Orlando Harmon
Medicaid is a major source of revenue and profits for multi-state insurance companies. As of July 2022, states had contracted with a total of 282 Medicaid Managed Care Organizations (MCOs), which are a mix of private for-profit, private non-profit, and government plans. The contract language between the State Medicaid agency and the MCO dictates the terms and conditions under which the MCO assumes Third-Party Liability (TPL) responsibility. States are generally prohibited from contractually directing how a managed care plan pays its providers, but they may implement certain state-directed payments (SDPs) that require managed care plans to adopt minimum or maximum provider payment fee schedules. Medicaid beneficiaries can have one or more additional sources of coverage for healthcare services, and states must have laws in place that require health insurers to provide their plan eligibility and coverage information to Medicaid programs.
| Characteristics | Values |
|---|---|
| Entities contracting for Medicaid | States, Centers for Medicare & Medicaid Services (CMS), Managed Care Organizations (MCOs), Prepaid Inpatient Health Plans (PIHPs), Prepaid Ambulatory Health Plans (PAHPs), Non-Emergency Medical Transportation Prepaid Ambulatory Health Plans (NEMT PAHPs), Primary Care Case Management Entities (PCCM entities), Health Insuring Organizations (HIOs) |
| MCOs | A mix of private for-profit, private non-profit, and government plans |
| Role of CMS | Reviews and approves state contracts with MCOs, PIHPs, PAHPs, NEMT PAHPs, PCCM entities, and HIOs |
| MCO enrollment | 50% of national enrollment; 63% of enrollment in 2022 was through 16 "parent" firms operating in two or more states |
| MCO payments | Accounted for 52% of total Medicaid spending in 2021 |
| State-directed payments (SDPs) | Implemented by CMS in 2016 to require managed care plans to adopt minimum or maximum provider payment fee schedules, provide uniform dollar or percentage increases to providers, or implement value-based provider (VBP) payment arrangements |
| Third-Party Liability (TPL) | Legal obligation of third parties (e.g., insurers) to pay for medical assistance provided under a Medicaid state plan; MCOs may be delegated TPL responsibility |
| Coordination of benefits | When an individual has Medicare and other health insurance, each type of coverage is called a "payer", with a "primary payer" and a "secondary payer"; the order of payment is called "coordination of benefits" |
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What You'll Learn
Contract language and requirements
The contract language and requirements between a State Medicaid agency and a Managed Care Organization (MCO) dictate the terms and conditions under which the MCO assumes Third-Party Liability (TPL) responsibility. TPL refers to the legal obligation of third parties (individuals, entities, insurers, or programs) to pay for medical assistance provided under a Medicaid state plan. States are required to ascertain the legal liability of third parties to pay for services available under the Medicaid state plan. The contract language should specify whether enrollees with other insurance coverage are enrolled in managed care and whether the state retains TPL responsibilities.
States are generally prohibited from contractually directing how a managed care plan pays its providers. However, subject to CMS approval, states may implement certain "state-directed payments" (SDPs) that require managed care plans to adopt minimum or maximum provider payment fee schedules. In creating SDPs, CMS aims to improve access to adequate provider networks and promote the use of value-based provider (VBP) payment arrangements. States must include specific contract language in their Medicaid managed care plan contracts to address situations where managed care activities have been vacated by the court.
The Centers for Medicare and Medicaid Services (CMS) Division of Managed Care Operations (DMCO) staff review and approve state contracts with various organizations, including Medicaid managed care organizations (MCOs), prepaid inpatient health plans (PIHPs), and prepaid ambulatory health plans (PAHPs). CMS has developed a pilot project to improve the managed care plan contract review process by increasing efficiency and transparency while reducing administrative burden. The contract review process covers standards for contract approval with MCOs, PIHPs, PAHPs, and other entities.
Medicaid is a major source of revenue and profits for multi-state insurance companies, and these companies have played a key role in responding to public health crises such as the COVID-19 pandemic. The contract language and requirements between states and MCOs are essential in outlining the terms and conditions of their partnership. States may contract with MCOs to provide healthcare to Medicaid beneficiaries and delegate specific responsibilities and authorities to these organizations.
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State-directed payments
The share of Medicaid spending on MCOs varies by state, but over three-quarters of MCO states directed at least 40% of total Medicaid dollars to payments to MCOs. The proportion of the state Medicaid population enrolled in MCOs, the health profile of the Medicaid population, and whether high-risk/high-cost beneficiaries are included or excluded from MCO enrollment all impact the share of Medicaid spending on MCOs. As states expand Medicaid managed care to include higher-need, higher-cost beneficiaries, the share of Medicaid dollars going to MCOs could increase.
Recent reports indicate that state-directed payments have significantly contributed to the growth in Medicaid expenditures in recent years. CBO Medicaid projections for 2025-2034 predict that changes in rules will lead to an increase in SDPs, causing a rise in spending. The 2024 rules also tightened SDP requirements to improve oversight, evaluation, and transparency. States will be required to report provider-level directed payment data to ensure that state-directed payments align with actual utilization.
The contract language between the State Medicaid agency and the Managed Care Organization (MCO) dictates the terms and conditions under which the MCO assumes TPL responsibility. States may contract with MCOs to provide healthcare to Medicaid beneficiaries and delegate authority to perform third-party discovery and recovery activities. Third parties are required to treat the MCO as if it were the State Medicaid agency when TPL responsibilities are delegated to an MCO.
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Third-party liability
State Medicaid programs may contract with Managed Care Organizations (MCOs) to provide healthcare to Medicaid beneficiaries and may delegate authority to the MCOs to perform third-party discovery and recovery activities. When TPL responsibilities are delegated to an MCO, third parties are required to treat the MCO as if it were the State Medicaid agency. The contract language between the State Medicaid agency and the MCO dictates the terms and conditions under which the MCO assumes TPL responsibility.
States are required by federal law to have legislation in place that compels health insurers to provide specific data elements to support the identification of TPL, including the insured's name, address, group or member ID number, and periods of coverage. States must also take reasonable measures to identify potentially liable third parties and process claims accordingly. This includes conducting data matches with public entities, such as the Department of Defense, to identify Medicaid enrollees with coverage through other programs.
The Centers for Medicare & Medicaid Services (CMS) is responsible for overseeing state compliance with federal Medicaid rules, including TPL procedures, and has issued guidance to states to facilitate and improve TPL avoidance and recovery activities.
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Medicaid enrollee eligibility
Additionally, enrollees with commercial managed care coverage or other insurance coverage are typically excluded from enrollment in Medicaid Managed Care Organizations (MCOs). States play a significant role in enrollee eligibility by implementing certain "state-directed payments" (SDPs) that dictate the payment schedules and provider payment fee structures. States are also required to have laws in place that mandate health insurers to provide their plan eligibility and coverage information to Medicaid programs. This includes data-matching with public entities to identify enrollees and their coverage through other systems, such as the Military Health Services and TRICARE programs.
It is important to note that Medicaid eligibility rules differ among states, and each state's Medicaid agency may have specific documentation requirements for enrollment. While Medicaid provides health coverage to various individuals and families, including children, parents, pregnant individuals, elderly people with certain incomes, and people with disabilities, some states have expanded their programs to cover other low-income adults.
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Managed care organisations
MCOs provide comprehensive services to beneficiaries, but states may exclude specific services from MCO contracts and instead include them in fee-for-service systems or limited benefit plans. For example, some states implement a "hybrid" model, where MCOs contract with the state's pharmacy benefit manager to process pharmacy claims and prior authorisations.
Payments made to MCOs accounted for about 52% of total Medicaid spending, although this varies by state. Factors influencing the share of Medicaid spending on MCOs include the proportion of the state Medicaid population enrolled in MCOs, the health profile of the Medicaid population, and whether high-risk/high-cost beneficiaries are included in or excluded from MCO enrollment.
States design and administer their own Medicaid programs within federal rules and determine how they will deliver and pay for care for Medicaid beneficiaries. States have flexibility in certain areas, such as setting provider payment rates, and plans may choose to offer additional benefits beyond those required by the state. However, states are generally prohibited from contractually directing how a managed care plan pays its providers.
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Frequently asked questions
Medicaid is a major source of revenue and profits for multi-state insurance companies. It is a program that provides health care coverage for individuals with low incomes and resources.
Insurance companies contract with the state to cover care for Medicaid patients and accept financial risk. States may contract with Medicaid Managed Care Organizations (MCOs) to provide healthcare to Medicaid beneficiaries. MCOs represent a mix of private for-profit, private non-profit, and government plans.
States are responsible for implementing certain "state-directed payments" (SDPs) that require managed care plans to adopt minimum or maximum provider payment fee schedules. States must also have laws in place that require health insurers to provide their plan eligibility and coverage information to Medicaid programs.
Five of the largest publicly traded companies that operate Medicaid MCOs are Centene, UnitedHealth Group, Elevance (formerly Anthem), Molina, and Aetna/CVS.
One challenge is that states are generally prohibited from contractually directing how a managed care plan pays its providers. Additionally, prior authorization issues are more common in Medicaid than in other types of insurance, which can impact the contracting process and patient care.
