Over the last 30 years, states have increasingly turned to managed care to deliver Medicaid services. The share of Medicaid beneficiaries enrolled in a comprehensive risk-based managed care organization (MCO) grew from about 15 percent in 1995 to about 50 percent by 2011 and about 70 percent by 2019. States are increasingly using managed care to serve people over the age of 65 and those with disabilities who, on average, have higher costs, and to cover long-term services and supports, which were previously excluded from managed care.
State Medicaid programs pay MCOs to cover a defined package of benefits for an enrolled population through fixed periodic payments, also referred to as capitation payments. This issue brief begins with a brief history of federal regulation of Medicaid capitation payments, followed by a description of current federal rate setting standards and processes. It then describes the tools available to states to manage various risks. The brief concludes with a discussion of several policy issues relevant to developing Medicaid capitation rates. While this brief discusses the requirements for Medicaid managed care, the same requirements apply to the State Children’s Health Insurance Program (CHIP) managed care entities for contracts and rating periods that begin on or after July 1, 2018.
