States typically use two types of payment system to provide Medicaid benefits: fee-for-service (FFS) and managed care. In FFS Medicaid, the state reimburses health care providers for the services they deliver to beneficiaries. In contrast, in Medicaid managed care, states pay private health insurance plans or provider groups (called managed care organizations or MCOs) to provide services to enrollees. In this presentation, we use individual-level data to examine trends in the proportion of Medicaid beneficiaries who receive benefits through managed care and the proportion of Medicaid spending that consists of payments for managed care. We also use qualitative data about state programs’ characteristics to examine the changes in state policies that have affected enrollment in and spending for Medicaid managed care.
From 1999 to 2012, the share of Medicaid beneficiaries enrolled in managed care grew from 64 percent to 89 percent. The share of Medicaid spending attributed to payments for managed care was much smaller, however, rising from 15 percent to 37 percent during that period. The percentage of beneficiaries enrolled in managed care exceeds the percentage of Medicaid spending that pays for managed care for three main reasons. First, although many beneficiaries are enrolled in MCOs that cover a broad range of benefits (under “comprehensive” Medicaid managed care programs), many of those beneficiaries receive some benefits through FFS Medicaid. Second, many beneficiaries are enrolled in MCOs that cover only a narrow range of benefits and receive most of their services through FFS Medicaid. Third, enrollment in managed care is more common among beneficiaries in eligibility groups that have lower average Medicaid spending.
Medicaid managed care grew primarily because state policies expanded the scope of comprehensive managed care programs in three ways. First, comprehensive managed care programs became more likely to cover an entire state rather than only certain counties, cities, or regions. Second, mandatory enrollment in comprehensive managed care became more common among all eligibility groups. Third, states increased the scope of services included in their contracts with MCOs; the most pronounced increases occurred for long-term services.