Amid Unwinding of Pandemic-Era Policies, Medicaid Programs Continue to Focus on Delivery Systems, Benefits, and Reimbursement Rates: Results from an Annual Medicaid Budget Survey for State Fiscal Years 2023 and 2024

Delivery Systems

Context

For more than two 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. State managed care contracts vary widely, in the populations required to enroll, 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. Managed care plans are at financial risk for the services covered under their contracts and receive a per member per month “capitation” payment for these services. A minority of states operate primary care case management (PCCM) programs which retain fee-for-service (FFS) reimbursements to providers but enroll beneficiaries with a primary care provider who is paid a small monthly fee to provide case management services in addition to primary care.

MCO capitation rates are typically established prospectively for a 12-month rating period, regardless of changes in health care costs or utilization.¹ However, as pandemic-related enrollment increased, utilization decreased, and other cost and acuity changes began to emerge in 2020, 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. States and plans are now facing another period of heightened fiscal uncertainty due to the expiration of the continuous enrollment period. Medicaid MCOs may see overall average member acuity increase, since people who need more health care may be more likely to stay enrolled, which could result in higher per member utilization and costs.

Medicaid programs can help to address health disparities. In late 2021, CMS published its strategic vision for Medicaid and CHIP which identified equity and reducing health disparities as key focus areas. Some state MCO contracts incorporate requirements to advance health equity and states may also tie MCO financial quality incentives (e.g., performance bonuses, withholds, or value-based state directed payments) to reducing health disparities. States must require MCOs to implement performance improvement projects (PIPs) to examine access to and quality of care, and these projects often include analysis of health disparities.

This section provides information about:

• Managed care models
• Pandemic-related MCO risk corridors
• 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, 2023, all states except five – Alaska, Connecticut,² Maine, Vermont,³ and Wyoming – had some form of managed care (MCOs and/or PCCM) in place (Figure 2). As of July 1, 2023, 41 states⁴ were contracting with MCOs (unchanged from 2022); only two of these states (Colorado and Nevada) did not offer MCOs statewide (although Nevada reported plans to expand MCOs statewide in 2026). Thirteen states reported operating a PCCM program (with the addition of Oregon), although North Dakota reported plans to end its PCCM program in December 2023.⁵ While not counted in this year’s report, following the passage of SB 1337,⁶ Oklahoma expects to implement capitated, comprehensive Medicaid managed care in April 2024.⁷ The state announced its selection of three managed care plans to deliver services in June 2023.

Of the 46 states that operate some form of comprehensive managed care (MCOs and/or PCCM), 33 states operate MCOs only, five states operate PCCM programs only, and eight states operate both MCOs and a PCCM program. In total, 28 states⁸ 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).

Pandemic-Related MCO Risk Corridors

The COVID-19 pandemic caused major shifts in utilization across the health care industry that could not have been anticipated and incorporated into MCO capitation rate development (especially in 2020 and 2021). CMS encouraged states to implement two-sided risk mitigation strategies, including risk corridors, for rating periods impacted by the PHE. Risk corridors allow states and health plans to share profit or losses (at percentages specified in plan contracts) if aggregate spending falls above or below specified thresholds (“two-sided” risk corridor). Risk corridor thresholds may be tied to a target medical loss ratio (MLR). Risk corridors may cover all/most medical services (and enrollees) under a contract or may be more narrowly defined, covering a subset of services or enrollees. On this year’s survey, states were asked whether they had implemented a pandemic-related MCO risk corridor at any time since March 2020 and whether the state has or will recoup MCO payments made for 2020, 2021, or 2022. (State MCO contract periods may be on a calendar year, fiscal year, or another period.)

Nearly two-thirds of responding MCO states reported implementing a pandemic-related MCO risk corridor at any time since March 2020; more than three-quarters of these states reported that they have or will recoup funds (Figure 3). Twenty-three of 37 responding MCO states reported imposing risk corridors in their MCO contracts related to the COVID-19 pandemic. Of the states that reported implementing a pandemic-related MCO risk corridor, more than three-quarters (18 of 23) reported that recoupments for payments made for 2020, 2021, and/or 2022 had already occurred or were expected. Three states reported that potential recoupments remained undetermined, and just two states have not and do not expect to recoup payments. Several states also commented on other risk mitigation strategies implemented prior to the pandemic or in response to the pandemic such as pre-existing risk corridors, profits caps, and experience rebates, which are not counted in the table below.

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). On this year’s survey, states were asked if they had an MCO financial quality incentive (e.g., a performance bonus or penalty, capitation withhold, quality add-on payment, value-based state directed payment etc.) that rewards quantitative improvement in racial/ethnic disparities for one on more populations in place in FY 2023 or planned for FY 2024.

About one-quarter of responding MCO states (11 of 37) reported at least one MCO financial incentive tied to reducing racial/ethnic disparities in place in FY 2023 (Figure 4). Three additional states report plans to implement MCO financial incentives in FY 2024. States most commonly reported linking (or planning to link) capitation withholds, pay for performance incentives, and/or state-directed provider payments to improvements in health disparities. Four states (Kansas, Maryland, Missouri, and North Carolina) specifically mentioned MCO financial incentives focused on reducing disparities in maternal and child health.

Other notable state examples include:

• California’s CalAIM Incentive Payment Program (IPP) allows MCOs to earn incentive funds for completing quality metrics related to Enhanced Care Management (ECM) services for racial and ethnic groups who are disproportionally experiencing homelessness or chronic homelessness, or who are at risk of becoming homeless with complex health and/or behavioral health conditions. IPP quality metrics also include the monitoring of ECM for racial and ethnic groups who disproportionately meet the population of focus definition (i.e., individuals transitioning from incarceration who have significant complex or behavioral health needs requiring immediate transition of services to the community). The state also reported plans to move to a statewide capitation withhold approach in 2024 that will incorporate health disparity reduction targets.
• Pennsylvania’s MCO pay-for-performance program provides incentive bonus payments for year-over-year incremental improvements on several performance measures where racial disparities are observed.
• In FY 2024, North Carolina plans to withhold a portion of MCO capitation payments to incentivize performance improvement on several quality measures, including reducing disparities in childhood immunization status. To receive the full amount withheld for this measure, plans must improve the rate for the population of interest by 10% or more over the prior year baseline. A separate portion of the withheld funds will be tied to reporting of care needs screening rates, to improve data on sources of disparities.

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 culturally competent care, 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. On 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 2023 or planned for implementation in FY 2024.

More than two-thirds of responding MCO states (25 of 36) reported at least one specified MCO requirement related to reducing disparities in place in FY 2023 (Figure 5). In FY 2023, about half of states reported requiring MCOs to train staff on health equity and/or implicit bias (18 of 35) and meet health equity reporting requirements (16 of 35). Over one-third of states reported requiring MCOs to have a health equity plan in place (14 of 35) and seek enrollee input or feedback to inform health equity initiatives (13 of 35). Fewer states reported requiring MCOs to have a health equity officer (8 of 36) or achieve NCQA’s Multicultural Health Care (MHC) Distinction and/or Health Equity Accreditation (6 of 36). Among states with at least one requirement in place in FY 2023, over half (14 of 25) reported requiring three or more specified initiatives 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 29 states in FY 2024.

Performance Improvement Projects (PIPs) Focused on Health Disparities

For contracts starting on or after July 1, 2017, federal regulations mandate that states require each MCO or limited benefit PHP to establish and implement an ongoing comprehensive quality assessment and performance improvement (QAPI) program for Medicaid services that includes performance improvement projects (PIPs). PIPs may be designated by CMS, by states, or developed by health plans, but must be designed to achieve significant, sustainable improvement in health outcomes and enrollee satisfaction. On this year’s survey, states were asked if they required MCOs to participate in PIPs focused on health disparities in FY 2023 or planned to in FY 2024.

More than half of responding states that contract with MCOs (22 of 37) reported requiring MCOs to participate in PIPs focused on health disparities in FY 2023 (Figure 6). States reported a range of state-mandated PIP focus areas with an emphasis on reducing disparities / improving health equity including related to:

• Maternal and child health (California, Delaware, Maryland, Massachusetts, Michigan, Missouri, Nevada, Oregon, and Texas)
• Social determinants of health assessment, referral, and follow up (Kansas, North Carolina, Oregon, and Texas)
• Chronic disease-focused (e.g., diabetes, hypertension, COPD) (North Dakota, Ohio, and Oregon)
• Substance Use Disorder (SUD) (Delaware, North Dakota, and Pennsylvania)

Four states (Louisiana, Massachusetts, New York, and Rhode Island) reported all PIPs must include a health equity component or equity and disparities analysis; two states (New Jersey and Wisconsin) reported requirements for MCOs to engage in at least one PIP focused on health disparities. Three states (Colorado, Nebraska, and Virginia) did not specifically describe their health equity-related PIP requirement. Several states also reported plans to implement PIPs focused on disparities in FY 2024 or add health disparities stratifications to existing PIPs.