Medicaid Managed Care: An Overview of the Issues

By Mary R. Anderlik
Health Law & Policy Institute

According to the Health Care Financing Administration, as of June 30, 1998, only two states (Alaska and Wyoming) had failed to enroll some portion of their Medicaid population in managed care, and over half of the total Medicaid population was enrolled in managed care. Despite or perhaps because of the rapid expansion, many questions remain. The Texas Legislature is currently considering two bills that would impose a moratorium pending completion of a comprehensive assessment of the state’s program (S.B. 1331, H.B. 2896).

Continuing areas of concern nationwide include:

Marketing and Enrollment: Most states have opted to use third-party enrollment brokers and to prohibit direct marketing by plans in response to early reports of abuses. Concerns are still expressed about the adequacy of review of marketing and enrollment materials to ensure that they are accurate and easy-to-read. Also, eligibility and enrollment processes are sometimes criticized for being too complicated, leading to delays in access to needed care. "Auto-assignment" for recipients who do not select a plan is problem area. Some states use face-to-face counseling to reduce auto-assignment rates; others make continuity of care the highest priority or reward plans that score well on quality measures, offer lower prices, or already have high enrollment through the auto-assignment process.

Access to Care: In both private and public managed care concerns arise about access to appropriate specialists, equipment, non-formulary drugs (where formularies are in use), and emergency care. Several of these areas are addressed at the federal level for the Medicaid program, e.g., adoption of a "prudent layperson standard" for decisions about emergency care. See Letter to State Medicaid Directors dated February 20, 1998, available at

Coordination of Services Among Agencies and Plans: Many Medicaid recipients have a complex array of physical, mental, and social problems. Meeting their needs requires coordination among agencies that finance care as well as the direct providers of services. While "carve-outs" of mental health or other services often make logical sense, this kind of structure may limit opportunities for coordination and increase opportunities for cost- and responsibility-shifting.

Grievances and Appeals: Many of the lawsuits that have been brought against states concern alleged failures in grievance and appeal processes. Advocacy groups favor a system in which the state Medicaid agency initially logs in all complaints (as in Tennessee). Other areas of concern include standards for review, especially when a service is denied as "not medically necessary," the adequacy of state monitoring of complaint data, and recipient access to consumer assistance or ombuds programs.

Enforcement: Advocacy groups generally express disappointment with what they perceive as a lack of willingness to impose monetary and other sanctions for noncompliance with contract and legal requirements.

Forms of Payment and Payment Rates: The managed care models in use vary according to the degree of risk transferred to providers, from primary care case management, or PCCM, to partial capitation to capitation or "full-risk" contracts with HMOs. Some states using capitated models have adjusted payment rates to account for the expected costs associated with particular individuals or groups, hoping to neutralize incentives to enroll only healthy individuals or limit treatment for people who need expensive care (e.g., Colorado, Washington, Wisconsin). A number of states use other strategies such as stop-loss insurance.

Evaluation: Managed care programs are implemented to increase quality and decrease costs. Hence solid information on quality and costs is a necessity. However, patient encounter and other data to support evaluation of quality is often lacking. In the cost area, many question whether there are savings, and whether savings are genuine or merely the result of reduced levels of service or cost-shifting to other parts of the social welfare system.

Special Needs Populations: States have recently begun to experiment with voluntary and mandatory enrollment for special needs populations. See "Key Approaches To The Use Of Managed Care Systems For Persons with Special Health Care Needs,"

Washington was one of the leaders in this area, with mandatory Medicaid managed care for Supplemental Security Income recipients implemented in 16 counties in April of 1997. The program was discontinued in January of 1998. In a post-mortem, researchers identified several aspects of the Washington experience as especially relevant to other states:

James M. Verdier, Stephen A. Somers and Valerie Harr, "Washington State’s Experience in Extending Managed Care to the SSI Population: A Retrospective Analysis," Center for Health Care Strategies (August 1998), available at

As some states move ahead and others step back to assess their experience, regulators in Washington, D.C., continue to work on rules that will impose a degree of uniformity and establish a minimum level of protection for all Medicaid recipients. Proposed rules were published in the Federal Register on September 29, 1998 ( and generated extensive comments.

Note: A searchable database of 1996 Medicaid managed care contract information can now be accessed through Some 1997 information is also available.