A Guide to Understanding Medicaid Managed Care Programs
A quick look at Medicaid managed care shows how much this system shapes healthcare for millions of people. Managed care has become the primary way states deliver Medicaid services, and the rules governing it affect everything from capitation rates to access standards. Here’s a friendly walkthrough of the essentials.
The Basics
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Managed care began as a way for states to control Medicaid spending by paying MCOs a monthly capitation rate per enrollee. This setup shifts financial risk to the plans by enabling states to predict budgets more accurately while providing MCOs with an incentive to manage care closely. Roughly 75% of Medicaid beneficiaries receive services through comprehensive MCOs, which shows how deeply this structure is embedded in the program.
How States Use MCOs
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States decide which groups and services fall under managed care. Some states carve out pharmacy or long-term care benefits, while others channel those benefits through a fee-for-service approach. The choices vary because each state structures Medicaid differently. As of 2024, 42 states and DC rely on comprehensive MCOs for at least part of their Medicaid population.
Who Enrolls in Managed Care
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Children and adults make up the bulk of MCO enrollment, and these groups often achieve a penetration rate of over 75% in states that contract with MCOs. Over time, more states have added enrollees with disabilities, older adults, and people with complex needs. The shift pushes plans to handle higher risk and broader services.
Why Spending Keeps Increasing
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Medicaid spending reached roughly $880 billion in FY 2023, according to CMS Form 64. Approximately half of that total was allocated to comprehensive managed care organizations. Their share continues to rise as states move higher-cost populations into managed care, including groups that rely on long-term services and supports. Overall spending also shifts with enrollment patterns. Numbers spiked during the pandemic, then declined once the continuous-coverage rules were lifted.
The Companies Behind the Plans
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Five publicly traded firms account for half of MCO enrollment. Centene, UnitedHealth Group, Elevance Health, Molina, and Aetna/CVS dominate the market in many states. Their footprints come from national networks, long histories in Medicaid, and state contracting cycles that favor established carriers.
What MCOs Actually Do
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MCOs coordinate care, set provider networks, manage prior authorization, and monitor quality outcomes. For example, plans track chronic conditions, oversee behavioral health referrals, and make sure enrollees have access to core benefits. The goal is to establish consistent care pathways rather than fragmented fee-for-service visits.
The Rules Around Capitation Rates
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Federal law requires Medicaid capitation rates to be actuarially sound. States work with actuaries to set rates that reflect expected service use, administrative costs, and reasonable margins. Most states impose medical loss ratio requirements on MCOs, and 34 require remittances when plans fall short of the minimum MLR. These rules are based on CMS regulations updated in 2016 and refined through 2024.
Access Standards and Oversight
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New CMS rules finalized in 2024 set national wait-time standards for routine care. They also require stronger state oversight and more transparent reporting. These rules might change depending on future federal decisions, but for now, they’re written into upcoming implementation schedules. Earlier OIG findings show that MCO’s prior authorization denial rates are around 12.5%, which is more than double Medicare Advantage’s rate; therefore, access monitoring remains a primary focus.
Quality and Social Needs
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Most states tie financial incentives to quality measures by targeting areas like behavioral health or maternal outcomes. Many states also require MCOs to screen for social needs, partner with community organizations, and use Z codes to track factors such as housing or food insecurity. These efforts are part of contract requirements documented in KFF surveys.
Why It Matters for Agents
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Agents working with Medicaid-eligible clients must understand how their state manages MCO enrollment, benefits, and provider networks. Each state has its own rules for referrals, prior authorization, and choosing a plan. With most states using MCOs and contracting lists that change over time, staying up to date helps clients understand their coverage options and the rules that affect their care.