Health Reform WK-EDGE Managed Care Organizations main driver in Medicaid care and spending
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Wednesday, September 18, 2019

Managed Care Organizations main driver in Medicaid care and spending

By Matt Pavich, J.D.

Managed care organizations provided the most care to Medicaid beneficiaries and payments to risk-based MCOs accounted for the greatest share of Medicaid spending in FY 2017.

Managed care organizations (MCOs) now provide care for more than two-thirds of all Medicaid beneficiaries and payments to comprehensive risk-based MCO’s accounted for 46 percent of all Medicaid spending in FY 2017, by far the greatest share, according to a new issue brief by the Kaiser Family Foundation. The brief noted that six publicly traded firms, including UnitedHealth, have MCOs in ten or more states and account for 44 percent of all Medicaid enrollment.

Background. MCOs offer comprehensive acute care and long-term services and support to Medicaid beneficiaries. They take a set per member, per month payment and are at financial risk for the Medicaid services specified in their contracts. They are in 39 states and the District of Columbia and those states have pursued risk-based contracting with MCOs for various reasons, including increases in budget predictability and improved access to value and care.

Reach of MCO coverage. As of July 2017, 54.1 million Medicaid beneficiaries received coverage through risk-based MCOs. Twenty-four MCO states covered more than 75 percent of beneficiaries through MCOs and as of July 2018, 35 MCO states covered at least 75 percent of all children through MCOs. Additionally, of the 32 states that had implemented Medicaid expansion under the Patient Protection and Affordable Care Act by July 2017, 27 of them used MCOs to cover newly eligible adults; a large majority of those states covered more than 75 percent of such beneficiaries through MCOs. Thirty-one MCO states used MCOs to cover at least 75 percent of low-income adults in pre-ACA expansion groups, but only 20 MCO states covered at least 75 percent of seniors and people with disabilities, despite the growing trend to include seniors and people with disabilities in MCOs.

There are indications that the reach of MCOs may be growing. The brief reports that while states may carve specific services out of MCO contracts to fee-for-service (FFS) systems or limited benefit plans, there has been significant movement across states to carve these services into MCOs.

There were 283 MCOs as of July 2017. Specifically, 19 firms operated Medicaid MCOs in at least two states (parent firms), accounting for roughly 57 percent of enrollment in 2017. Six firms, including UnitedHealth Group and Aetna operated MCOs in at least ten states, accounting for approximately 44 percent of all Medicaid MCO enrollment.

Costs. The expansion of risk-based MCO coverage for Medicaid beneficiaries has been accompanied by an increasing percentage of Medicaid spending taken up by risk-based MCOs. In FY 2017, state and federal spending on Medicaid services totaled almost $577 billion, with payments to MCOs comprising roughly 46 percent of that figure. Over half of MCO states directed at least 40 percent of total Medicaid dollars to payments to MCOs with the MCO share of spending ranging from 10 percent (Colorado) to 87 percent (Kansas). The brief suggests that as states expand the use of MCOs, the share of Medicaid spending on those organizations will continue to increase.

Results of expanded MCO coverage. Almost every MCO state used at least one select Medicaid managed care quality initiative in FY 2018 and 31 of the 39 states reported having initiatives in FY 2018 making MCO comparison data publicly available. The majority of states reporting new or expanded activity in managed care quality in FY 2019 said this activity was related to enhancing/expanding existing initiatives, as opposed to the creation of new ones.

The brief reports that states are increasingly implementing contract provisions urging MCOs to screen and/or refer enrollees for social needs, 26 states in FY 2018 either requiring or encouraging MCOs to screen enrollees for social needs; additional states reported plans to employ provisions in place in FY 2019.

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