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Chapter 1. An Overview of Medicaid Managed Care

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Medicaid plays an integral role in financing health care services in the United States, accounting for 16 percent of total health spending and providing coverage for one out of every six Americans. Among the more than 60 million citizens who rely on Medicaid are about 9 million nonelderly people with disabilities, including 1.4 million children. While people with disabilities constituted 16.5 percent of Medicaid enrollees in fiscal year (FY) 2008, expenditures on their behalf represented 44 percent of total Medicaid outlays.[i]

The Medicaid program serves a diverse array of people with disabilities, ranging widely in age and type and severity of disability, and has an extraordinary impact on the health and quality of life of beneficiaries with disabilities. The program rolls include children with physical, sensory, intellectual, and developmental disabilities; working-age adults with spinal cord and traumatic brain injuries; children and adults with severe and persistent mental illnesses; and low-income adults with other serious, chronic illnesses and disorders such as diabetes and cardiac and pulmonary diseases.

Medicaid enrollees with disabilities have extraordinarily varied needs for both acute health care and long-term services and supports (LTSS). As Rowland noted, “people with intellectual disabilities have specialized needs that would not be met in a long-term service system developed to meet the needs of people with physical disabilities.”[ii] Of course, the converse is true, and applies equally to various other subgroups within the population of people with disabilities. The health and long-term support needs of this population are wide ranging and subject to rapid changes.

In 2010, President Obama signed the Affordable Care Act (ACA),[iii] a measure calling for sweeping changes in the U.S. health care system. Clearly, people with disabilities have a major stake in efforts to restructure the health care and long-term service delivery system in the United States. And today, in many states, managed care is viewed as the chief vehicle for transforming the delivery of Medicaid services to beneficiaries with chronic disabilities and illnesses.

The two opening chapters of this report explore recent and emerging trends in financing and delivering Medicaid-funded services and supports to people with disabilities, with particular emphasis on the opportunities and risks associated with the growing shift toward managed care delivery systems. In this examination, we will review the number and composition of nonelderly people who qualify for Medicaid benefits on the basis of disability, the types of services they receive, and recent utilization and expenditure trends in Medicaid-funded services for such beneficiaries. In addition, we will pinpoint the unique challenges associated with enrolling people with disabilities in Medicaid managed care programs and outline the reasons that states, with an increasing sense of urgency, are choosing to confront these challenges.

The Meaning and Origins of Managed Care

The term “managed care” has different meanings depending on the context in which it is used. These multiple meanings can be confusing, especially to those who are not well versed in the terminology of health care delivery systems. Reduced to its fundamentals, however, managed care involves efforts to coordinate, organize, and rationalize the delivery of health care services and supports in a manner designed to improve service access and quality while avoiding unnecessary expenditures.

Managed health care emerged in the 1930s in response to the growing cost of medical services in the United States. Physicians and hospitals banded together in local or area-wide cooperatives to provide primary and acute care services to individual subscribers in exchange for the payment of a fixed monthly fee, or premium. As employer-based health insurance became the norm in the United States, commercial insurers and large employers came to recognize the advantages of a managed care approach to controlling the costs and quality of health services. By the early 1990s, a majority of American workers were enrolled in some type of managed care arrangement.

Although managed care began in the private sector, it eventually spread to publicly financed health programs. From the onset of the Medicaid program, a few states enrolled selected program beneficiaries in managed health care plans, typically health maintenance organizations operated by nonprofit corporations. The Federal Government, however, did not begin regulating Medicaid managed care arrangements until the early 1970s.The introduction of managed care as a formal Medicare option came more than two decades later, with the introduction of the Medicare Advantage program. By the late 1990s, a few states began applying the principles of managed health care to the provision of LTSS to Medicaid recipients with severe, chronic disabilities (see appendix B for a brief history of managed care in the United States and appendix C for a concise summary of the evolution of managed care within federal Medicaid policy).

Common Cost-Containment Strategies

Historically, Americans have paid for health care and long-term supports on a fee-for-service (FFS) basis. Under this approach, a hospital, a physician, or another qualified health care practitioner bills and receives payment for each episode of service rendered to a patient. In contrast, like big-box stores and other discount retailers, managed health care plans use their buying power to negotiate lower costs. At discount stores, shoppers are willing to trade amenities, such as knowledgeable sales staff, a more comfortable ambiance, and attractive displays, for lower prices than they find at traditional retail stores. Similarly, in exchange for a comprehensive array of health care services at a fixed monthly premium, enrollees in managed health care plans typically face the choice of using participating health care professionals and facilities or incurring higher out-of-pocket costs for treatment.

Among the methods commonly used by managed health care plans to control costs and thus remain financially viable are the following:

  • Contracting exclusively with providers willing to offer their services at discounted rates.
  • Monitoring the use of basic and ancillary services furnished by network providers and using incentives to reward below-average use and disincentives to discourage excess (above-average) use. These techniques are generally referred to as utilization review.
  • Discouraging the excessive use of tests and prescription medications.
  • Requiring plan participants to obtain a referral (prior authorization) from their primary care physician to gain access to specialty services reimbursable under the plan.
  • Requiring providers to assume part of the financial risk of cost overruns for services they control, directly or indirectly.

About 44 percent of Americans received their health care through managed care plans during 2010. Most of them were served through health maintenance organizations (HMOs; 48.9%) or preferred provider organizations (PPOs; 39.3%), with the balance (11.9%) receiving service through either a point-of-service (POS) plan or a high-deductible health plan. The managed care penetration rate in commercial health plans (54%) was somewhat lower than among Medicaid recipients (71%).[iv]

Types of Managed Care Arrangements

The principal difference between managed care and conventional health insurance payment methods is that the responsible entity (i.e., the managed care organization (MCO)) usually pays for and provides services, either directly or through contracts with third party providers, whereas conventional health insurers underwrite the cost of coverage but are not involved in the delivery of services.

The private sector uses several types of network-based health programs, some but not all of which are generally considered to be “managed care” approaches. The principal types of network-based programs are discussed in appendix D. Given the purpose of this report, however, the discussion here is limited to applications of managed care techniques within the federal-state Medicaid program and the similarities and differences between managed care in the public and private sectors.

Differences Between Private and Public Sector Managed Care Arrangements

Managed care arrangements within the Medicaid program differ from managed care in the private sector, as well as from Medicare managed care plans, in the following ways:

  • The role of provider networks. The majority of enrollees (55%) in employer-sponsored health insurance plans in 2011 were participating in PPOs. Considerably fewer were enrolled in employer-sponsored HMOs (19%), high-deductible health plans with a savings option (13%), or POS plans (8%).[v] PPOs also are the most popular choice among Medicare beneficiaries who elect to enroll in a Medicare Advantage managed care plan, with 64 percent opting for a PPO.

In contrast, most Medicaid beneficiaries, including those dually eligible for Medicare and Medicaid benefits, who participate in at-risk managed care plans, are enrolled in HMOs. Because of limited financial resources, Medicaid recipients, including dual eligibles, are unable to afford the out-of-pocket deductibles and coinsurance payments associated with a PPO, a POS, or a high-deductible plan.[vi] Furthermore, because Medicaid payment rates are generally lower than commercial rates, provider networks and access to out-of-plan services typically are more tightly controlled under Medicaid managed care plans than they are under employer-sponsored and Medicare Advantage plans.

  • Limited cost sharing. Cost sharing is frequently used in commercial managed care plans to discourage overutilization of services; but because the Medicaid program serves a low-income population, Medicaid managed care plans use cost sharing sparingly. Under federal law, states are allowed to impose only nominal cost-sharing requirements, and deductibles are rarely used. Since such cost-sharing requirements are unlikely to serve as an effective deterrent to using expensive out-of-network providers, states usually elect to establish defined provider networks and hold MCOs responsible for ensuring that beneficiaries gain access to needed services within the network and at negotiated payment rates.
  • Choice of plans and enrollment processes. States are required under federal law to offer Medicaid beneficiaries a choice of at least two health plans if enrollment in managed care is mandatory (with the exception of certain rural areas). In contrast, private employers are not required to offer employees a choice among alternative health plans, and only a little over half (52%) do so.[vii] Typically, where a plan choice exists, employees exercise their option at the time they become eligible for coverage and are given an opportunity to change plans during an annual open enrollment period. Similarly, Medicare recipients who elect to enroll in a Medicare Advantage plan may do so at initial enrollment or during a subsequent annual open enrollment period. Medicaid beneficiaries, unlike participants in private and Medicare managed care plans, often move in and out of managed care plans because of changes in income that affect their eligibility for Medicaid benefits.[viii]

Types of Medicaid Managed Care Plans

Three different types of arrangements are commonly referred to as managed care within the Medicaid policy arena: comprehensive risk-based health plans, primary care case management programs, and limited-benefit plans.

  • Comprehensive risk-based plans are the most commonly used type of Medicaid managed care arrangement. Typically, states employ an HMO model in which qualified health plans receive fixed per member per month (PMPM) payments from the state for furnishing a defined range of health services to plan enrollees. Enrollees receive services through a network of participating providers. If aggregate expenditures exceed total income, the health plan is responsible for absorbing the losses, although sometimes the health plan passes on a portion of the financial risk to participating providers. In addition, states sometimes agree to share financial risk with the health plan by assuming losses in excess of a specified level (e.g., above 107% of aggregate PMPM payments). Such arrangements are often referred to as “risk corridors.”

Twenty-three million Medicaid beneficiaries (47% of all recipients) were enrolled in comprehensive at-risk managed care plans in 2009.[ix] Of this number, 56 percent were enrolled in Medicaid-only MCOs, while the balance (44%) were participating in plans operated by private health insurers that enroll both private and Medicaid-eligible individuals.[x]

  • Participants in primary care case management (PCCM) programs are assigned a primary care provider who receives a small, monthly per capita payment for coordinating each enrollee’s care. With the exception of this care coordination and case management function, all other health services—including those furnished by the individual’s primary care provider—are reimbursed on a FFS basis. In 2009, 7.3 million Medicaid beneficiaries were enrolled in PCCM programs.[xi]
  • Various types of Medicaid services are provided through limited-benefit plans. These plans typically cover only a single type of benefit. With payment generally made on a capitated basis, these plans are used in conjunction with other Medicaid managed care or FFS arrangements. Limited benefit plans frequently are used to deliver mental health and/or substance use services (7.4 million enrollees in 2009), transportation services (6.1 million), and dental services (1.2 million). Of the 15.9 million beneficiaries enrolled in limited benefit plans as of June 30, 2009, 54 percent were enrolled in prepaid inpatient health plans (PIHPs) and 46 percent in prepaid ambulatory health plans (PAHPs).[xii] As the names imply, the primary difference between a PIHP and a PAHP is that the former plan includes inpatient services (e.g., inpatient psychiatric care), while the latter plan does not (e.g., outpatient mental health services only).

The managed care penetration rate varies significantly from state to state. During 2009, four states had more than 75 percent of Medicaid beneficiaries enrolled in comprehensive, at-risk managed care plans, while in 17 other states, between 51 percent and 75 percent of Medicaid beneficiaries were enrolled in such plans. Meanwhile, nine states had no Medicaid beneficiaries enrolled in comprehensive, at-risk managed care plans, and an additional 11 states had participation rates of between 1 percent and 25 percent.[xiii]

State-to-state variations in PCCM enrollment followed a similar pattern, with four states having 75 percent or more of their Medicaid beneficiaries enrolled in PCCMs and 17 other states with PCCM penetration rates of between 51 percent and 75 percent of all enrollees. Conversely, nine states had no beneficiaries enrolled in PCCMs, and 11 other states had enrollment rates of between 1 percent and 25 percent of total Medicaid enrollees.[xiv] As a general rule, states with highly urbanized populations tended to have a higher percentage of beneficiaries enrolled in comprehensive, at-risk plans, whereas sparsely populated states tended to rely more heavily on PCCM programs.

Managed Care Utilization and Expenditures

The federal-state Medicaid program provided health care coverage for approximately 67 million Americans in 2010. Almost three-quarters of Medicaid enrollees were children and adults without disabilities (33 million children and 17 million adults). The remaining enrollees included 10 million children and adults with disabilities (16%) and 6 million low-income people age 65 or older (9%).[xv]

Participation in Medicaid managed care plans varies widely by eligibility group. Eighty-five percent of children without disabilities receiving Medicaid were enrolled in some type of managed care arrangement as of June 30, 2009. They also represented the majority (60%) of all Medicaid beneficiaries enrolled in managed care plans. The managed care participation level among adults without disabilities (57%) also was high. They made up 22 percent of the Medicaid managed care population in 2009.[xvi]

The managed care participation rate of nonelderly beneficiaries with disabilities and people 65 years of age or older, in contrast, was considerably lower (14% and 4%, respectively). In particular, people with disabilities and older people were less likely to be enrolled in comprehensive risk-based managed care plans (see table 1-A for details) and more likely to participate in limited benefit plans.[xvii]

Table 1-A. Percentage of Medicaid Beneficiaries Enrolled in

Managed Care by Type of Arrangement and Eligibility Category: FY 2008

Type of Plan









Any type of managed care





Comprehensive risked-based plans





Primary care case management





Limited benefit plans





Source: Medicaid and CHIP Payment and Access Commission, Report to Congress: The Evolution of Managed Care in Medicaid (Washington, DC: Medicaid and CHIP Payment and Access Commission, June 2011).

Although more than 70 percent of Medicaid beneficiaries receive at least a portion of their services through a Medicaid managed care plan, only about one out of every five Medicaid dollars (21%) were expended on managed care services in FY 2008 (see table 1-B).[xviii] Most Medicaid managed care expenditures (18%) were channeled through comprehensive at-risk health plans, with the balance going to limited benefit plans (3%) and PCCM programs (1%).

Table 1-B. Percentage of Medicaid Spending on 

Managed Care by Eligibility Group

Basis of Eligibility

Total Medicaid Payments


Any Managed Care


Comp. Risk-based Plans


Primary Care Case Management


Limited Benefit Plans
































Source: Medicaid and CHIP Payment and Access Commission, Report to Congress: The Evolution of Managed Care in Medicaid (Washington, DC: Medicaid and CHIP Payment and Access Commission, June 2011).

Managed care expenditures remain a minority share of overall Medicaid outlays because FFS arrangements continue to dominate services to older beneficiaries and people with disabilities—especially in the long-term services arena. With the average per capita cost of aged and disability services running five and six times, respectively, the per capita cost of services to children and adults without disabilities, overall Medicaid spending is still heavily weighted toward an FFS approach.[xix] This pattern is likely to change over the next few years as a growing number of states enroll seniors and people with disabilities in comprehensive, risked-based managed care plans.

Managed Care Enrollment

States have used several approaches to enrolling Medicaid beneficiaries in managed care plans. These approaches include voluntary enrollment, mandatory enrollment, and a hybrid model that combines elements of both approaches.[xx]

  • Voluntary enrollment. In plans with voluntary enrollment, the beneficiary may elect to participate in the managed care program or receive services on an FFS basis. Consumers and consumer advocates usually favor voluntary enrollment because it imposes no restrictions on individual choice should existing FFS arrangements be deemed preferable. However, states using a voluntary enrollment model have found that it is difficult to attract high-quality MCOs. In the absence of a critical mass of enrollees from the onset, MCOs are unable to achieve financial viability and build the infrastructure necessary to serve populations with complex service and support needs. Voluntary enrollment also can work at cross-purposes with a state’s managed care goals, including the goals of balancing medical home enrollments, holding MCOs accountable for delivering improved health outcomes, and placing expenditures on a predictable and sustainable course.
  • Mandatory enrollment. Under a mandatory enrollment model, all members of the target population are enrolled in a managed care program. This approach appeals to MCOs because it ensures that enough Medicaid beneficiaries will be enrolled to achieve financial viability. With confidence that a sufficient number of beneficiaries will be enrolled, an MCO can create the infrastructure to deliver services efficiently (e.g., hire specialized staff, develop data management capabilities, build a robust provider network). State Medicaid officials usually prefer mandatory enrollment as well because it links consumers to a primary care provider, allows the state to hold MCOs accountable for improving health outcomes, and offers better prospects of budget predictability. Consumers and consumer advocates, in contrast, often oppose mandatory enrollment because it restricts individual choice and may disrupt long-standing provider-patient relationships.
  • Hybrid enrollment models. Mandatory enrollment with an opt-out requires targeted beneficiaries to enroll in the managed care program for a specified period of time (usually 60 to 90 days), after which they may either remain in the program or opt out and receive services on an FFS basis. Consumers and consumer advocates prefer this approach to strict mandatory enrollment because it gives the individual a chance to opt out of managed care if they are dissatisfied with their service arrangements. MCOs are generally supportive because they get a chance to prove the value of their services with a critical mass of enrollees. This approach also meets the key state objectives outlined above.

As states gain experience with enrolling people with complex health and support needs in managed care plans, they are beginning to introduce additional features to their hybrid enrollment models. For example, Massachusetts plans to allow participants in its integrated services demonstration program for nonelderly dual eligibles (ages 18–64) to retain existing community service providers for the first 90 days of the enrollment period and require all managed care entities (referred to as integrated care organizations in Massachusetts) to include in their provider networks essential community provider agencies (see additional discussion of the Massachusetts dual-eligible proposal in chapter 3).

Federal Statutory Authorities

States interested in enrolling Medicaid recipients in a managed care program must adhere to a set of federal requirements governing provider payment rates, provider availability within the plan network, the provision of covered health services, grievance and appeal procedures, and the quality of care furnished to enrollees. States can use one of several statutory authorities as the basis for a managed care initiative:[xxi]

  • Offering managed care as a state plan option under the authority of Section 1932(a) of the Social Security Act. States can implement a voluntary managed care program by obtaining Centers for Medicare and Medicaid Services (CMS) approval of a Medicaid state plan amendment. Once its state plan amendment is approved, a state can operate its managed care program(s) indefinitely without obtaining further CMS approvals. States, however, may not enroll dual eligibles, American Indians, or children with special health care needs in a managed care program under this authority. As of the summer of 2012, 21 states were operating a total of 24 managed care programs under the Section 1915(a) authority.
  • Offering managed care services under the authority of Section 1915(a) of the Social Security Act. States also may initiate a voluntary managed care delivery system by executing contracts with MCOs selected through a competitive procurement process. CMS, however, must approve a state’s plans before it can make payments under the program.
  • Requesting waivers under the provisions of Section 1915(b) of the Social Security Act. These waivers permit a state to implement a managed care program that (a) restricts the types of providers that program enrollees may use (Sec. 1915(b)(1)); (b) allows a county or local government agency to provide choice counseling or enrollment brokerage services to plan enrollees (Sec. 1915(b)(2)); (c) permits the use of any savings resulting from cost efficiencies to be used to provide additional services to plan enrollees (Sec. 1915(b)(3)); and/or (d) allows a state to restrict the types and number of providers that furnish particular elements of Medicaid services (e.g., disease management or transportation) to plan enrollees (Sec. 1915(b)(4)).
  • Requesting a combination of waivers under Sections 1915(b) and 1915(c). Since the late 1990s, a number of states have operated Medicaid managed long-term services and supports under such “combo” waiver programs. The Section 1915(c) waiver authority permits a state to provide home and community-based (HCB) services that otherwise would not qualify for federal financial participation (FFP), while the Section 1915(b) waivers allow a state to use managed care techniques in operating its program.
  • Requesting secretarial approval of statutory waivers under Section 1115 of the Social Security Act to operate a managed care program. The secretary of the U.S. Department of Health and Human Services (HHS) has broad authority under Section 1115 to grant waivers that allow a state to operate a research and demonstration program aimed at improving the effectiveness of services provided under the various titles of the Social Security Act. Over the past 30 years, a number of states have used this authority to make sweeping, structural changes in the financing and delivery of Medicaid services, including the introduction and expansion of managed care services.

All of the statutory authorities discussed above permit states to circumvent the following requirements of Medicaid law:

  • Statewideness: The waiver allows states to operate managed care programs in only selected geographic area(s).
  • Comparability of services: The waiver allows states to provide differential benefits to designated groups of managed care program beneficiaries.
  • Freedom of choice: The waiver allows states to restrict beneficiaries to receiving services through a managed care plan or a primary care provider.

Given a state’s objectives, there are advantages and disadvantages to using each of the above-listed alternatives to enrolling Medicaid beneficiaries in managed care programs. An analysis of key features of each alternative can be found in appendix E.

According to CMS’ Medicaid Web site, 13 states and Puerto Rico were using Section 1915(a) contracts to administer 24 managed care programs as of the summer of 2012. In 2010, 20 states and the District of Columbia were operating at least selected managed care programs under a Section 1932(a) state plan option—up from ten states in 2002.[xxii] At the same time, 17 states were operating managed care programs under Section 1115 research and demonstration waivers, 25 states had Section 1915(b) managed care/freedom of choice waiver programs, and eight states were administering managed care programs under a combination of Section 1915(b) and 1915(c) waivers.[xxiii]

Federal and State Oversight of Medicaid Managed Care Services

While Congress has afforded states flexibility in designing and operating managed care programs, states still must adhere to basic statutory provisions governing the administration of their Medicaid programs. Moreover, statutory requirements have been added under Section 1903(m) of the Social Security Act to ensure that states are held accountable for services delivered to participants in Medicaid managed care plans. These requirements are as follows:

  • Plans must grant federal and state auditors access to their financial accounts and program records.
  • In delivering and financing services, plans are prohibited from discriminating on the basis of an enrollee’s health status.
  • Plan enrollees must be afforded the right to disenroll within the first 90 days without cause and every 12 months thereafter.
  • Plans must maintain encounter data and provide this data at a level of detail and frequency specified by HHS.

In addition to any state-imposed stipulations governing noncompliance, federal law specifies that, if a managed health plan fails to provide medically necessary services as called for in its contractual agreement with the state, charges premiums in excess of permissible limits, or violates other contractual requirements, the secretary of HHS may impose certain penalties in addition to those specified in law, including monetary penalties and denial of Medicaid payments to the state for amounts paid under the contract (Sec. 1903(m)(5)(B)).

The success or failure of Medicaid managed care plans often hinges on the contractual obligations placed on the entity administering the plan. The contract is a legal agreement between the state and the managed care plan and functions as a mechanism for enforcing requirements established by the Federal Government and the state. States can shift to an MCO the financial risk associated with caring for plan enrollees, but the state retains ultimate responsibility for plan performance.

A managed care plan’s contractual responsibilities generally include the following key requirements:

  • Network development and maintenance. In risk-based managed care plans, states delegate responsibility to the MCO for creating and maintaining a comprehensive provider network. To ensure that managed care plans contract with adequate numbers and types of providers, including providers of specialty services, states often include network requirements in their MCO contracts. MCOs also are contractually responsible for ensuring that providers are properly credentialed or licensed.
  • Care management and coordination. MCOs often are required to assign each plan enrollee a primary service provider who is responsible for coordinating the enrollee’s care across all providers and all services. Plans also may be obligated to assign certain enrollees (i.e., enrollees with complex health and support needs) a care or service manager who is responsible for providing additional assistance in coordinating services as well as providing enrollees services such as health education and disease management counseling.
  • Customer service and member education. Plans are contractually responsible for ensuring that enrollees receive information on accessing services and have their questions and concerns addressed. Toll-free phone lines and ombudsman programs are commonly used in performing this function.
  • Quality standards and reporting. In addition to federal requirements governing external quality reviews and reporting, states may impose other quality management requirements.
  • Data gathering and reporting. The Federal Government and the states impose various data collection and reporting requirements on managed care plans. These requirements usually include enrollment data, encounter data, and data related to various quality measures.
  • Monitoring and evaluation. States are required to determine whether managed care plans are complying with contractual requirements. Some states instruct health plans to file frequent, highly structured performance reports, while others impose fewer monitoring requirements, relying to a greater extent on ad hoc monitoring and reporting.
  • Payments. Contract language often specifies the capitated payments a managed care plan is entitled to receive. Frequently, the contract language also spells out standards governing payment processing timelines.
  • Corrective actions. MCO contracts usually specify how corrective action plans are to be developed and implemented when deficiencies in a plan’s performance are identified.

Each state develops its own managed care contracts, with the level of detail in such contracts varying greatly from state to state. The managed care contracting process, however, is subject to CMS oversight, including plan review and approval by agency staff.

Under federal policy, states must require each managed care plan to conduct an ongoing quality and performance improvement program. In addition, each state must retain an external quality review organization (EQRO) to conduct an annual quality review of each contracted plan. States are required to report to CMS on the EQRO’s validation of certain measures, but are not obligated to report the results of the measures themselves. A recent analysis conducted by CMS found that because EQROs used a variety of measures, nationally standardized information on the quality of Medicaid managed care services is currently unavailable.[xxiv]

Managed Care and People with Disabilities

Managed care has been introduced to state Medicaid programs on an incremental basis, beginning in most states with the enrollment of low-income children and parents and proceeding in stages to nonelderly people with disabilities and senior citizens. With some notable exceptions, states have elected to carve out dual eligible beneficiaries and continue paying for long-term services on an FFS basis when they have enrolled seniors and Medicaid beneficiaries with disabilities in managed health care plans. In 2008, just 28 percent of people with disabilities and 11 percent of older beneficiaries were enrolled in comprehensive, risk-based managed care plans. Faced with expanding caseloads and declining revenues, however, states are in the process of sharply expanding managed care enrollments among seniors and people with disabilities.

A 2011 50-state survey of Medicaid managed care programs found that states expect to substantially increase their reliance on managed care delivery systems in the years ahead. Of the 45 states responding to the survey, 27 reported plans to expand the use of managed care. Of these 27 states, six indicated that they plan to extend mandatory managed care enrollment to additional Medicaid populations (California, Kentucky, Louisiana, Michigan, New Jersey, and South Carolina), and four states reported plans to expand managed care to additional geographic areas of the state (Florida, Texas, Kentucky, and Virginia).[xxv] The following are additional key findings of the survey:

  • All but three states operate comprehensive, risk-based managed care programs, covering approximately 66 percent of all Medicaid beneficiaries.
  • Half the states with risk-based MCOs and PCCM programs also contract with noncomprehensive prepaid health plans (PHPs) to provide specific categories of services.
  • States increasingly are mandating managed care for previously exempt or excluded Medicaid beneficiaries, including Supplemental Security Income (SSI)-eligible children with disabilities, children with special health care needs, and seniors and people with disabilities who[xxvi] are not dually eligible for Medicare and Medicaid benefits.[xxvii]

In a separate, state-by-state survey, the authors found that 17 states in 2011 and 24 states in 2012 intended to expand the geographic areas and populations served by managed care programs. States also reported that they are expanding disease and care management programs as well as patient-centered medical home initiatives to improve coordination of care and increase the focus on high-need, high-cost Medicaid recipients.[xxviii]

Efforts to enroll dual eligible beneficiaries also are moving forward swiftly, spurred by statutory provisions of the ACA aimed at improving the quality and cost-effectiveness of services to this high-cost target population. In the spring of 2011, the secretary of HHS announced the award of $1 million grants to 15 states to assist them in designing new approaches to integrating and coordinating health care and long-term supports for dual eligible beneficiaries.[xxix] Since then, CMS’ Medicare and Medicaid Coordination Office, a unit established under the provisions of Section 2602 of the ACA: —

  • Issued a State Medicaid Directors letter outlining two models for integrating Medicare and Medicaid financing of services and supports for dual eligibles and invited all states to submit expressions of interest in participating in a three-year demonstration program.[xxx] By October 2011, 37 states had expressed interest in testing one of the proposed financial integration models.
  • Established an Integrated Care Resource Center to provide technical assistance to all states interested in coordinating and integrating Medicare and Medicaid services to dual eligibles.

The CMS Office of Innovation has announced that it will fund up to 15 projects under the State Demonstration to Integrate Care to Dual Eligible Individuals program. The deadline for submitting applications was May 30, 2012. The initial awards to states were to be announced in early October, with a projected start date of January 1, 2013, for some of the participating states and later start dates for others.


[i]. Medicaid and CHIP Payment and Access Commission, “MACStats, Table 9,” in Report to Congress: The Evolution of Managed Care in Medicaid (Washington, DC: Medicaid and CHIP Payment and Access Commission, June 2011).

[ii]. D. Rowland, “Medicaid Role for People with Disabilities,” testimony before the Subcommittee on Health, Committee on Energy and Commerce, U.S. House of Representatives, January 16, 2008.

[iii]. Public Law 111-148, as amended by Public Law 111-151.

[iv]. Managed Care Fact Sheets, “National Statistics,”

[v]. Kaiser Family Foundation and Health Research & Educational Trust, Employer Health Benefits: 2011 Summary of Findings (Menlo Park, CA, and Chicago, IL: Kaiser Family Foundation and Health Research & Educational Trust, 2011).

[vi]. Medicaid and CHIP Payment and Access Commission, “MACStats, Table 9.”

[vii]. Ibid.

[viii]. L. Ku, P. MacTaggart, F. Pervez, and S. Rosenbaum, Improving Medicaid’s Continuity of Coverage and Quality of Care, a report to the Association of Community Affiliated Plans (Washington, DC: George Washington University, Department of Health Policy, 2009).

[ix]. Medicaid and CHIP Payment and Access Commission, “MACStats, Table 9.”

[x]. Centers for Medicare and Medicaid Services (CMS), Medicaid Managed Care Enrollment Report,

[xi]. Medicaid and CHIP Payment and Access Commission, “MACStats, Table 9.”

[xii]. CMS, Ibid.

[xiii]. Ibid.

[xiv]. Ibid.

[xv]. Medicaid and CHIP Payment and Access Commission, “MACStats, Table 9.”

[xvi]. Ibid.

[xvii]. Ibid.

[xviii]. Ibid.

[xix]. Kaiser Commission on Medicaid and the Uninsured, Medicaid and Managed Care: Key Data, Trends and Issues(Washington, DC: Kaiser Family Foundation, February 2010).

[xx]. J. Barth, Enrollment Options for Medicaid Managed Care for People with Disabilities, Technical Assistance Brief (Trenton, NJ: Center for Health Care Strategies, Inc., July 2007),

[xxi]. Adapted from CMS’s Web site,

[xxii]. Kaiser Commission on Medicaid and the Uninsured, Medicaid and Managed Care.

[xxiii]. Centers for Medicare and Medicaid Services, National Summary of State Medicaid Managed Care Programs,

[xxiv]. Ibid.

[xxv]. Gifford et al., A Profile of Medicaid Managed Care Programs in 2010.

[xxvi]. P. Saucier, J. Kasten, B. Burwell, and L. Gold, The Growth of Managed Long-Term Services and Supports (MLTSS) Programs: A 2012 Update (Truven Health Analytics, prepared for the Centers for Medicare and Medicaid Services, July 2012).

[xxvii]. V. Smith, K. Gifford, E. Ellis, R. Rudowitz, and L. Snyder, Moving Ahead Amid Fiscal Challenges: A Look at Medicaid Spending, Coverage and Policy Trends (Kaiser Commission on Medicaid and the Uninsured in cooperation with Health Management Associates, October 2011).

[xxviii]. Gifford et al., A Profile of Medicaid Managed Care Programs in 2010.

[xxix]. U.S. Department of Health and Human Services, “New Flexibility for States to Improve Medicaid and Implement Innovative Practices,” Press Release, April 14, 2011.

[xxx]. Centers for Medicare and Medicaid Services, Medicare and Medicaid Coordination Office, State Medicaid Directors Letter No. 11-0008, July 8, 2011.