MCD 301- Lesson 1: What is Medicaid managed care?

Lesson Goal


For you to become familiar with how health plans work in the Medicaid space.

Lesson Summary


Most states partner with managed care plans to operate their Medicaid programs. More than 75% of all Medicaid enrollees get at least some of their care via a managed care program. Medicaid managed care plans contract with providers to deliver services to members, and are paid using a system known as capitation. States use multiple strategies to monitor health plan performance.

The Big Topics in This Lesson


1- The Size and Scope of Medicaid Managed Care

The information under this topic reviews the basics of Medicaid managed care, including trends in managed care enrollment, how plans deliver services to members and how much of Medicaid spending occurs through managed care.

2- Provider Contracting and Network

The information under this topic includes insights into how MCOs provide services to members.

3- Medical Loss Ratio (MLR), Quality Measurement, CAHPS and Other Oversight Tools

Lesson Video


Lesson Q & A


Click on each question to learn more

Q1: What is Medicaid Managed Care? What percent of Medicaid members are enrolled in an MCO?


It is important to note that there are different definitions of managed care in the Medicaid industry. Many states will operate case management programs or patient centered medical homes (PCMHs) that pay providers an additional pmpm amount as an administrative fee, in addition to the fee for service payments they receive. There have been some states that will refer to this arrangement as “managed care.” Most industry professionals reserve the term “managed care” for at-risk, capitated managed care operated by an insurance organization. In this arrangement, an insurance company receives a capped amount per member per month, and must cover all their medical needs, administrative costs and profit using that amount. If the managed care organization does not cover all these components using the capitated monthly payment, they lose money. This is why this type of managed care is called at-risk managed care.


As of 2014 data, 77% of all Medicaid enrollees were enrolled in some type of managed care program. This includes full at-risk MCOs, and other more limited types of managed care like case management programs.


Q2: How much money is spent on Medicaid Managed Care?


For spending in any type of Medicaid Managed Care, about $238B was spent in 2015. This was a sharp increase from $181B in 2015. When looking at just MCO spending (payments through at-risk Medicaid managed care companies), about $123B went through MCOs in 2014. It is important to note that the vast majority of this figure was to cover services for members. Most states limit MCOs to 15% spending on administrative costs and profit (meaning 85% must be spent on services to members. This % is commonly called the Medical Loss Ratio, or MLR.


Q3: What are the major plans in the Medicaid Managed Care space?


While the list of MCOs changes often, there are several national companies that have been in the Medicaid space consistently for quite some time. There are also plans that operate only in one or two markets, and are not part of a national firm. Some of the national firms that you will typically see operating in the Medicaid space are: Centene, Molina, Anthem (Amerigroup), Aetna, Humana, UHC, WellCare and CIGNA.

Q4: How do MCOs provide services to members?


MCOS provide the system in which providers get paid for providing services to Medicaid members. Their contracts with state Medicaid agencies require to have a certain level of providers from each specialty, as well as a ratio of primary care providers to members. To do this, MCOs recruit providers and negotiate rates with them for services. MCOs use the monthly capitated payments they get for each member from the state to pay the providers for services delivered.

In addition to doing the work to create and manage the provider network, MCOs typically handle to claims submission process from providers. Once a provider provides a service to a Medicaid member, the submit the claim for payment to the MCO. The MCO adjudicates (determines whether and how much to pay, based on established processing rules and policy) the claim and then pays or denies the claim. MCOs typically also then send a special type of record of the claim to the state called and encounter.


In addition to these processes, MCOs also have to manage certain parts of the member eligibility and enrollment system. Even if MCOs do not determine member eligibility (which they often don’t), they still need to integrate with the eligibility system because they have to communicate with members. They also have to ensure that members are eligible for the Medicaid service before they can pay the claim.



Q5: What are the requirements for MCOs related to the provider network?


Most states have historically required MCOs to have a certain number of providers in key specialties, and now recent regulations from CMS require all states to develop time and distance standards for each of several provider types. Time and distance standards mean that all members must have access to a provider within a certain distance in miles or time in minutes.


Provider types covered under the new CMS time and distance requirements include:

  • Primary care (adult and pediatric)
  • Specialty care (adult and pediatric)
  • Behavioral health (including substance use disorder treatment) providers (adult and pediatric)
  • OB/GYN
  • Hospital
  • Pharmacy
  • Pediatric dental
  • Long-term services and supports (LTSS) that require the enrollee to travel to the provider


MCOs are also required to ensure beneficiaries can get a second opinion if needed. Providers in the MCO network must keep the same business hours for Medicaid members as they do for members on commercial coverage.

Some states also have standards for MCOs related to wait times for appointments.

Review of state standards related to network adequacy shows wide variation in standards across Medicaid programs.

Q6: What do providers think about Medicaid Managed Care?


There are now more states that have Medicaid Managed Care than those who do not. Several of those states have had managed care for decades, but there are some who implemented managed care recently. When physician attitudes have been surveyed related to Medicaid managed care, several trends emerge:


  • Doctors and other providers initially have a negative view of Medicaid managed care, even though they accept other forms of managed care insurance as payment. There are often initial challenges in getting claims submission to go smoothly, as well as additional paperwork.
  • Physician perspectives on Medicaid managed care improve the more experience they have with it
  • Doctors express concerns about autonomy, as well as quality of care being driven by payment rules and prior authorization hassles
  • Some studies suggest that specialists have a much lower participation rate in Medicaid managed care vs fee for service




Q7: What is the Medical Loss Ratio (MLR) and how does it apply to Medicaid Managed Care?


While we touched on MLR in the previous lesson, let’s look at it a little more closely.

Here’s a definition:

Medical Loss Ratio (MLR) is the proportion of premium revenues spent on clinical services and quality improvement, also known as the Medical Loss Ratio (MLR)


While MLR has been around for a while, it has received new attention in recent years due to CMS regulations for Medicaid Managed care. These new regulations require states to monitor the MLR for MCOs and to use established criteria for setting MLR. CMS also has effectively set a minimum MLR of 85%.

Let’s use an example to help explain MLR. Let’s pretend that Arizona has set an MLR of 88% for its Medicaid managed care plans. That means that 88% of all payments made to a health plan have to be spent on healthcare services for members.

Now let’s make it a little more complex. Some states also have rules about what can be in the “everything else” (in this case the 12% for the made-up Arizona example). Let’s pretend Arizona said the most profit an MCO could make was 2%.

That everything else is meant to include MCO overheard, often referred to as administrative expenses. In this example its staffing costs, marketing costs, IT costs – anything besides healthcare services and profit.


The new CMS rules around the 85% MLR minimum establish the possibility that plans can have rates lowered in the future if they don’t comply.

Q8: What are HEDIS measures and External Quality Review Organizations and how do they apply to Medicaid?


HEDIS measures are quality measures designed and managed by the National Center for Quality Assurance (NCQA). HEDIS stands for


Healthcare Effectiveness Data and Information Set


More than 90% of healthplans (across all market types) use HEDIS, and most Medicaid agencies require their MCOs to report on dozens of key quality measures. HEDIS measures are updated each year, and currently there are more than 81 of them.


Key HEDIS measures for Medicaid populations include things like:


  • Well Child Visits (% of Children who received them)
  • Childhood Immunization Status
  • Timeliness of prenatal care
  • Diabetic retinal exams
  • Cervical cancer screenings


Each HEDIS measure has a very specific definition for the denominator and the numerator. The denominator spec defines all those who should have received the service. The numerator spec defines all those who actually did receive the service.

The numerator is divided by the numerator to generate the % score for the HEDIS measure.


# of members who actually received the service described in measure

------------------------------------------------------------------                                             = % for measure

# of members who should have received service described in measure


NCQA also publishes benchmarking data each year so plans can see how they performed on the same measures compared to other plans.


Q9: How is member satisfaction measured in Medicaid Managed Care?



CAHPS and other surveys are used. In addition to monitoring the quality performance of MCOs, CMS and states are interested in how satisfied members are with their Medicaid health plan. Medicaid member satisfaction is measured with local and MCO-specific surveys, but more systematic measurement is done using the Agency for Healthcare Research and Quality (AHRQ) Consumer Assessment of Health Plans (CAHPS) survey.

The CAHPS survey includes questions about patient experiences with their providers and health plan representatives.

Medicaid Dictionary

 New Terms from this lesson:

MLR Medical Loss Ratio. The % of capitation revenues spent on medical services for members.

HEDIS Healthcare Effectiveness Data and Information Set. HEDIS measures are quality measures designed and managed by the National Center for Quality Assurance.

AHRQ Agency for Healthcare Research and Quality

CAHPS Consumer Assessment of Health Plans. A survey of patient experiences with their providers as well as plan representatives.

Network Adequacy Term for an MCO provider network with enough providers that meet the state’s criteria.

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