What Is Managed Care?
For many states, managed care offers more cost-effective, predictable, streamlined care than the traditional government-administered, fee-for-service model.
Managed care versus fee-for-service care
In a fee-for-service model, providers submit claims directly to the state for their patients’ care. This means the state is responsible for implementing and maintaining systems and health programs to support the model.
Under a managed care model, states contract with managed care organizations (MCOs) to administer these programs for them. The state pays a set amount per member per month (known as capitation), and the MCOs are responsible for arranging for the provision of covered health care benefits to their enrollees.
Managed care most commonly involves Medicaid, where it’s known as Medicaid managed care. But MCO offerings can also include Medicare and the Children’s Health Insurance Program (CHIP), as well as specialty solutions, like long-term services and supports (LTSS), pharmacy benefits, and behavioral health programs.
Managed care is now the dominant delivery system for health care benefits, with over 74% of Medicaid beneficiaries enrolled in an MCO.1 And recently, many states have been using their MCO contracts to advance strategies to improve health equity, reduce health disparities, and address social determinants of health.2
The benefits of managed care
When considering switching to an MCO, consider the following benefits:
Increased resources and expertise
MCOs specialize in the business of managing Medicaid and similar programs. It’s their core competency, and your state will benefit from their experience and resources.
Predictability of cost
Once you negotiate a contract rate with an MCO, that is the full amount you pay. The MCO is responsible for any additional costs above and beyond the contract rate — not the state. Freedom from surprise or changing health care costs allows you to produce a more stable, predictable budget year after year.
Extra services for members
MCOs typically provide additional and innovative services beyond what Medicaid contracts require. This means your citizens benefit from value-added programs such as health outreach programs, opioid treatment, job placement and readiness, nutrition counseling, free transportation to appointments, and mobile wellness centers.
Coordination of care
MCOs offer case management services to help ensure members make the most of their health care plan. Strong case management can help members keep their needed appointments. It can also help coordinate provider services to treat the whole person — not just individual symptoms.
Focus on non-medical needs
A major portion of a person’s health is based on factors other than direct care, such as food, housing, employment, and community supports. By focusing on these social determinants of health, MCOs help produce better health outcomes while lowering health care costs.
- “Medicaid Managed Care Enrollment and Program Characteristics, 2021,” Medicaid.gov, Spring 2023, https://www.medicaid.gov/sites/default/files/2023-07/2021-medicaid-managed-care-enrollment-report.pdf
- Elizabeth Hinton and Jada Raphael, “Medicaid Managed Care Network Adequacy & Access: Current Standards and Proposed Changes,” KFF, June 15, 2023, https://www.kff.org/medicaid/issue-brief/medicaid-managed-care-network-adequacy-access-current-standards-and-proposed-changes/