What Is Medicaid Managed Care and Why Is it Important?

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While Medicaid is a federal program to provide health care to certain individuals, it is administered through the states, and many states have chosen to administer the program through managed care organizations. These MCOs are developed to manage the costs of the program and to ensure high-quality services.

Exploring the Growth of Medicaid Managed Care

With a Medicaid managed care program, there is a contractual arrangement between the different state Medicaid agencies and MCOs, and it is based on their acceptance of a set per-member, per-month (capitation) payment for all of the services rendered. In other words, the MCOs deliver the program and in return, the states’ costs are reduced and overall care is better.

As of this writing, more than two-thirds of all Medicaid recipients receive some or all of their care through these MCOs, a number that has grown in recent years. And it’s easy to understand why:  MCOs’ main goals are to:

  • Reduce the costs to the states
  • Improve the quality of care for recipients
  • Plan or provide covered services
  • Maintain a network of long-term care providers

Because of the Affordable Care Act’s expansion of Medicaid services, more people are eligible than ever before, and MCOs make providing services to these newly eligible members easier and more efficient.

What You Need to Know About Medicaid MCOs

When exploring the growth of Medicaid managed care, there are some interesting things to learn about MCOs and how they are helping to keep costs down while not reducing care for the beneficiaries. Here are some of those things:

  • Adults and children are more likely than adults aged 65 and older to participate in a plan managed by an MCO.
  • Because MCOs are not a fee-for-service (FFS) program, they are required by law to provide for all reasonable and appropriate health-care services.
  • There are many different types of MCOs, including private non-profit, private for-profit, and government plans. Some of these companies include names you’ll recognize, such as UnitedHealth Group and Aetna/CVS.
  • States usually offer incentives to providers in order to increase the quality of services provided to beneficiaries.
  • In the past several years, more than half of all Medicaid spending nationally is now the result of comprehensive risk-based MCOs.
  • In most of the states that use MCOs, roughly 40% of the total amount spent on Medicaid is spent on MCOs.

As you can see, MCOs seem to be accomplishing their goals, but that doesn’t mean the plans don’t have their critics, which we’ll discuss shortly.

The Origins of Managed Health Care

Before we go any further, we need to take a look at how the term “managed care” became part of the nation’s vocabulary. It is thought that some type of managed care began in the late 1800s, but we know for sure that in 1929, a physician in Elk City, Oklahoma created a health cooperative for farmers. By 1934, there were six hundred families who were members of the co-op.

Shortly afterwards, two L.A. physicians created a prepaid contract so they could provide health-care services to a local water company’s two thousand employees. From there, prepaid group practices — now called health maintenance organizations (HMOs) — kept growing throughout the United States.

While many people believe that prepaid health-care plans and HMOs are one and the same, the truth is that there are many different managed care models that are now used, not just HMOs.

In 1973, legislation was passed that required any employer with 25 or more employees (that also offered health insurance to their employees) to offer the option of an HMO. The goal was to increase competition so that health care costs would be lower and the quality of care would improve.

Is managed care always the perfect solution? Many say, no it isn’t, but many others consider that the current overall success of MCOs has proven that it is one of the best options and most-efficient systems of providing health care to people.

The Rise and Fall of Managed Care

While managed care hasn’t been eliminated completely and in fact, continues to grow in popularity and usefulness, there are some pros and cons to the plan. The pros include the following:

  • Families can get instant access to medical services, including doctors and hospitals
  • Providers are required to offer health care that meets certain high standards
  • It reduces the costs to both the state and the patients
  • It requires the establishment of a relationship between doctors and patients
  • Prescriptions are more easily managed and therefore cheaper

Of course, as with anything else in life, there are numerous disadvantages as well, which include:

  • For certain individuals in certain cities, access to health-care services is limited
  • There is often a longer wait time
  • Referrals are usually needed for specialized care
  • Patient information can be easier to leak out and get into the wrong hands
  • Patients sometimes feel like merchandise instead of a person

Looking at the numbers, it doesn’t seem that MCOs will be eliminated anytime in the near future. It does seem that, when all things are considered, they are very likely to be around for many more years to come.

What Do the Numbers Say? Medicaid Managed Care in Thirteen States

We already talked about how many Medicaid dollars are now being spent on managed care organizations both nationally and in each individual state. Remember that MCOs are not a requirement, and some states participate in both MCOs and other types of plans.

Nevertheless, most states have either an MCO arrangement or they use a primary care case management (PCCM) program to administer their Medicaid programs. Many MCOs also focus on using alternative payment models, or APMs, to reimburse health-care providers. APMs replace many FFS-type payments and have varying risks depending on their type.

As of mid-2021, roughly half of the states that use MCOs have a specific number in mind of payments that must be paid through APMs. Many, in fact, have both incentives and penalties if the APM target is not met, and most set that target at 25%-50%.

This target number can vary depending on the population the MCOs serve, and a total of 13 states have reported that the APM targets they set were linked to the APM Framework set up by the Health Care Payment Learning & Action Network (LAN), which provides the APM numbers in tiers.

The 13 states are:

  • Arizona
  • District of Columbia
  • Hawaii
  • Louisiana
  • Michigan
  • New Hampshire
  • North Carolina
  • Oregon
  • Pennsylvania
  • South Carolina
  • Texas
  • Virginia
  • Washington

If it sounds complicated, it is really simpler than it seems. These things are all ways to improve health-care services and reduce costs so that health-care plans are more efficient and less costly for everyone involved.


Managed care plans have been around longer than most people realize and are simply programs that administer Medicaid services in certain states. The main goals of the MCOs is to make for an affordable and higher-quality way to receive health care in the United States.

Today, most states use some type of MCO, either alone or with another program, to administer their Medicaid money. Because of this, the system has become more efficient in recent years, as evidenced by the fact that administering Medicaid money this way is becoming more and more popular all the time. You can even go online and view all of the statistics for Medicaid MCOs in your particular state if you’re so inclined.


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