Medicaid Managed Care: 10 Key Themes in 2025

The American Medicaid system is undergoing significant shifts, with managed care organizations (MCOs) now covering nearly 80% of beneficiaries. Understanding the complexities of this system – how it operates, who’s involved, and what changes are on the horizon – is crucial for both those enrolled and the healthcare professionals who serve them. This article explores ten key themes related to Medicaid managed care, drawing on recent data and analysis to provide a comprehensive overview.

Capitated Managed Care: The Dominant Model

States overwhelmingly rely on capitated managed care to deliver services to Medicaid enrollees. This means that states contract with MCOs, which receive a fixed per-member-per-month payment for providing comprehensive care. While states design and administer their own programs within federal guidelines, nearly all utilize some form of managed care, whether comprehensive risk-based MCOs or primary care case management programs. As of July 2025, 42 states (including the District of Columbia) contract with comprehensive, risk-based MCOs, with Oklahoma being the latest addition as of April 2024. Idaho is too transitioning towards this model, ending its primary care case management program in January 2026 and planning to implement comprehensive MCOs by January 2030. KFF data shows this trend continuing.

Spending on Managed Care: Half of Medicaid Dollars

In fiscal year 2024, approximately half of all Medicaid spending – around $459.5 billion – went to payments for comprehensive risk-based MCOs. Total Medicaid spending reached $919 billion. The proportion of spending directed to MCOs varies by state, influenced by factors like the percentage of the Medicaid population enrolled in MCOs, the health profile of the population, and whether high-risk beneficiaries are included. As states expand Medicaid managed care to cover more individuals with complex needs, the share of dollars flowing to MCOs is likely to increase.

Enrollment in MCOs: Over Three-Quarters of Beneficiaries

As of July 1, 2024, over 66 million Medicaid enrollees – 78% of the total – received their care through risk-based MCOs. Thirty states have at least 75% of their Medicaid beneficiaries enrolled in these plans. This widespread enrollment underscores the central role MCOs play in delivering care to a significant portion of the Medicaid population.

Who is Enrolled? Children and Adults Lead the Way

Children and adults eligible through the Affordable Care Act (ACA) expansion are the most likely to be enrolled in comprehensive MCOs, with enrollment rates of 90% and 86% respectively. Around 72% of other adults (parents and pregnant individuals) are also enrolled. Individuals eligible due to disability or age 65+ are less frequently included, though states are increasingly moving towards incorporating these groups into MCOs.

Market Concentration: Five Firms Dominate

The Medicaid managed care market is relatively concentrated, with five publicly traded firms – Centene, UnitedHealth Group, Elevance (formerly Anthem), Molina, and Aetna/CVS – controlling nearly half (47%) of all MCO enrollment. These companies, all Fortune 500 members, operate across multiple states, highlighting the growing influence of large, national players in the Medicaid landscape. As of July 2024, 15 parent firms operated Medicaid MCOs in two or more states, accounting for over 62% of enrollment. KFF provides further details on market share.

Carving In and Carving Out Services

States retain flexibility in determining which services are included within MCO contracts. Frequently “carved out” services – meaning they are not managed by the MCOs – include dental care, non-emergency medical transportation (NEMT), and behavioral health services. In 2023, over two-thirds of individuals enrolled in comprehensive MCOs also received care through limited benefit plans or fee-for-service arrangements, often for these carved-out services. This can create complexity for beneficiaries navigating multiple systems.

Rate Setting and Risk Mitigation

MCOs are financially at risk for the services they cover, receiving a capitation payment per member per month. States develop these rates, which must be actuarially sound, and may employ risk mitigation strategies like risk-sharing arrangements or medical loss ratio (MLR) requirements. The MLR represents the percentage of premium dollars spent on clinical care versus administrative costs. States are required to ensure an MLR of at least 85%, but there is no federal requirement for plans to remit payments if they fail to meet this standard. Recent shifts in enrollment and utilization, particularly following the end of the pandemic-era continuous enrollment provision, have created rate-setting challenges for states.

Changes to State Directed Payments

States utilize state directed payments (SDPs) to influence provider payments within managed care arrangements. These payments, subject to federal approval, can include minimum or maximum fee schedules or value-based payment arrangements. Recent changes to federal rules, enacted through the 2025 federal budget reconciliation law, are impacting SDPs. These changes aim to cap payments at a percentage of Medicare rates, potentially affecting provider reimbursement and access to care. The Congressional Budget Office estimates these changes will result in $149 billion in federal savings over ten years.

Strengthened Access Standards – and Uncertainty

The Biden administration finalized rules in 2024 designed to strengthen access standards within Medicaid managed care, including establishing maximum wait times for routine appointments. However, the future of these rules is uncertain, as a change in administration could lead to revisions or rollbacks. These rules, alongside efforts to improve the prior authorization process, aim to enhance the quality and accessibility of care for Medicaid beneficiaries. A July 2023 OIG report found that Medicaid MCOs had a prior authorization denial rate of 12.5%–more than 2 times higher than the Medicare Advantage rate.

Enhanced Monitoring and Transparency

CMS has taken steps to improve managed care program monitoring and transparency, including developing standardized reporting templates and releasing informational bulletins to guide states. The agency began publicly posting the Managed Care Program Annual Report (MCPAR) and MLR Summary Reports on Medicaid.gov in 2024, increasing visibility into plan performance. While these efforts represent progress, challenges remain in ensuring consistent and meaningful oversight of the Medicaid managed care system.

The Medicaid landscape is dynamic, with ongoing changes in federal policy, state implementation, and market dynamics. Staying informed about these developments is essential for ensuring that the program continues to meet the needs of its beneficiaries.