Medicaid managed care has become the dominant Medicaid payment system in most states, covering three-quarters of enrollees nationwide. Yet oversight, accountability, and financial transparency remain weak. In Utah, approximately 83 percent of Medicaid enrollees receive coverage through comprehensive managed care across roughly two dozen contracts with an array of managed care organizations (MCOs).1
Despite the dominance of managed care in Medicaid, little is publicly known about how MCOs use taxpayer funds, the scope of erroneous payments, or the nature of enrollee claims. Additional transparency reforms, such as improved reporting, appropriate rate setting, curbing shell games, and stricter enforcement, would allow policymakers and the public to better understand how MCOs are serving both Utah’s Medicaid enrollees and taxpayers.
Weak MCO Oversight Harms the Truly Vulnerable and Taxpayers
In a managed care system, states contract with insurers or MCOs to administer Medicaid payments. MCOs are paid on a monthly, per-person (capitated) basis. If actual spending is lower than capitation payments, insurers generally retain the difference; conversely, they bear financial risk when spending exceeds those payments.
Shell games can undermine these incentives and circumvent existing program integrity safeguards. Federal rules require MCOs to spend at least 85 percent of capitation payments on medical services and quality improvement, rather than administration, profits, or overhead. This is called the medical loss ratio (MLR). But much of this spending may be obscured through related entities, such as pharmacy benefit managers or medical facilities owned by the MCO. Plans frequently omit key administrative spending from reports, and many states that review these filings fail to verify critical data. Even when MCOs are found to be gaming the system, there is often no meaningful recourse.
Visibility into how plans use taxpayer funds is further limited. Federal payment error data examines only whether capitation payments were made correctly—not whether providers were appropriately paid for services rendered.2 Encounter data often lacks sufficient detail to meaningfully assess quality or utilization. State-directed payments (SDPs) are supposed to advance specific program goals, but they are embedded within capitation rates, making them difficult for legislators, auditors, and actuaries to evaluate.3
Taxpayers may also be disadvantaged by how capitation rates are set. Actuaries responsible for evaluating state capitation payments often simultaneously perform work for the MCO or a related entity. This dual role compromises the relationship between the actuary, the state, and the MCO, undermining the independence necessary for truly unbiased rate setting—regardless of any purported ethical walls or internal separations within the firm.4
Keys to Reform Managed Care in Utah
- Strengthening financial and data reporting standards. Policymakers should require comprehensive, audited reporting on MCO business operations, including MLRs, financial statements, and detailed payment data.
- Ensuring appropriate rate setting and avoiding shell games. The state should avoid conflicts of interest in actuarial reviews by not contracting with actuaries that also serve MCOs or their related entities. Utah should also prohibit preferential treatment between MCOs and affiliated providers or contractors.
- Imposing strict enforcement of requirements. Reporting and data-collection mandates are only effective if enforced. The state should reject late or incomplete filings and impose meaningful sanctions on MCOs that fail to comply with reporting standards.
