risk, incentivize performance, and ensure payment accuracy, including risk-sharing arrangements, risk and acuity adjustments, Medical Loss Ratios (MLRs), and incentive/withhold arrangements.
To limit administrative spending and profit by plans, 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] As of July 2024, 34 states with MCOs reported they always require remittance payments when an MCO does not meet state MLR minimums, while two states indicated they sometimes require remittances (Figure 8).
Alt text: Map of US states showing policies on MCO remittance payments when Medical Loss Ratio (MLR) requirements are not met as of July 2024. States in a specific color consistently require remittances, while others may sometimes require them or have different policies, illustrating state-level variations in financial accountability for managed care plans.
8. CMS Rules to Strengthen Access Standards Face Uncertainty
The Biden administration finalized significant Medicaid regulations to enhance care quality and access for Medicaid enrollees. The 2024 Managed Care rule addresses access, financing, and quality in Medicaid managed care. It strengthens standards for timely access, including national maximum wait times for certain routine appointments, and enhances state monitoring and enforcement. These complex rules are scheduled for phased implementation over several years. However, their future is uncertain as Congress may attempt to overturn them, or a new administration could delay or revise them. The previous Trump administration took steps to modify Medicaid managed care rules, including easing network adequacy and beneficiary protection requirements.
Generally, states are restricted from directing how managed care plans pay providers contractually.[7] However, with CMS approval, states can implement “state directed payments” (SDPs) that mandate managed care plans to adopt minimum or maximum provider payment schedules, provide uniform rate increases, or implement value-based payment (VBP) arrangements.[8] Introduced in 2016, SDPs aimed to help states ensure adequate provider networks and promote VBP. Many states with MCO contracts utilize SDPs to enact uniform rate increases akin to fee-for-service supplemental payments. SDPs must comply with federal requirements, such as being linked to service utilization, distributed equally to specified providers, 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 rate (ACR), which is higher than the Medicare payment ceiling for other Medicaid FFS supplemental payments. The 2024 rules also strengthen SDP requirements for better oversight, evaluation, and transparency, including mandatory provider-level data reporting, and ensure SDPs are tied to actual utilization. Recent reports indicate SDPs have significantly contributed to Medicaid expenditure growth, and CBO projections attribute further SDP increases to the rule changes, partially driving increased spending in 2025-2034.
In 2024, CMS also finalized a rule focused on improving the prior authorization process, aiming to reduce wait times and enhance transparency.[10] A 2023 KFF survey found that about one in five Medicaid enrollees reported issues with prior authorization, a higher rate than for most other insurance types. A July 2023 OIG report revealed that Medicaid MCOs had an overall prior authorization denial rate of 12.5%, over twice the Medicare Advantage rate (Figure 9), raising concerns about access in 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 their March 2024 Report to Congress, focusing on improving appeals processes and enhancing MCO monitoring and oversight.
Alt text: Bar chart comparing prior authorization denial rates in Medicaid Managed Care Organizations (MCOs) versus Medicare Advantage in 2023. Medicaid MCOs exhibit a significantly higher denial rate of 12.5% compared to Medicare Advantage, highlighting potential access barriers in Medicaid managed care.
9. Quality Incentives and Social Determinants of Health
States integrate quality metrics into ongoing program monitoring, using financial incentives like bonuses, penalties, capitation withholds, or value-based state directed payments to promote quality. Over three-quarters of MCO states reported using at least one financial incentive to enhance care quality as of July 2021 (Figure 10). Common performance areas targeted by these incentives include behavioral health, chronic disease management, and perinatal/birth outcomes. 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 stakeholders to assess plan performance on key indicators of access and quality.
In FY 2024, most MCO states reported using Medicaid MCO contracts to advance strategies addressing social determinants of health (Figure 11). States can also leverage managed care contracts to help reduce health disparities.
Alt text: Map of US states showing the use of financial incentives to promote quality of care in Medicaid managed care programs as of July 2021. States in a specific color are reported to use financial incentives, demonstrating widespread adoption of these strategies to improve healthcare quality within managed care.
10. CMS Steps to Enhance Monitoring and Transparency
The 2016 Medicaid managed care final rule introduced new reporting requirements for states. Under the Biden administration, CMS developed standard reporting templates (Table 1) and various toolkits, and released informational bulletins (2021, 2022, 2023, 2024) to assist states in improving managed care program monitoring and oversight. Transparency is crucial for accountability. To enhance transparency, CMS began publicly posting the Managed Care Program Annual Report (MCPAR) and 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 is uncertain.
Publicly available data on individual MCO performance can enable comparisons within and across states. However, limitations exist, including data posting delays and incomplete data. For example, a GAO report found that six states had not submitted required MCPARs for 2022, and an OIG report found MLR reports from plans missing required data. States are required to post the MCPAR and Network Adequacy and Access Assurances Report on their websites, but compliance may vary. It remains to be seen whether the current efforts to strengthen managed care oversight and transparency will continue.
References
[1] Primary care case management (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.
[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).
[3] Sparer M. 2012. Medicaid managed care: costs, access, and quality of care. Res. Synth. Rep. 23, Robert Wood Johnson Found., Princeton, NJ
[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
[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/
[6] The 85% minimum MLR is the same standard that applies to Medicare Advantage and private large group plans.
[7] The 2024 Consolidated Appropriations Act included a financial incentive to encourage certain states to collect remittances from Medicaid MCOs that do not meet minimum MLR requirements.
[8] 42 CFR Sections 438.6 and 438.60.
[9] Permissible under 42 CFR Section 438.6(c).
[10] 42 CFR §438.6(c)
