States and Managed Care: The Lay of the Land in Medicaid, Medicare, and Disability. When Congress passed the Health Maintenance Organization Act of 1973, it is unlikely that anyone realized the significance of that legislation to the future of health care. Until that time, the most recent developments were the creation of Medicare and Medicaid in the early 60’s. For the most part, all health plans—private insurers, Medicaid and Medicare—were moving forward paying fee-for-service rates based on the type and volume of services provided. The advent of HMOs would be the impetus for transformation in the provision of and payment for health care in this country for the next 40 years and beyond.

What is Managed Care?
The answer to this question depends on who you ask. Generally, however, in order for a plan to be considered “managed care,” some entity is coordinating an enrollee’s health care among providers, with the goal of improving the quality of care and access to care while limiting the financial outlay and making it more predictable. The Center for Medicare and Medicaid Services (CMS) is the federal entity responsible for oversight of publicly-funded healthcare. CMS recognizes four types of managed care entities:
• Managed Care Organizations (MCOs)—MCOs provide a comprehensive set of healthcare services and are generally paid on a capitated risk-based model. Capitation improves budget predictability for the plan sponsor because a monthly amount set in advance is paid each month. Capitation also encourages MCOs to be as efficient as possible because providing more services does not result in receiving more payments.
• Primary Care Case Management (PCCM)—In a PCCM model, primary care providers or other entities contract with the plan sponsor to provide case management and coordination of enrollees’ health care services. Reimbursement for medical services is generally fee-for-service, and the PCCM entity receives a monthly per member per month (PMPM) fee, sometimes risk-adjusted to reflect the characteristics of the population served.
• Prepaid Inpatient Health Plan (PIHP)—A PIHP provides a limited package of medical benefits, but always some institutional service, such as hospital inpatient or residential mental health services. Payments may be risk-based or not, depending on the plan.
• Prepaid Ambulatory Health Plan (PAHP)—A PAHP is the flip side of a PIHP. A PAHP provides a limited service package that does not include any institutional services. As with a PIHP, PAHP payments may be risk-based or not.
Other types of managed care arrangements include:
• Health Maintenance Organizations (HMOs)—HMOs were the original managed care entity and continue to be used by public and private payers across the country. An HMO receives monthly capitation payments and is responsible for paying for medical services and plan administration. In all HMO models, enrollees are generally limited to providers in the HMO’s network.
• Preferred Provider Organizations (PPOs)—PPOs contract directly with providers or groups of providers to serve the enrollees in their plan. In-network providers generally receive higher rates. PPOs pay less if an enrollee goes to an out-of-network provider, and the enrollee may pay more as well. PPOs utilize both fee-for-service and capitated payment models.
• Point of Service (POS)—A POS plan is essentially a hybrid of an HMO and PPO. Each time an enrollee obtains a health service, the enrollee decides whether to select an in-network provider or not. •High-Deductible Plans (HDPs)—HDPs, as their name implies, have very high deductibles that must be met before the plan pays benefits. HDPs are popular with younger enrollees who receive few or no medical services. Under the Affordable Care Act, HDPs are required to pay 100% for preventive services even if the deductible has not been met.
Who Are the MCOs?
Many MCOs exist today. Some are stand-alone companies. Many are subsidiaries of parent organizations. MCOs have essentially three markets in which to participate—qualified health plans (QHPs) in a state’s healthcare marketplace, Medicaid or Medicare. The largest MCOs operate in all three arenas, although not necessarily in every state. MCO financial data demonstrates just how important MCOs have become in the market.
The major players among MCOs are:
• United Health Group—United operates in 46 states, serving Medicaid enrollees in 21 states, marketplace QHP enrollees in 23 states and Medicare enrollees in 45 states. In 2014, United Health Group reported revenues of $130 billion and profits of $5.6 billion. United serves Medicaid enrollees through its United Healthcare Community Plan subsidiaries.
• Humana—Humana covers enrollees in forty-four states, but is focused on the Medicare market. Humana participates in Medicaid in four states, marketplace QHPs in fifteen and Medicare enrollees in forty-four states. Humana reported revenue of $48.5 billion and profits of $1.1 billion. Humana’s Medicaid subsidiary is the Humana Medical Plan.
• Aetna—Aetna operates in 33 states, 13 Medicaid, 18 healthcare marketplaces and 28 Medicare states. Aetna subsidiaries include Coventry Health Care and Aetna Better Health. Aetna reported revenues of $58 billion in 2014 and profits of $2 billion.
• Anthem—Anthem (formerly known as Wellpoint) operates in twenty-four states, covering Medicaid enrollees in seventeen states, QHP enrollees in fourteen states and Medicare enrollees in eight states. Anthem reported revenues of $74 billion and profit of $2.6 billion. Anthem subsidiaries include Anthem Blue Cross Partnership Plan, Amerigroup, Better Health and Simply Healthcare Plans.
• Centene—Centene provides managed care in eighteen states—sixteen Medicaid, eleven QHP and four Medicare. Centene reported revenues of $16.6 billion and profits of $271 million. Centene plans include California Health and Wellness and the Peach State Plan.
• WellCare—Operating directly and through subsidiaries as the Ohana Health Plan, Harmony Health Plan and the Sunshine State Health Plan, WellCare operates in fifteen states, covering Medicaid enrollees in nine states, QHP enrollees in two states and Medicare enrollees in thirteen states.
In total, 16 MCOs provide comprehensive managed care plans in at least two states for Medicaid, Medicare and QHPs.
Medicaid and Medicare (Briefly)
Although they are often confused, Medicaid and Medicare are two different healthcare programs. Medicare is operated and financed by the federal government and covers certain disabled individuals, elderly adults and ESRD patients. Medicaid is a program for low-income children, pregnant women and some disabled adults. Each state administers its own Medicaid program with federal approval. The federal government pays a share of each state’s Medicaid costs, based on the state population’s income relative to other states. Medicare managed care plans are referred to as Medicare Part C or Medicare Advantage (MA) plans. MA plans provide all required Medicare services to enrollees, including Medicare Part D prescription drugs; many also provide some additional services that traditional Medicare does not cover. MA plans cover a variety of models—HMOs, PPOs, fee-for-service and special needs plans. Special needs plans (SNPs) are plans that restrict enrollment to enrollees with specific diseases or characteristics and tailor the benefits, provider choices and drug formularies to the needs of those enrollees. There are three types of SNPs—plans that cover individuals who are in nursing homes or receive long-term care at home, individuals who are eligible for both Medicare and Medicaid and disease-specific SNPs, such as ESRD, HIV/AIDS, ESRD or dementia. Medicaid directors (more often former Medicaid directors) often say that when you’ve seen one state Medicaid plan, you’ve seen one state Medicaid plan. Because each state designs its Medicaid plan within certain guidelines established by CMS, there is variation in eligibility criteria, services provided and payment models. As of March 2015, 275 different MCOs served Medicaid enrollees; some of these MCOs are subsidiaries of the same parent corporation, many of which were identified in the previous section. Only twelve states do not have at least one MCO serving Medicaid enrollees. The largest reported Medicaid MCO enrollment is over 9 million enrollees in California Medicaid, followed by New York, with 4.5 million Medicaid MCO enrollees. Another entity operates on a more limited basis and generally enrolls both Medicaid and Medicare enrollees. PACE (Program of All-Inclusive Care for the Elderly) programs serve elderly individuals who are still living at home rather than going to a nursing facility. PACE programs are paid on a capitated basis and operate in a specific geographic area approved by the state. PACE programs are very hands-on, engaging the services of an entire treatment team to get access to the providers and services an enrollee requires. Many PACE services are provided directly by the PACE entity. PACE covers all Medicare and Medicaid services provided in the state and may cover additional services if the team determines the services are needed. Medicare enrollees in a PACE program pay a monthly premium for long-term care services and prescription drugs; however, no deductible or copayment is paid for any service approved by the treatment team. Some PACE program accept enrollees who are not eligible for Medicaid or Medicare; private pay enrollees pay a monthly premium to cover the cost of their services.
Managed Care for Special Needs Populations
Originally, HMOs generally covered medical services such as hospital visits, physician services, lab and x-rays. Many plans did not serve special needs populations—persons with disabilities, persons with mental illness, elderly adults—due to their unique service requirements. However, states have begun providing managed care to this population as well. In 2004, eight states provided managed care to some or all of these group; by 2014, the number of states more than doubled to nineteen. Many other states are considering either separate managed care programs for these individuals or, more recently, requiring MCOs to incorporate these individuals and their services into the traditional MCO plans. Managed care has been slow to come to individuals with disabilities for several reasons. As mentioned above, special needs individuals require services that many traditional MCOs are not familiar with. Due to extreme variations in service need, calculating an actuarially sound capitation rate is often very difficult. Because many of these individuals have conditions that will not improve or be cured, managed care is not as likely to produce short-term savings with special needs enrollees as with traditional MCO enrollees. A number of states have struggled with how to most efficiently provide the special needs services when MCOs simply can’t administer the service—non-emergency medical transportation, for example. In many states, MCOs cover almost all services for the special needs populations, but Medicaid provides “wraparound” services through traditional Medicaid for services not provided by the MCOs.