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Medicaid Managed Care: Further Reform Needed to Deliver on Promise

The American Journal of Managed CareFebruary 2021
Volume 27
Issue 2

Medicaid managed care has not been the panacea for spending, care quality, and access that policy makers expected, but reforms could change that.

Am J Manag Care. 2021;27(2):53-56. https://doi.org/10.37765/ajmc.2021.88583


Takeaway Points

Evidence indicates a need for further reform in Medicaid managed care to ensure that private managed care organizations are improving spending, access, and quality outcomes for beneficiaries.

  • Private managed care organizations are increasingly responsible for administering Medicaid benefits across the United States, yet there is little research on how they affect access, spending, and care quality.
  • The limited research suggests that private managed care organizations may have slowed state spending growth but have not improved beneficiary care and may have reduced access for certain populations.
  • Further reforms are needed to enhance value in managed Medicaid as states increasingly contract with private managed care organizations.


Since beginning in the 1960s, Medicaid managed care has now been adopted in various forms by 48 US states, with private insurers (both nonprofit and for-profit) covering an increasing number of beneficiaries. Despite its widespread adoption, there is limited evidence on the relationships between Medicaid managed care and access, spending, and quality. Value-based payment reform with stronger quality monitoring and alignment among states, plans, and providers will be necessary for Medicaid managed care to enhance value.

States’ Adoption of Medicaid Managed Care Is Widespread

Medicaid managed care is widespread, covering 66.1 million enrollees in 2018. Every state except Alaska and Connecticut uses some type of managed care (Table 11,2).1 Private managed care organizations (MCOs) have become increasingly dominant since the 1990s, when federal Medicaid policy became more favorable to their operation. They now cover more than two-thirds of all US managed Medicaid enrollees, up from 6.0% in 1991.3,4 Six for-profit insurers—UnitedHealth Group, Centene, Anthem, Molina, Aetna, and WellCare—accounted for approximately 47% of all private MCO enrollment in 2018.3 Reports indicate that these companies profit significantly off their Medicaid business lines: For instance, Health Net (part of Centene) made $1.1 billion in net income and Anthem made $549 million from California’s Medicaid program alone from 2014 to 2016.5

How Managed Care Can Affect Quality, Value, and Access

Proponents argue that such profits are earned because of the variety of strategies that private MCOs invest in to reduce costs and provide high-value care to enrollees. Examples include establishing provider networks, implementing tools to manage chronic disease or address social determinants of health, incorporating value-based payment models into provider contracts, and monitoring fraud. However, opponents argue that such strategies can come with various downsides, such as more restricted access to physicians, increased steps to obtain certain drugs or services, and higher administrative costs. They claim that capitation may also give plans an incentive to exaggerate the risk of their enrollee base to secure higher payments from states, as is seen in the Medicare Advantage program.6

Limited Research Has Evaluated the Effects of Medicaid Managed Care

Surprisingly little research has evaluated the effects of private Medicaid MCOs.7 Much of what has been published stems from the 1990s and early 2000s, when MCOs were relatively new and still being challenged from an ethical standpoint. Waning interest has also likely been compounded by the difficulty of obtaining Medicaid claims data for private insurers.

Two separate literature reviews reveal that managed Medicaid has produced mixed results on access, spending, and quality since the early 1990s.8,9 The reviews indicate that although MCO programs may have matured enough to effectively slow state spending growth, they have not coincided with wholesale improvements in access and quality expected by policy makers (Table 29-19). Several studies even find that access and care quality worsened in managed care vs fee-for-service models in some states. The scant evidence that exists on for-profit MCOs shows worse performance than nonprofit and public counterparts.

Policy Recommendations

The widespread adoption of Medicaid MCOs, limited research about their effectiveness, and their underwhelming record of success suggest room for improvement across several dimensions:

Align quality and value improvement efforts within Medicaid managed care. There may be disconnects among states, private MCOs, and providers regarding quality improvement initiatives. For example, since 2012, the Affordable Care Act has barred states from paying Medicaid claims for hospital-acquired conditions, but the Office of Inspector General as recently as 2019 has found inconsistency in states’ ability to ensure that MCOs comply with this rule.20 Additionally, a 2019 single-state study found that providers were unaware of MCO quality improvement efforts or felt that the measures they tracked were not conducive to improving care quality, causing unnecessary frustration and additional paperwork burdens.21

This evidence partially speaks to implementation issues, which rely on administrative structures and processes that policy largely cannot fix. However, it also speaks to the complexity of quality improvement requirements and quality measures in Medicaid that has resulted from piecemeal, largely decentralized development over time. Federal and state policy makers need to step in with simplification and standardization measures to ease compliance and promote alignment among all parties. This should involve minimizing differences in quality improvement goals across MCOs and reducing changes in requirements from year to year—while maintaining some important flexibility—as well as implementing reporting tools and other administrative supports for MCOs and providers to facilitate participation. Importantly, such efforts should include input from providers, MCOs, and beneficiaries to gain buy-in.

Accelerate the shift toward alternative payment.Most MCOs continue to reimburse on a fee-for-service basis, thereby leaving providers without equal incentives to improve beneficiary care access and quality.22 Value-based insurance design and payment reform would strengthen alignment among MCOs and providers on spending, access, and quality goals. There is scant literature on the effectiveness of value-based payment models in Medicaid, likely because of their scarcity and need for approval from CMS, but anecdotal evidence from Minnesota and Ohio shows promises of cost savings without harming care quality or while improving it.22 Minnesota has implemented accountable care organizations and requires MCOs to share in savings with them, whereas Ohio requires MCOs to implement episodic payments for certain services and pay primary care providers an additional fee for coordinating beneficiary care.22

State policy makers should again work with providers, MCOs, and beneficiaries to create a standardized value-based payment program; it should start by requiring MCOs to allocate a certain amount of reimbursement to the program, increasing the amount over time. To avoid the program becoming too complex, states should require MCOs to seek approval if they wish to pilot new value-based payment models. If provider buy-in is a concern, states may also want to consider incentives or penalties to encourage provider participation. For example, New York imposes penalties on providers that reject discussions with MCOs despite having the ability to enter value-based contracts.22

Experiment with coverage decisions and cost-effectiveness cutoffs.Well-intentioned and in many cases necessary limitations on benefit flexibility in Medicaid make it difficult for managed care models to work as intended—that is, to control costs and reduce low-value care. For example, Medicaid programs are required to cover all prescription drugs, no matter how expensive upon market arrival, if they accept federal rebates (which all states do).23 MCOs are therefore barred from denying coverage of drugs that do not appreciably alter life expectancy, quality-adjusted life-years, specific health outcomes, or another barometer of efficacy in relation to cost. Massachusetts requested permission in a Section 1115 waiver to create a restricted drug formulary for its Medicaid program in 2017, but CMS rejected the proposal and no state has submitted one since. Significant access and equity concerns would need to be addressed in incorporating cost-effectiveness analysis into drug, medical services, and medical technology coverage decisions in Medicaid, but the federal government should take lessons from other countries that have successfully done so, such as the United Kingdom, and open this avenue for managed Medicaid programs.

Enhance monitoring and evaluation. States that contract with MCOs of any tax and ownership status are required under Section 1932(c)(2) of the Social Security Act and 42 CFR § 438.350-370 to employ a third-party organization to perform an annual quality review. The reviews broadly assess each plan’s performance on select Healthcare Effectiveness Data and Information Set (HEDIS) measures and other compliance matters, but the methods and content of these reviews vary widely depending on the organization conducting them.24 Putting variability aside, the reviews do not take the critical steps of making comparisons and trending over time to answer the larger question of what types of managed care plans, and what initiatives within them, are most effective in the state.24 Finally, the reliance on HEDIS measures makes for a greater emphasis on care structure and processes vs outcomes.25 States should work with researchers to produce more candid evaluations of the successes and failures of their managed Medicaid programs, particularly as they move forward with mandated quality strategies and value-based payment initiatives.

Additionally, the federal government should standardize quality metrics for state Medicaid programs to facilitate national comparison and evaluation. Although CMS produces the Adult and Child Core sets annually, reporting is voluntary and does not distinguish among types of managed care models. Medicaid officials also argue that some of the measures are difficult to report because the necessary information is not available in claims or electronic health records.26 This has resulted in wide variation in what and how states report on the quality of their programs. For example, researchers found just 5 overlapping measures related to quality of care for children across California’s quality review, New York’s quality review, and the Child Core Set.24


The Medicaid program has changed considerably over the past few decades, with private, for-profit insurance companies playing an increasing role in benefit administration. The scant available research indicates that this has not resulted in increases in access and quality, although it has potentially slowed spending growth. Reforms to Medicaid managed care have the potential to overcome these shortcomings to enhance value.

Author Affiliations: University of Michigan School of Public Health (CRZ, AMR), Ann Arbor, MI.

Source of Funding: None.

Author Disclosures: The authors report no relationship or financial interest with any entity that would pose a conflict of interest with the subject matter of this article.

Authorship Information: Concept and design (CRZ, AMR); analysis and interpretation of data (AMR); drafting of the manuscript (CRZ, AMR); critical revision of the manuscript for important intellectual content (CRZ, AMR); administrative, technical, or logistic support (CRZ, AMR).

Address Correspondence to: Andrew M. Ryan, PhD, University of Michigan School of Public Health, M3124 SPH II, 1415 Washington Heights, Ann Arbor, MI 48109. Email: amryan@umich.edu.


1. Mathematica Policy Research. Medicaid managed care enrollment and program characteristics, 2018. CMS. 2020. Accessed February 2, 2021. https://www.medicaid.gov/medicaid/managed-care/downloads/2018-medicaid-managed-care-enrollment-report.pdf

2. Types of managed care arrangements. Medicaid and CHIP Payment and Access Commission. Accessed February 29, 2020. https://www.macpac.gov/subtopic/types-of-managed-care-arrangements/

3. Hinton E, Diaz M, Rudowitz R, Singer N. 10 things to know about Medicaid managed care. Kaiser Family Foundation. December 16, 2019. Accessed February 2, 2021. https://www.kff.org/medicaid/issue-brief/10-things-to-know-about-medicaid-managed-care/

4. Gold MR. HMOs and managed care. Health Aff (Millwood). 1991;10(4):189-206. doi:10.1377/hlthaff.10.4.189

5. Terhune C, Gorman A. Insurers make billions off Medicaid in California during Obamacare expansion. Los Angeles Times. November 5, 2017. Accessed February 29, 2020. https://www.latimes.com/business/la-fi-medicaid-insurance-profits-20171101-story.html

6. Geruso M, Layton T. Upcoding: evidence from Medicare on squishy risk adjustment. National Bureau of Economic Research working paper 21222. May 2015. Accessed June 22, 2020. https://www.nber.org/papers/w21222

7. Landon BE, Huskamp HA, Tobias C, Epstein AM. The evolution of quality management in state Medicaid agencies: a national survey of states with comprehensive managed care programs. Jt Comm J Qual Improv. 2002;28(2):72-82. doi:10.1016/s1070-3241(02)28007-4

8. Franco Montoya D, Chehal PK, Adams EK. Medicaid managed care’s effects on costs, access, and quality: an update. Annu Rev Public Health. 2020;41:537-549. doi:10.1146/annurev-publhealth-040119-094345

9. Sparer M. Medicaid managed care: costs, access, and quality of care. Semantic Scholar. 2012. Accessed June 11, 2020. https://pdfs.semanticscholar.org/66dd/bde562413f7488d01fdb7cd27d9b9f4eb515.pdf

10. Wallace J, Lollo A, Ndumele CD. Comparison of office-based physician participation in Medicaid managed care and health insurance exchange plans in the same US geographic markets. JAMA Netw Open. 2020;3(4):e202727. doi:10.1001/jamanetworkopen.2020.2727

11. Long SK. Do for-profit health plans restrict access to care under Medicaid managed care? Med Care Res Rev. 2008;65(5):638-648. doi:10.1177/1077558708316930

12. Kuziemko I, Meckel K, Rossin-Slater M. Does managed care widen infant health disparities? evidence from Texas Medicaid. Am Econ J Econ Policy. 2018;10(3):255-283. doi:10.1257/pol.20150262

13. Bindman A. Redesigning Medicaid managed care. JAMA. 2018;319(15):1537-1538. doi:10.1001/jama.2018.3411

14. McCue MJ, Bailit MH. Assessing the financial health of Medicaid managed care plans and the quality of patient care they provide. Issue Brief (Commonw Fund). 2011;11:1-16.

15. Yan J. The impact of Medicaid managed care on obstetrical care and birth outcomes: a case study. J Womens Health (Larchmt). 2020;29(2):167-176. doi:10.1089/jwh.2019.7792

16. Toseef MU, Jensen GA, Tarraf W. Is enrollment in a Medicaid health maintenance organization associated with less preventable hospitalizations? Prev Med Rep. 2019;16:100964. doi:10.1016/j.pmedr.2019.100964

17. Piwnica-Worms K, Wallace J, Lollo A, Ndumele CD. Association of provider performance with changes in insurance networks. J Gen Intern Med. 2020;35(7):1997-2002. doi:10.1007/s11606-020-05784-4

18. Perez V. Does capitated managed care affect budget predictability? evidence from Medicaid programs. Int J Health Econ Manag. 2018;18(2):123-152. doi:10.1007/s10754-017-9227-7

19. Layton TJ, Maestas N, Prinz D, Vabson B. Private vs. public provision of social insurance: evidence from Medicaid. Social Science Research Network. July 9, 2019. Accessed July 16, 2020. http://papers.ssrn.com/abstract=3416345

20. Jarmon GL. Rhode Island did not ensure its managed-care organizations complied with requirements prohibiting Medicaid payments for services related to provider-preventable conditions. Office of Inspector General. January 2019. Accessed May 20, 2020. https://oig.hhs.gov/oas/reports/region1/11700004.pdf

21. Gadbois EA, Gordon SH, Shield RR, Vivier PM, Trivedi AN. Quality management strategies in Medicaid managed care: perspectives from Medicaid, plans, and providers. Med Care Res Rev. Published online April 4, 2019. doi:10.1177/1077558719841157

22. Bailit Health. State strategies to promote value-based payment through Medicaid managed care final report. Medicare and CHIP Payment and Access Commission. March 13, 2020. Accessed June 11, 2020. https://www.macpac.gov/wp-content/uploads/2020/03/Final-Report-on-State-Strategies-to-Promote-Value-Based-Payment-through-Medicaid-Mananged-Care-Final-Report.pdf

23. Medicaid’s prescription drug benefit: key facts. Kaiser Family Foundation. May 1, 2019. Accessed February 10, 2020. https://www.kff.org/medicaid/fact-sheet/medicaids-prescription-drug-benefit-key-facts/

24. Schneider A. How can we tell whether Medicaid MCOs are doing a good job for kids? Georgetown University Health Policy Institute Center for Children and Families. February 26, 2018. Accessed February 29, 2020. https://ccf.georgetown.edu/2018/02/26/how-can-we-tell-whether-medicaid-mcos-are-doing-a-good-job-for-kids/

25. Normile B, VanLandeghem K, Agrawal A. State strategies for Medicaid quality improvement for children and youth with special health care needs. National Academy for State Health Policy. November 2017. Accessed May 20, 2020. https://www.nashp.org/wp-content/uploads/2017/11/MQM.pdf

26. Medicaid: state views on program administration changes. US Government Accountability Office. April 2020. Accessed June 11, 2020. https://www.gao.gov/assets/710/706559.pdf

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