Rewriting the Rules for Medicaid Managed Care | Health Care Economics, Insurance, Payment | JAMA Forum Archive | JAMA Network
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JAMA Forum Archive, 2012-2019: Health policy commentary from leaders in the field
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Rewriting the Rules for Medicaid Managed Care

Medicaid, which turned 50 years old on July 30, 2015, has grown to become the largest single type of health care coverage in the United States, providing health insurance coverage for about 66 million low-income people who are not eligible for or cannot afford other forms of coverage. The population groups served by Medicaid have evolved over time, as has the delivery model, from fee-for-service to managed care.

Andrew B. Bindman, MD

(Image: Ted Grudzinski/AMA)

About 58% of all Medicaid beneficiaries, 39 million individuals in 39 states and the District of Columbia, accessed Medicaid benefits through capitated health plans in fiscal year 2011 (the most recent year with complete data). Most of the growth of Medicaid managed care is the result of a mandatory requirement in many states for specified eligibility groups to use this delivery model.

Expansion of Medicaid Managed Care

The use of Medicaid managed care began with the eligibility categories that cover low-income children and their parents who receive temporary assistance for needy families (TANF). More recently, it has expanded to include seniors and persons with disabilities, as well as individuals who are dually eligible for Medicaid and Medicare. Health plans participating in Medicaid managed care programs are paid a capitation rate by the state to cover the costs of a particular population group. Now, an increasing number of states are also incorporating into the health plan capitation rates Medicaid fee-for-service payments for long-term services and supports for managed care beneficiaries, which had been previously separate.

Capitated payments can incentivize health plans to skimp on the provision of care, which is a particular concern in Medicaid because the program is less well resourced than other payers. Because of Medicaid’s relatively low reimbursement rate, physicians are less likely to participate in Medicaid than in other insurance programs. Proponents of managed care believe that health plans can assist beneficiaries to access care.

Studies of the benefits and risks of furnishing Medicaid services through managed care have reached varying conclusions about the effects of this delivery model on access to, cost of, and quality of care. Most of the studies have been on the relatively healthier TANF population, and it is not clear that the findings in this group are generalizable to seniors and persons with disabilities or individuals dually eligible for Medicaid and Medicare. Also, many of these studies employed weak study designs that did not adequately account for differences in health risks in populations cared for in managed care vs fee-for-service. The lack of definitive evidence regarding the value of Medicaid managed care has not slowed states’ adoption of this delivery model.

A Proposed Rule

The Centers for Medicare & Medicaid Services (CMS) has recently issued a proposed rule that is intended to protect beneficiaries’ access to care in Medicaid managed care by strengthening the federal requirements for, and transparency of, contracts between states and plans. CMS’s proposed rule leverages 3 main policy approaches to promote beneficiaries’ access to care: network adequacy, actuarially sound rates, and medical loss ratio (the percentage of premiums used to pay for medical services and activities that improve the quality of care).

Although CMS has had a longstanding policy requiring states to ensure that Medicaid managed care plans have adequate network capacity to care for the assigned population, there has been little detail on how that should be determined. The proposed new regulations specify the minimum criteria that will be used to judge network adequacy and patients’ travel time to and distance from services. The proposed rule also defines the services for which these criteria apply—adult and pediatric primary care, adult and pediatric specialist care, and obstetric and gynecologic care, as well as pediatric dental, behavioral health, hospital, pharmacy, and other services.

Although CMS is leaving it to states to establish the travel time and distance standards for each of these services, states are instructed to adopt standards for Medicaid plans that are no less stringent than standards for commercial plans in their states and that are consistent with county-specific time and distance standards for Medicare Advantage plans. CMS did not adopt the Medicare Advantage network adequacy standard of practitioner-to-population ratios, but the agency has asked for public comments about whether this standard, or potentially others, should be included in judging network adequacy.

CMS has also had a longstanding policy requiring states to use sound actuarial practices in setting payment rates with Medicaid managed care plans. However, a 2014 Government Accountability Office report found inconsistent practices across states, including instances where the validity of the approach used by some states was highly questionable. The new regulations require states to establish payment rates with plans based on actuarial standards set by the American Academy of Actuaries for all reasonable, appropriate, and attainable costs. There are new requirements for greater transparency and reproducibility in applying these standards, which are intended to prevent misuse of government resources and to ensure that Medicaid plans have adequate funding to attract clinicians and health care institutions to care for their enrolled populations.

The proposed regulations also establish a requirement for Medicaid managed care plans to spend a minimum of 85% of their payments on medical care services. The purpose of the 85% medical loss ratio is to ensure that health plan revenues are being spent primarily on patient care and are not diverted to profits. This is consistent with the standard established in the Affordable Care Act for plans that participate in federal or state-based marketplaces.

Physicians should be pleased with the direction of CMS’s proposed regulations, but may wish that CMS had gone even further in its rulemaking. For example, requiring states to adopt a standard of wait times for appointments for the specified services would put even more pressure on Medicaid plans to increase their reimbursement rates. Subjecting plans to routine audits of their network adequacy through “secret shopper” studies and imposing significant penalties for not achieving standards would be even more powerful leverage to ensure Medicaid plans had payment policies in place that would ensure beneficiaries’ access to care.

Under the new rule, states maintain the primary responsibility for contracting with health plans. States may fear that holding plans accountable for their performance could lead some plans in an already limited pool to exit the Medicaid marketplace. Physicians have a stake—on behalf of their patients as well as self-interest—in making sure that CMS holds states accountable for how they manage their plans. This has become particularly important now that the Supreme Court has ruled that those offering health care services do not have a legal basis for challenging state policies on payment in the federal courts.

With its proposed new rule on Medicaid managed care, CMS is raising its expectations for states. If these new regulations are adopted as anticipated later this year, they will put pressure on plans to offer reimbursement rates that will make it more likely that physicians will participate in the care of Medicaid beneficiaries.

About the author: Andrew Bindman, MD, is professor of medicine, health policy, epidemiology and biostatistics at University of California, San Francisco (UCSF). He is the founder and director of the University of California Medicaid Research Institute, a multicampus research program that supports the translation of research into policy.
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