States may use a variety of mechanisms to adjust plan risk, incentivize plan performance, and ensure payments are not too high or too low, including risk sharing arrangements, risk and acuity adjustments, medical loss ratios (MLRs, which reflect the proportion of total capitation payments received by an MCO spent on clinical services and quality improvement), or incentive and withhold arrangements.ĬMS allowed states to modify managed care contracts in response to unanticipated COVID-19 costs and conditions that led to decreased utilization. Plan rates are usually set for a 12-month rating period (which typically run on a calendar year or state fiscal year basis) and must be reviewed and approved by CMS each year. Actuarial soundness means 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.” Unlike fee-for-service (FFS), capitation provides upfront fixed payments to plans for expected utilization of covered services, administrative costs, and profit. Under federal law, payments to Medicaid MCOs must be actuarially sound. States pay Medicaid managed care organizations a set per member per month payment for the Medicaid services specified in their contracts. Each year, states develop MCO capitation rates that must be actuarially sound and may include risk mitigation strategies. 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. 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.
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. 3 Medicaid MCOs (also referred to as “managed care plans”) provide comprehensive acute care and in some cases long-term services and supports to Medicaid beneficiaries. North Carolina is the latest state to be included in this count, having launched comprehensive risk-based Medicaid managed care statewide on July 1, 2021. 1, 2 As of July 2021, 41 states (including DC) contract with comprehensive, risk-based managed care plans to provide care to at least some of their Medicaid beneficiaries (Figure 1). Nearly all states have some form of managed care in place – comprehensive risk-based managed care and/or primary care case management (PCCM) programs. States determine how they will deliver and pay for care for Medicaid beneficiaries.
States design and administer their own Medicaid programs within federal rules. Today, capitated managed care is the dominant way in which states deliver services to Medicaid enrollees. States also make decisions about which populations and services to include in managed care arrangements leading to considerable variation across states. While we can track state requirements for Medicaid managed care plans, plans have flexibility in certain areas including in setting provider payment rates and plans may also choose to offer services beyond those required in the Medicaid state plan or waivers.
CMS released guidance for state Medicaid agencies outlining how managed care plans can promote continuity of coverage for individuals as states resume normal operations when the continuous coverage requirement during the public health emergency ends. Understanding these trends provides important context for the role managed care organizations (MCOs) play in the Medicaid program overall as well as during the ongoing COVID-19 public health emergency (PHE) and in its expected unwinding. This brief describes 10 themes related to the use of comprehensive, risk-based managed care in the Medicaid program and highlights significant data and trends. With 69% of Medicaid beneficiaries enrolled in comprehensive managed care plans nationally, plans have played a key role in responding to the COVID-19 pandemic and in the fiscal implications for states. Managed care plays a major role in the delivery of health care to Medicaid enrollees.
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