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Managed Care

States have traditionally provided people Medicaid benefits using a fee-for-service system. However, in the past 15 years, states have more frequently implemented a managed care delivery system for Medicaid benefits. In a managed care delivery system, people get most or all of their Medicaid services from an organization under contract with the state. Almost 50 million people receive benefits through some form of managed care, either on a voluntary or mandatory basis.

States can allow people to voluntarily enroll in a managed care program, but more frequently, states require people to enroll in a managed care program. Increasing numbers of States are using Managed Long Term Services and Supports (MLTSS) as a strategy for expanding home- and community-based services, promoting community inclusion, ensuring quality and increasing efficiency.When states implement a managed care program, it can use any one of the following types of entities:

  • Managed Care Organizations (MCOs) – like HMOs, these companies agree to provide most Medicaid benefits to people in exchange for a monthly payment from the state.
  • Limited benefit plans – these companies may look like HMOs but only provide one or two Medicaid benefits (like mental health or dental services).
  • Primary Care Case Managers – these individual providers (or groups of providers) agree to act as an individual's primary care provider, and receive a small monthly payment for helping to coordinate referrals and other medical services.

Federal Authorities

States can implement a managed care delivery system using three basic types of federal authorities:

  • State plan authority [Section 1932(a)]
  • Waiver authority [Section 1915 (a) and (b)]
  • Waiver authority [Section 1115]

Regardless of the authority, states must comply with the federal regulations that govern managed care delivery systems. These regulations include requirements for a managed care plan to have a quality program and provide appeal and grievance rights, reasonable access to providers, and the right to change managed care plans, among others.

All three types of authorities give states the flexibility to not comply with the following requirements of Medicaid law outlined in Section 1902:

  • Statewideness: Lets states implement a managed care delivery system in specific areas of the state (generally counties/parishes) rather than the whole state.
  • Comparability of Services: Lets states provide different benefits to people enrolled in a managed care delivery system.
  • Freedom of Choice: Lets States require people to their Medicaid services from a managed care plan or primary care provider.

1932(a) State Plan Basics

States can use a managed care delivery system by getting a state plan amendment approved by CMS. The state plan preprint includes information such as the types of entities that will be used and what groups of people will be enrolled. Once a state plan amendment is approved, the state can run its managed care program without needing to get CMS approval again.

This authority does not allow states to require dual eligibles, American Indians, or children with special health care needs to enroll in a managed care program.

21 states are operating 28 managed care programs using the authority of 1932(a).

1915(a) Waiver Basics

States can implement a voluntary managed care program simply by executing a contract with companies that the state has procured using a competitive procurement process. CMS must approve the state in order to make payment.

13 states (and Puerto Rico) use 1915(a) contracts to administer 24 voluntary managed care programs.

1915 (b) Waiver Basics

States can also implement a managed care delivery system using waiver authority under 1915(b). The biggest differences between a 1915(b) waiver program and a state plan program are that: 

  • States are able to require dual eligibles, American Indians, and children with special health care needs to enroll in a managed care delivery system.
  • States have to show that the managed care delivery system is cost-effective, efficient and consistent with the principles of the Medicaid program.
  • A state's program can only run for a specific amount of time (up to 5 years) before CMS will have to give their approval of the program again.
There are currently 48 currently approved 1915(b) waivers operating 28 different states.