As Pandemic-Era Policies End, Medicaid Programs Focus on Enrollee Access and Reducing Health Disparities Amid Future Uncertainties: Results from an Annual Medicaid Budget Survey for State Fiscal Years 2024 and 2025

Delivery Systems

Context

Managed Care Models. For more than three decades, states have increased their reliance on managed care delivery systems with the aim of improving access to certain services, enhancing care coordination and management, and making future costs more predictable. Across the states, there is wide variation in the populations required to enroll in managed care, the services covered (or “carved in”), and the quality and performance incentives and penalties employed. Most states contract with risk-based managed care organizations (MCOs) that cover a comprehensive set of benefits (acute care services and sometimes long-term services and supports), but many also contract with limited benefit prepaid health plans (PHPs) that offer a narrow set of services such as dental care, non-emergency medical transportation (NEMT), or behavioral health services. A minority of states operate primary care case management (PCCM) programs which retain fee-for-service (FFS) reimbursements to providers but link beneficiaries with a primary care provider who is paid a small monthly fee to provide case management services in addition to primary care. While the shift to MCOs has increased budget predictability for states, the evidence about the impact of managed care on access to care and costs is both limited and mixed.^1,2,3 Recently finalized regulations, addressing Medicaid managed care access, finance, and quality, are primarily aimed at strengthening standards for timely access to care and states’ monitoring and enforcement efforts.

Capitation Rates and Risk Mitigation. MCOs are at financial risk for services covered under their contracts, receiving a per member per month “capitation” payment for these services. Capitation rates must be actuarially sound⁴ and are applied prospectively, typically for a 12-month rating period, regardless of changes in health care costs or utilization.⁵ States may use a variety of risk mitigation tools to ensure payments are not too high or too low, including risk sharing arrangements, risk and acuity adjustments, medical loss ratios (MLR), or incentive and withhold arrangements. When, however, significant enrollment, utilization, cost, and acuity changes began to emerge early in the COVID-19 public health emergency (PHE), CMS allowed states to modify managed care contracts, and many states implemented COVID-19 related “risk corridors” (where states and health plans agree to share profit or losses), allowing for the recoupment of funds. In last year’s survey, nearly two-thirds of responding MCO states reported implementing a pandemic-related MCO risk corridor (in 2020, 2021, and/or 2022), leading to the recoupment of payments for many states. States and plans faced another period of heightened rate setting uncertainty when the PHE continuous enrollment period expired on March 31, 2023.

Addressing Health Disparities. In the United States, racial and ethnic health disparities persist, driven by inequitable health care access and utilization and by social and economic factors, often referred to as social determinants of health (SDOH), that are rooted in historic and ongoing racism and discrimination. Like the federal government, many states have identified addressing health disparities as a key Medicaid priority and are leveraging their MCO contracts to reduce health disparities, for example, by addressing SDOH and tying MCO financial quality incentives (e.g., performance bonuses or withholds) to health disparity reductions.

This section provides information about:

• Managed care models
• MCO medical loss ratio (MLR) and remittance requirements
• MCO capitation rate amendments
• SDOH MCO contract requirements
• Strategies to reduce health disparities

Findings

Managed Care models

Capitated managed care remains the predominant delivery system for Medicaid in most states. As of July 1, 2024, all states except five – Alaska, Connecticut,⁶ Maine, Vermont,⁷ and Wyoming – had some form of managed care (MCOs and/or PCCM) in place (Figure 2). As of July 1, 2024, 42 states⁸ were contracting with MCOs, up from 41 states in 2023 (with the addition of Oklahoma); only two of these states (Colorado and Nevada) did not offer MCOs statewide (although Nevada plans to expand MCOs statewide in 2026). Twelve states reported operating a PCCM program, one fewer than reported in 2023 (as North Dakota ended its PCCM program in December 2023).⁹

Of the 46 states that operate some form of comprehensive managed care (MCOs and/or PCCM), 34 states operate MCOs only, four states operate PCCM programs only, and eight states operate both MCOs and a PCCM program. In total, 30 states¹⁰ were contracting with one or more limited benefit prepaid health plans (PHPs) to provide Medicaid benefits including behavioral health care, dental care, vision care, non-emergency medical transportation (NEMT), or long-term services and supports (LTSS).

Capitation Rates and Risk Mitigation

Minimum Medical Loss Ratios (MLRs) and Remittance Requirements

The medical loss ratio (MLR) reflects the proportion of total capitation payments received by an MCO spent on clinical services and quality improvement, where the remainder goes to administrative costs and profits. To limit the amount that plans can spend on administration and keep as profit, CMS published a final rule in 2016 that requires states to develop capitation rates for Medicaid to achieve an MLR of at least 85% in the rate year.¹¹ There is no federal requirement for Medicaid plans to pay remittances to the state if they fail to meet the MLR standard, but states have discretion to require remittances. The 2024 Consolidated Appropriations Act included a financial incentive to encourage certain states to collect remittances from Medicaid MCOs that do not meet minimum MLR requirements. The Biden-Harris Administration’s FY 2024 and 2025 budgets went further proposing to require Medicaid managed care plans to meet an 85% minimum MLR and to require states to collect remittances if plans fail to meet the minimum MLR. An analysis of National Association of Insurance Commissioners (NAIC) data for the Medicaid managed care market shows the average loss ratios (in aggregate across plans) increased slightly in 2023 compared to 2022 (from 86% to 87%), implying a potential decrease in profitability, but remained lower than in 2018 and 2019. This year’s survey asked states whether they have a state required minimum MLR and whether they require MCOs that do not meet the minimum MLR requirement to pay remittances.

Nearly all MCO responding states (38 of 41) reported a minimum MLR requirement is always in place for MCOs as of July 1, 2024 (Figure 3). While states must use plan-reported MLR data to set future payment rates so that plans will “reasonably achieve” an MLR of at least 85%, states are not required to set a minimum MLR for their managed care plans. If states set a minimum MLR requirement, it must be at least 85%.¹² While most states that described their requirements reported a minimum MLR requirement of 85%, several states reported higher requirements that ranged from 86% to 91%. A few states noted that minimum MLRs may vary by program. For example, in Pennsylvania, the minimum MLR requirement is set at 85% for MCOs covering acute care only (hospital and physician services) and at 90% for MCOs that cover acute care and LTSS.

More than three-quarters of responding MCO states report they always require remittance payments when an MCO does not meet minimum MLR requirements (Figure 4). Thirty-four states reported that they always require MCOs to pay remittances, while two states indicated they sometimes require MCOs to pay remittances. States reporting that they sometimes require remittances may limit this requirement to certain MCO contracts. For example, Rhode Island reported that the remittance requirement did not apply to all populations. Additionally, some states (North Carolina, Oregon, and Tennessee) give MCOs that fail to meet the state required minimum MLR the option to either remit funds to the state and/or use funds towards community reinvestments (see MCO Contract Requirements Related to Social Determinants of Health below for more information). Five states do not require remittances (including two states that do not set a minimum MLR requirement). States that do not have minimum MLR and remittance requirements in place may have other risk mitigation strategies such as profit caps or experience rebates and/or risk corridors.

Rate Amendments

State Medicaid programs use the most recent and accurate enrollment, cost, and utilization data available to ensure that MCO capitation rates are actuarially sound and that MCOs are not over-paid or under-paid for the services they deliver. Even if risk mitigation strategies are in place (e.g., MLR with remittance and/or risk corridors), states may determine rate amendments are necessary, for example, if their actual unwinding experience differs significantly from the assumptions used for the initial certified rates. Prior to the start of unwinding, plans expected the overall risk profile of their members to increase, with “stayers” likely to be sicker than “leavers.”

During a contract rating period, states may increase or decrease rates by 1.5% per rate cell (which apply to population subgroups with one or more common characteristics such as age, gender, eligibility category, and geographic region) without seeking CMS approval for the change (different rules apply for states with approved rate ranges per cell).¹³ To make a larger change, states must submit a rate amendment for federal approval that addresses and accounts for all differences from the most recently certified rates. This year’s survey asked states whether they have or will seek CMS approval for a capitation rate amendment to address “acuity shifts” (i.e., shifts in the average risk profile and utilization patterns) among MCO enrollment due to the unwinding in the rating period that began in FY 2024 and the rating period that begins in FY 2025.

About two-thirds of responding MCO states (25 of 41) reported seeking CMS approval for a capitation rate amendment to address acuity shifts among MCO enrollment due to the unwinding for a rating period beginning in FY 2024 and/or FY 2025 (Figure 5). An additional four states reported that while they did not seek a rate amendment to address acuity shifts for the rating period that began in FY 2024, whether they seek a rate amendment for the rating period that begins in FY 2025 is undetermined. Twelve states have not and do not plan to seek a rate amendment to address acuity shifts due to the unwinding in either rating period.

MCO Requirements Related to Social Determinants of Health

Social determinants of health (SDOH) are the conditions in which people are born, grow, live, work and age. Addressing social determinants of health is important for improving health outcomes and reducing health disparities. While there are limits, states can use Medicaid – which, by design, serves a primarily low-income population with greater social needs – to address social determinants of health. This year’s survey asked states about MCO contract requirements related to social determinants of health in place in FY 2024 or planned for implementation in FY 2025.

Nearly all responding MCO states (39 of 40) reported leveraging Medicaid MCO contracts to promote at least one strategy to address social determinants of health in FY 2024 (Figure 6). In FY 2024, more than three-quarters of responding MCO states reported requiring MCOs to screen enrollees for behavioral health needs, screen enrollees for social needs, provide referrals to social services, and partner with community-based organizations (CBOs). Similar numbers of states (about half) reported requiring MCOs to encourage/or require providers to capture SDOH data using ICD-10 Z codes, incorporate uniform SDOH questions within screening tools, employ community health workers (CHWs),¹⁴ and track the outcomes of referrals to social services. Fewer states reported requiring MCO community reinvestment (i.e., directing plans to reinvest a portion of revenue or profits into the communities they serve) compared to other strategies; however, a few states reported plans to require these activities in FY 2025.

While most states with community reinvestment requirements reported requiring MCOs to reinvest a percentage of their revenue or profits, a few states tie reinvestment requirements to state minimum MLRs and allow or encourage MCOs that do not meet the required MLR to reinvest all or a portion of the remittance payment.

State examples of community reinvestment requirements include:

• In Arizona, MCOs are required to reinvest 6% of their profits into the community for each Medicaid line of business. Community reinvestment activities must support health-related social needs (HRSN) and demonstrate evidence-based measurable impacts to health outcomes. MCOs must submit an annual community reinvestment plan, which outlines their plans for the use of reinvestment funds for the year, as well as a community reinvestment report, which provides an overview of the measurable impacts of each activity (quantitative or qualitative) and the HRSN domain impacted (e.g., food insecurity, housing, transportation, etc.).
• New Mexico requires each MCO to contribute a portion of their after-tax underwriting gain to community reinvestments and to submit an annual community reinvestment plan to the state for review and approval that details the MCO’s community reinvestment strategies, activities, and the anticipated time frame for demonstrable impact. The MCO’s strategies must include efforts to collaborate with other MCOs to attain collective impact on the areas of focus identified by the state including efforts to develop, expand, and retain in-state behavioral health residential providers to reduce the unnecessary utilization of inpatient, emergency room, and out-of-state services.
• In North Carolina, MCOs may voluntarily contribute to health-related resources that help address members’ and communities’ unmet health-related needs. MCOs that do not meet the state required MLR have the option to make contributions to health-related resources in lieu of all or a portion of the remittance owed to the state. MCOs must submit proposals that align with the state’s quality strategy for review and approval by the state.
• In Tennessee, if an MCO achieves a medical loss ratio of less than 85%, the MCO must either remit funds to the state and/or propose a reinvestment plan. An MCO that doesn’t meet the minimum MLR requirement and opts for reinvestment must submit a community reinvestment plan to the state for approval.

Financial Incentives Tied to Reducing Health Disparities

States use an array of financial incentives to improve quality, including linking performance bonuses or penalties, capitation withholds, or value-based state-directed payments to quality measures. States implement financial incentives across delivery systems (fee-for-service and managed care). This year’s survey asked states if they had an MCO financial quality incentive (e.g., a performance bonus or penalty, capitation withhold) that rewards quantitative improvement in racial/ethnic disparities for one on more populations in place in FY 2024 or planned for FY 2025 or beyond.

About one-third of responding MCO states (13 of 40) reported at least one MCO financial incentive tied to reducing racial/ethnic disparities in place in FY 2024 (Figure 7). Six additional states reported plans to implement MCO financial incentives in FY 2025 or later. States most commonly reported linking (or planning to link) capitation withholds or pay for performance incentives to improving health disparities. At least five states (Colorado, Louisiana, Missouri, North Carolina, and Pennsylvania) specifically mentioned current or planned MCO financial incentives focused on reducing disparities in maternal and child health. Other notable state examples include:

• Kentucky’s MCO capitation withhold is tied to performance improvement on six core measures, including a social need screening and intervention measure (HEDIS SNS-E). MCOs are incentivized to address disparities by screening enrollees for unmet food, housing, and transportation needs and closing identified gaps.
• In Louisiana, one-quarter of the capitation withhold is attributed to health equity performance improvement efforts, including development and maintenance of a Health Equity Plan and reporting and reduction of disparities in select maternal health, child health, preventive, and behavioral health measures.
• In Massachusetts, the Quality and Equity Incentive Programs incentivize accountable care organizations (ACOs), MCOs, and the MA Behavioral Health Vendor to pursue performance improvements in three domains: demographic and health-related social needs data, equitable quality and access, and capacity and collaboration.

Other MCO Requirements Related to Reducing Disparities

In addition to implementing financial incentives tied to improvements in health disparities, states can leverage managed care contracts in other ways to promote reducing health disparities. For example, states can require MCOs to achieve national standards for advancing health equity, conduct staff training on health equity and/or implicit bias, develop new positions related to health equity, report racial disparities data, incorporate enrollee feedback, among other requirements. In this year’s survey, states that contract with MCOs were asked about whether certain MCO contract requirements related to reducing disparities were in place in FY 2024 or planned for implementation in FY 2025.

Nearly all responding MCO states (35 of 40) reported at least one specified MCO requirement related to reducing disparities in place in FY 2024 (Figure 8). In FY 2024, about two-thirds of states reported requiring MCOs to have a health equity plan in place (27 states) and train staff on health equity and/or implicit bias (27 states). Over half of states reported requiring MCOs to meet health equity reporting requirements (24 states) and seek enrollee input or feedback to inform health equity initiatives (22 states). Fewer states reported requiring MCOs to achieve NCQA’s Health Equity Accreditation (previously the Multicultural Health Care Distinction) (15 states) or have a health equity officer (13 states). Among states with at least one requirement in place in FY 2024, three-quarters (27 of 35) reported three or more specified requirements in place (data not shown). The number of MCO states with at least one specified MCO requirement related to reducing disparities grew significantly from 16 states in FY 2022 and is expected to grow to 37 states in FY 2025.