Medicaid managed care provides beneficiaries’ services through contracts between state Medicaid agencies and managed care organizations (MCOs). In the predominant method of managed care implementation MCOs accept a capitation rate, a set per member per month payment, for a number of services.¹

Section 1932 of the Social Security Act outlines requirements related to the federal oversight of managed care programs and implementation can be found in 42 CFR 438.

Payments to Medicaid MCOs must be actuarially sound, meaning that the capitation rates are projected to provide reasonable, appropriate, and attainable costs for the operation of the managed care plan.²

Medicaid programs use three types of managed care delivery systems: comprehensive risk based managed care, primary care case management, and limited benefit plans. In comprehensive-risk based managed care, states contract with MCOs to cover all or most Medicaid-covered services for their enrollees. MCOs are paid a capitation rate to cover a defined set of services. MCOs accept the financial risk of beneficiary spending exceeding payments but they can retain any portion of payments not expended. Capitation managed care is the preferred method of coverage in most states for Medicaid beneficiaries. Many state Medicaid managed care programs have benefits (e.g. behavioral health services, prescription drugs, etc.) that are carved out and provided separately through fee-for-service (FFS) or by limited-benefit plans.¹

In a primary care case management (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. Contrary to comprehensive-risk based managed care, individual providers do not assume financial risk in a PPCM program; they are paid on a FFS basis.¹ As previously stated, states contract with limited-benefit plans to manage specific benefits or to provide services for a particular subpopulation such as inpatient mental health or oral health. Limited-benefit plans have less benefits and more restrictions than major medical insurance, but offer lower premiums. Limited-benefit plans include critical illness plans, indemnity plans, policies that only pay a predetermined amount, regardless of total charges, and “hospital cash” policies. These plans are not suitable to serve as a person’s only medical coverage but they can be a good supplement to a high-deductible major medical plan.³

As of July 2018, 53.9 million (69%) Medicaid beneficiaries were enrolled in comprehensive managed care plans nationally. Twenty-five MCO states covered more than 75% of Medicaid beneficiaries in MCOs.²

As of July 2019, 40 states, including DC, contract with comprehensive, risk-based managed care plans to provide care to at least some of their Medicaid beneficiaries.²

At least 24 states use measures of health status to risk-adjust their rates, this generates rates that better reflect a plan’s mix of enrollees and their expected care needs and expenditures.¹

1. Provider payment and delivery systems. MACPAC. https://www.macpac.gov/medicaid-101/provider-payment-and-delivery-systems/.

2. Hinton E, Rudowitz R, Stolyar L, Singer N. 10 Things to Know about Medicaid Managed Care. KFF. https://www.kff.org/medicaid/issue-brief/10-things-to-know-about-medicaid-managed-care/. Published 2020.

3. What is a limited-benefit plan? | healthinsurance.org. healthinsurance.org. https://www.healthinsurance.org/glossary/limited-benefit-plan/.