The Shift to Managed Care

For most of its history, Medicaid paid providers directly, fee-for-service, the same way traditional Medicare does. Today most beneficiaries get their care a different way: through managed care organizations (MCOs), private health plans the state pays a fixed monthly amount to cover each enrolled member.

How big the shift is

Managed care is now the dominant Medicaid delivery system. About 73 percent of Medicaid beneficiaries are enrolled in managed care, with 41 states and the District of Columbia contracting with comprehensive MCOs, and managed care accounts for roughly 56 percent of total Medicaid spending. For most people, “having Medicaid” means being enrolled in a plan, not billing the state directly.

Why states made the shift

• Budget predictability. A fixed per-member payment turns unpredictable claims into a known monthly cost the state can budget.
• Risk transfer. The plan, not the state, absorbs the risk that members cost more than expected.
• Delivery capability. Plans bring care management, provider networks, and data infrastructure the state agency may not have in-house.

Why it matters for value-based care

This is the single most important structural fact in Medicaid value-based care: in most states the state does not pay providers directly, the plan does. That puts an intermediary between the Medicaid agency and the clinician, which changes where value-based incentives get created.

Worth remembering: in managed care states, the state’s main lever is the contract it signs with the plans. If the state wants providers in value-based arrangements, it generally has to require the plans to build them. The next three lessons follow that chain.

Key takeaways

• Managed care, not fee-for-service, is how most Medicaid beneficiaries now get care.
• About 73 percent of beneficiaries are enrolled in MCOs across 41 states and DC.
• Because plans sit between the state and providers, the state-plan contract becomes the primary tool for driving value.

Sources

• MACPAC, Program Enrollment and Spending: Medicaid Managed Care (opens in a new tab)
• MACPAC, Medicaid Managed Care Payment (opens in a new tab)