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Medicaid Managed Care Now Accounts for the Majority of Medicaid Spending

7MH Medicaid Managed Care A0wUU000005dVibYAE
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Mark Howell Headshot SMALLER V2

Mark Howell is a Research Assistant at Paragon Health Institute. He is passionate about advancing free-market solutions to improve healthcare access and affordability.

Brian Blase

President at Paragon Health Institute

Brian Blase, Ph.D., is the President of Paragon Health Institute. Brian was Special Assistant to the President for Economic Policy at the White House’s National Economic Council (NEC) from 2017-2019, where he coordinated the development and execution of numerous health policies and advised the President, NEC director, and senior officials. After leaving the White House, Brian founded Blase Policy Strategies and served as its CEO.

This PIC shows the growth in Medicaid managed care over a 25-year period from 1999 through 2024. By 2021, Medicaid managed care accounted for more than half of all Medicaid spending. In 1999, payments to managed care organizations (MCOs) represented just 12 percent of Medicaid spending. By 2024, that share had climbed to 54 percent, roughly $490 billion of the program’s $909 billion in total outlays. The figure traces this transformation, with managed care spending (dark blue) steadily displacing traditional fee-for-service and other Medicaid spending (light blue). The trajectory steepens notably after the passage of the Affordable Care Act in 2010, with a further steepening after the ACA Medicaid expansion took effect in 2014. As we have previously shown, the ACA has been very profitable for health insurance companies.

This dramatic shift raises an important question: Has Medicaid managed care actually worked? When states began moving enrollees into MCOs, advocates argued that private insurers would coordinate care better, curb unnecessary spending, and improve quality. Yet after three decades of expansion, the evidence remains remarkably weak. The Congressional Budget Office found no consistent evidence that managed care improves outcomes, and a recent paper by Chris Pope of the Manhattan Institute concludes the case for managed care is thin.

Oversight has also failed to keep pace. Nearly half of MCO filings are incomplete, and medical loss ratio rules meant to keep spending on care rather than profit go largely unenforced. Meanwhile, state-directed payments, which are large payments that states make to hospitals through MCOs, ballooned from two states in 2016 to a projected $124 billion across 39 states by 2025. State-directed payments increasingly functioning as corporate welfare to politically powerful providers. The One Big Beautiful Bill capped these payments at Medicare rates. While those reforms are important, there are additional reforms needed to bring greater transparency and accountability to Medicaid MCOs.

7MH Medicaid Managed Care A0wUU000005dVibYAE

This PIC shows the growth in Medicaid managed care over a 25-year period from 1999 through 2024. By 2021, Medicaid managed care accounted for more than half of all Medicaid spending. In 1999, payments to managed care organizations (MCOs) represented just 12 percent of Medicaid spending. By 2024, that share had climbed to 54 percent, roughly $490 billion of the program’s $909 billion in total outlays. The figure traces this transformation, with managed care spending (dark blue) steadily displacing traditional fee-for-service and other Medicaid spending (light blue). The trajectory steepens notably after the passage of the Affordable Care Act in 2010, with a further steepening after the ACA Medicaid expansion took effect in 2014. As we have previously shown, the ACA has been very profitable for health insurance companies.

This dramatic shift raises an important question: Has Medicaid managed care actually worked? When states began moving enrollees into MCOs, advocates argued that private insurers would coordinate care better, curb unnecessary spending, and improve quality. Yet after three decades of expansion, the evidence remains remarkably weak. The Congressional Budget Office found no consistent evidence that managed care improves outcomes, and a recent paper by Chris Pope of the Manhattan Institute concludes the case for managed care is thin.

Oversight has also failed to keep pace. Nearly half of MCO filings are incomplete, and medical loss ratio rules meant to keep spending on care rather than profit go largely unenforced. Meanwhile, state-directed payments, which are large payments that states make to hospitals through MCOs, ballooned from two states in 2016 to a projected $124 billion across 39 states by 2025. State-directed payments increasingly functioning as corporate welfare to politically powerful providers. The One Big Beautiful Bill capped these payments at Medicare rates. While those reforms are important, there are additional reforms needed to bring greater transparency and accountability to Medicaid MCOs.

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Mark Howell Headshot SMALLER V2

Mark Howell is a Research Assistant at Paragon Health Institute. He is passionate about advancing free-market solutions to improve healthcare access and affordability.

Brian Blase

President at Paragon Health Institute

Brian Blase, Ph.D., is the President of Paragon Health Institute. Brian was Special Assistant to the President for Economic Policy at the White House’s National Economic Council (NEC) from 2017-2019, where he coordinated the development and execution of numerous health policies and advised the President, NEC director, and senior officials. After leaving the White House, Brian founded Blase Policy Strategies and served as its CEO.