Among major domestic entitlement programs, only Social Security costs more. As Medicaid entered the 1980s and 1990s, more attention—and blame—for steadily rising Medicaid costs was attributed to the economic incentive to provide more care under the fee-for-service (FFS) delivery system, in which payments are made for each unit of service delivered. Following the lead in the private sector among large employers, many states began to turn to managed care for their Medicaid programs. The goal, then and today, is both to rein in Medicaid costs by making payments on a predetermined, per-person-per-month basis, rather than for each unit of service delivered, and to provide a better, coordinated system of care for beneficiaries, with an emphasis on preventive and primary care services. Data from FY2003 (most recent available) indicate that while about two-thirds of Medicaid beneficiaries nationwide participate in some form of managed care, the majority of expenditures still occur in the FFS setting, mainly because expensive long-term care services are rarely offered through managed care. Oversight Responsibilities Under the Medicaid Managed Care and Fee-for-Service Delivery Systems

Under managed care, oversight responsibilities are shared among the State Medicaid Agency, the managed care plans, and the plan providers. Access to and Quality of Care Under Medicaid Managed Care and the Fee-for-Service Delivery Systems

There are several requirements in federal statute to assure access to and quality of care under both the Medicaid FFS and managed care delivery systems. Groups participating in these new programs include not only healthy children and adults, but in some cases, also the elderly and individuals with disabilities living in the community and those needing institutional care. Significant challenges still remain for serving the elderly and individuals with disabilities under traditional models of managed care, most likely because of the wide range and intensity of services they require to meet their on-going special health care needs. This report is not intended to provide a detailed review of this literature. For example, Congress could elect to expand the use of Medicaid managed care to address some of the issues identified in this report, in particular with respect to managed long-term care, and with holistic integration of primary, acute and long-term care for special needs populations. CRS Report RL32219, Long-Term Care: Consumer-Directed Services Under Medicaid .
In terms of federal spending, Medicaid is one of the largest major domestic entitlement programs in the U.S. today. During the 1980s and 1990s, steadily rising Medicaid costs were attributed to the economic incentive to provide more care under the traditional, widespread fee-for-service (FFS) delivery system in which provider payments are made for each unit of service delivered. During that time, following the lead in the employer health insurance market, many states began to turn to managed care for their Medicaid programs. The goal, then and today, is both to rein in Medicaid costs by making payments on a predetermined, per-person-per-month (PMPM) basis rather than for each unit of service rendered, and to provide a better, coordinated system of care for beneficiaries, with an emphasis on preventive and primary care services.
The reality of service delivery under Medicaid is gradually moving along this path. In terms of beneficiary participation, managed care is the dominant delivery system in Medicaid. Based on data from FY2003 (the latest available for all states), Medicaid managed care is widely used by children and adults, but less so among the elderly and those with disabilities. However, there is still significant penetration of managed care in these latter populations with special health care needs.
In terms of expenditures, the FFS delivery system still dominates Medicaid spending, largely because more expensive long-term care services available under Medicaid are seldom offered through managed care arrangements. Also, many users of long-term care services, the elderly and those with disabilities, are not enrolled in managed care programs. One of the next big challenges for Medicaid managed care is to develop and evaluate managed long-term care and holistic integration of primary, acute, and long-term care for special needs populations.
This report provides an overview of Medicaid managed care. It includes a discussion of the major features of both the managed care and the traditional fee-for-service delivery systems in Medicaid. The report also provides a series of tables that illustrate the distribution of people, services, and dollars across both systems of care. It concludes with a summary of some of the current policy issues facing Medicaid managed care, and a list of additional CRS resources. This report will be updated as legislative activity warrants.