Exploring the Growth of Medicaid Managed Care

Medicaid—a joint federal-state program that provides health benefits to over 70 million people with low income—accounted for $375 billion of federal spending and $230 billion of state spending in fiscal year 2017. States typically use two types of payment systems to provide those benefits: fee for service and managed care. Under the fee-for-service system, states reimburse health care providers for the services that they deliver to beneficiaries. By contrast, under Medicaid managed care, states pay a fixed per capita fee, or capitation payment, to private health insurance plans or to provider groups, known as managed care organizations (MCOs), that provide services to enrollees. Some MCOs provide those services themselves, but others reimburse health care providers for services that they deliver. The scope of services covered by MCOs ranges from a small subset of services—for example, nonemergency medical transportation or case management (the approving and monitoring of health care services for an individual)—to all health care services that its enrollees might need.

States might implement Medicaid managed care for a variety of reasons. Two of the most often cited are to increase the predictability of spending and to improve the coordination of care. Proponents of managed care suggest that competition between MCOs reduces spending and improves outcomes. To date, however, studies of managed care have not found consistent evidence to support those claims.

This report presents information on managed care’s enrollment and spending and analyzes the various factors that affect them. CBO estimates that between 1999 and 2012 (the most recent year for which data on beneficiaries are available), the portion of all Medicaid beneficiaries who were eligible for full benefits that was enrolled in managed care (that is, the enrollment rate) grew from 63 percent to 89 percent, while the share of total Medicaid spending that went to managed care increased from 15 percent to 37 percent. The high rate of enrollment in managed care prompted the authors of one study to describe it as “the predominant delivery system for Medicaid.” Indeed, the large percentage of Medicaid beneficiaries already enrolled in MCOs has led some analysts to speculate that there is limited capacity for further expansion of the program. But managed care’s relatively small share of total Medicaid spending suggests that further growth in managed care’s share of spending, if not its enrollment, is possible. Thus, analyses, such as this one, of patterns of enrollment in and spending for managed care may aid policymakers considering proposals to change the role of managed care in Medicaid and the analysts charged with evaluating those proposals.

What Types of Medicaid Managed Care Plans Are Beneficiaries Enrolled In?

Medicaid managed care encompasses a wide variety of contractual arrangements between states and MCOs. Some MCOs, often referred to as comprehensive, cover a wide range of services. Other MCOs cover only a narrow set of services, such as dental care, nonemergency transportation, or behavioral health services. (Behavioral health services include treatment for mental health and substance use disorders.) In some cases, all beneficiaries within a given eligibility group—children, for example—enroll in the MCO, but in other cases, only beneficiaries with specific health conditions participate. For example, beneficiaries who are diagnosed with a serious mental illness are often required to enroll in an MCO that covers behavioral health services, whereas beneficiaries who develop a need for nursing home services may enroll in an MCO that covers long-term services and supports. (Long-term services and supports include care provided either in an institution or in a beneficiary’s home or the community that offers assistance with activities of daily living, such as eating and bathing, or instrumental activities of daily living, such as preparing meals and housekeeping.)

CBO found that the majority of Medicaid beneficiaries received benefits through multiple payment arrangements: Some beneficiaries were enrolled in comprehensive and noncomprehensive MCOs simultaneously, and others received services through fee-for-service Medicaid as well as through MCOs. In 2012, enrollment in managed care—particularly comprehensive managed care— was much more common among nonelderly, nondisabled adults and children than it was among other beneficiaries.

Why Is Spending on Medicaid Managed Care Less Than Spending on Fee-for-Service Medicaid?

Although the vast majority of Medicaid beneficiaries are enrolled in managed care, spending on Medicaid managed care is significantly less than spending on fee-for-service Medicaid. Several factors contribute to that discrepancy:

• Many beneficiaries who are enrolled in a comprehensive MCO still receive benefits through the fee-for-service program. More than 60 percent of beneficiaries were enrolled in a comprehensive MCO in 2012; fee-forservice payments accounted for more than one-quarter of their Medicaid spending. Almost half of such beneficiaries received at least some of their benefits through the feefor- service program; hospital and physicians’ services and long-term services and supports accounted for the largest shares of fee-forservice spending.
• Other beneficiaries are enrolled in MCOs that cover only a narrow range of benefits, and they receive most of their services through fee-forservice Medicaid. More than one-quarter of all Medicaid beneficiaries were enrolled in such MCOs in 2012, and for those beneficiaries, fee-for-service payments accounted for 95 percent of Medicaid spending.
• Beneficiaries in eligibility groups whose average Medicaid spending is lower (namely, nonelderly, nondisabled adults and children) are more likely than other beneficiaries to be enrolled in comprehensive MCOs. In 2012, average monthly spending for all nonelderly, nondisabled adults and children was less than $300. By contrast, average monthly spending for beneficiaries who were also enrolled in Medicare and other elderly and disabled beneficiaries was $1,500. Whereas 69 percent of the lower-cost group was enrolled in comprehensive managed care, only 39 percent of the higher-cost group was.
• Even within an eligibility group, beneficiaries whose Medicaid spending is lower, on average, are more likely to be enrolled in managed care. For example, children in foster care typically have higher behavioral health costs than other children, and states have been less likely to enroll foster care children in managed care than they have been to enroll other children in such programs.

How Have Changes in Spending on Medicaid Managed Care Varied by State?

From 1999 to 2014, the share of Medicaid spending that went to managed care increased in most states. During that period, the number of states in which managed care accounted for more than 25 percent of Medicaid spending grew from 5 to 30, and the number of states in which it accounted for more than 50 percent of Medicaid spending grew from 2 to 13. Not all states embraced managed care, however. The share of Medicaid spending that went to managed care declined in 6 states over that period, and in 2014, managed care accounted for less than 5 percent of Medicaid spending in 11 states.

How Has States’ Use of Medicaid Managed Care Changed Over Time?

Between 1999 and 2014, states’ use of comprehensive managed care increased overall, despite the fact that the number of states with comprehensive managed care declined over that period from 45 to 41.

During those years, states made changes to their comprehensive managed care programs that, on the whole, increased the number of people and the types of services covered by those programs.

• Many states expanded their comprehensive managed care programs to cover their entire jurisdiction rather than only certain counties, cities, or regions.
• In general, states made enrollment in comprehensive MCOs mandatory for more Medicaid beneficiaries, especially those who are elderly, disabled, or enrolled in Medicare.
• Many states negotiated contracts with MCOs to increase the scope of services that the MCOs would cover, expanding coverage for long-term services and supports in particular. For example, the number of states that included institutional long-term care (care provided in a nursing facility or similar institution) in a comprehensive managed care program increased from 4 in 1999 to 28 in 2014.

One reason for the expanding scope of managed care coverage was that although many states had established managed care programs by 1999, those programs were still new at the time and tended to cover only certain beneficiaries and services. The managed care model is less controversial and easier to put in place when Medicaid is one payer among many using it. Employment-based insurance typically covers families and acute care (such as hospital and physicians’ services), so many states implemented managed care by first covering children and parents and by providing acute care. States were slower to adopt managed care for elderly and disabled beneficiaries and for such services as nursing facility care or specialty behavioral health services because there were few comparable employment-based models. Between 1999 and 2014, many states expanded managed care coverage to include those groups and services.

States were already increasing their use of managed care before the Affordable Care Act (ACA) was enacted, but the ACA accelerated that expansion. The law gave states the option to expand Medicaid eligibility, and many of the states that chose to do so covered the newly eligible population with managed care. Even in those states that did not expand Medicaid, enrollment in the program rose because of the increased outreach and awareness of Medicaid that resulted from the ACA. Because most of the new enrollees were nonelderly, nondisabled adults for whom enrollment in managed care programs was often mandatory, the increased enrollment was disproportionately in managed care.

Although the general trend was toward increasing the use of comprehensive managed care, a few states eliminated or scaled back their programs between 1999 and 2014. In those cases, the decision to roll back managed care tended to be idiosyncratic and to reflect the unique characteristics of the state’s Medicaid program. For example, the largest retrenchment in managed care occurred in Vermont, which replaced a traditional comprehensive managed care program with a public-private partnership. In that model, Medicaid beneficiaries enroll in a public MCO operated by the Department of Vermont Health Access.