Managed care

Payment and Delivery Systems

In 2014, over 76 percent of all Medicaid beneficiaries were enrolled in some form of managed care (CMS 2015). States have incorporated managed care into their Medicaid programs for a number of reasons. Managed care provides states with some control and predictability over future costs. Compared with fee for service, managed care can allow for greater accountability for outcomes and can better support systematic efforts to measure, report, and monitor performance, access, and quality. In addition managed care programs may provide an opportunity for improved care management and care coordination.

Use of managed care varies widely by states, both in the arrangements used and the populations served. Medicaid programs use three main types of managed care delivery systems:

  • Comprehensive risk-based managed care. In such arrangements, states contract with managed care plans to cover all or most Medicaid-covered services for their Medicaid enrollees. Plans are paid a capitation rate, a fixed dollar amount per member per month, to cover a defined set of services. The plans are at financial risk if spending on benefits and administration exceeds payments; conversely, they are permitted to retain any portion of payments not expended for covered services and other contractually required activities. Many state Medicaid managed care programs have one or more benefits—such as behavioral health services, oral health services, non-emergency transportation, or prescription drugs—that are carved out and provided separately through FFS or by limited-benefit plans (described below).
  • Primary care case management (PCCM). In a PCCM program, enrollees have a designated primary care provider who is paid a monthly case management fee to assume responsibility for managing and coordinating their basic medical care. Individual providers are not at financial risk in these arrangements, and continue to be paid on a FFS basis. Several states have enhanced their PCCM programs with targeted care monitoring and chronic illness management to specific enrollees with high levels of need, and by incorporating performance and quality measures and financial incentives for providers.
  • Limited-benefit plans. Most states contract with limited-benefit plans to manage specific benefits or to provide services for a particular subpopulations, such as providing inpatient mental health or combined mental health and substance abuse inpatient benefits, non-emergency transportation, oral health, or disease management.

States use a variety of methods to set rates for risk-based managed care plans but all must pay within an actuarially sound range. Many use an administrative process in which a specific rate is set by the state. Others use a competitive bidding or negotiation process. States may also use hybrid approaches, such as setting a range of rates and then asking plans to bid competitively within that range, or negotiating with plans based on the administered pricing or their competitive bids.

At least 24 states use measures of health status to risk adjust their rates, rather than relying on demographic factors alone. Such techniques are meant to adjust rates to better reflect a plan’s mix of enrollees and their expected care needs and expenditures.

Click here for a summary of the characteristics of key Medicaid managed care state plan amendments and waivers.

The Centers for Medicare & Medicaid Services (CMS) issued a Notice of Proposed Rulemaking for its first comprehensive update of Medicaid managed care regulations in over a decade on June 1, 2015. The proposed rule, CMS 2390-P, would modernize Medicaid managed care regulations to reflect the significant changes in Medicaid’s use of managed care during that period; align Medicaid managed care regulation with that of Medicare and commercial insurance; strengthen actuarial soundness; and promote delivery system reform. In July 2015 MACPAC submitted comments on the proposed rule.

To learn more about how Medicaid pays for managed care, see Payment Policy in Managed Care from MACPAC’s June 2011 report. MACPAC also convened a roundtable of experts in 2014 to discuss managed care payment issues. Other chapters of the June 2011 report focus on populations and enrollment in managed careplan characteristicsaccess and quality in managed care, and program accountability, integrity, and data.

MACStats includes state-level information on managed care including enrollment by eligibility group and plan type.