	Background

As of December 2014, 39 states were using comprehensive, risk-based  managed care in their Medicaid programs. 1.) For example, some states carve out certain  types of services from their managed care contracts, such as behavioral  health care services or dental services, and provide those services  separately, while other states include those services. States have the flexibility within federal parameters to determine whether  enrollment in managed care will be mandatory (required for beneficiaries)  or voluntary (beneficiaries have a choice between managed care and  FFS). PPACA mandated a specific MLR formula for private insurers, and CMS  rules implementing MLRs in Medicare established a specific formula for  MA organizations and Part D sponsors. 2.) Auto Assignment in Medicaid Managed Care

When automatically assigning a beneficiary to a Medicaid managed care  plan offered by an MCO, states may offer beneficiaries a certain amount  of time (the length of which is at the discretion of the state) to choose a  plan at the time of enrollment. Total payments to  MCOs and average per beneficiary payments showed considerable  variation across selected states in state fiscal year 2014. Federal Spending for Medicaid Managed Care Represented 38 Percent of Total Federal Medicaid Spending in 2014

Federal spending for Medicaid managed care increased significantly over  the past decade—from $27 billion in fiscal year 2004 to $107 billion in  fiscal year 2014—and represented a significantly larger portion of total  federal Medicaid spending in 2014 than it did 10 years earlier. Consistent with the national trend, in seven of our eight selected states,  the proportion of total federal Medicaid spending represented by  managed care was significantly higher in fiscal year 2014 than in fiscal  year 2004, with increases ranging from 17 to 59 percent. Total and Average per Beneficiary Payments Varied Considerably across Selected States, with Differences in Covered Populations and Services Contributing to the Variation

Reflecting variation common in the Medicaid program, generally, state  payments to MCOs varied considerably across and within states. In state  fiscal year 2014, total capitated payments to MCOs in the eight selected  states ranged from $1.3 billion in Louisiana to $18.2 billion in California. Over Half of Selected States Set Medical Loss Ratio Minimums Similar to Federal Standards for Other Coverage Types, with Some Variation in Calculation Methods

Five of our eight selected states—Arizona, Florida, Louisiana, Michigan,  and Washington— required MCOs to annually meet a minimum MLR  percentage. The MLR minimums required in the five states generally  ranged from 83 to 85 percent for most populations. Two of the five states with MLR  minimum requirements for Medicaid managed care—Louisiana and  Washington—require MCOs to reimburse the state if the MLR minimum  requirements are not met. Officials from seven of the eight states indicated that they also use the  rate setting process, during which states review data on medical and  administrative costs for prior years. Selected States’ Auto Assignment Methods Primarily Focused on Beneficiary Factors, and Then Considered Plan Performance and Program Goals

The eight selected states varied in their methodologies for automatically  assigning beneficiaries to plans offered by MCOs, but all of them first  considered beneficiary factors, such as prior participation in a plan offered  by a Medicaid MCO. For example, states made auto assignment  decisions based on such goals as ensuring plan capacity to serve  additional beneficiaries or managing enrollment distributions across plans  in certain geographic markets. Agency Comments

We provided a draft of this report to the Department of Health and Human  Services for comment. The Department had no comments. Appendix II: Federal Expenditures on Managed Care as Percent of Total Medicaid Expenditures, Fiscal Years 2004 and 2014

	Total Medicaid expenditures (millions) 3,237.5

	Total Medicaid expenditures (millions) 2,103.0

Appendix III: Selected States’ Methods for Overseeing Quality in Medicaid Managed Care

Our eight selected states (Arizona, California, Florida, Louisiana,  Michigan, Pennsylvania, Tennessee, and Washington) varied in the  methods used to oversee the quality of care provided by contracted  managed care organizations (MCOs).
Why GAO Did This Study

The importance of managed care in Medicaid—under which states contract with MCOs to provide a specific set of services—has increased as states expand eligibility for Medicaid under PPACA and increasingly move populations with complex health needs into managed care. States have flexibility within broad federal parameters to design and implement their Medicaid programs, and therefore play a critical role in overseeing managed care. GAO was asked to examine managed care expenditures and provide information on certain components of state oversight of Medicaid managed care.
In this report, GAO analyzes (1) federal expenditures for Medicaid managed care and the range in selected states' payments made to MCOs; (2) selected states' MLR standards and how they compare with federal standards for other sources of health coverage; and (3) selected states' methods for automatically assigning Medicaid beneficiaries to MCO plans. GAO analyzed federal data on Medicaid expenditures for comprehensive risk-based managed care. GAO selected eight states because they used managed care for some portion of their Medicaid population and were geographically diverse. For these states, GAO reviewed state payment data and documentation, including contracts with MCOs, and interviewed state officials. GAO also reviewed federal laws to describe MLR minimums in Medicare and the private insurance market.
The Department of Health and Human Services had no comments on this report.

What GAO Found

Federal spending for Medicaid managed care increased significantly from fiscal year 2004 through fiscal year 2014 (from $27 billion to $107 billion), and represented 38 percent of total federal Medicaid spending in fiscal year 2014. Consistent with this national trend, managed care as a proportion of total federal Medicaid spending was higher in seven of eight selected states in fiscal year 2014 compared with fiscal year 2004.
Total and average per beneficiary payments by states to managed care organizations (MCOs) varied considerably across the eight selected states in state fiscal year 2014. For example, total payments ranged from $1.3 billion in one state to $18.2 billion in another, and average payments per beneficiary ranged from about $2,800 to about $5,200.
While not required by federal policy to do so, five of the eight selected states required MCOs to annually meet minimum medical loss ratio (MLR) percentages—standards that ensure a certain proportion of payments are for medical care and, in effect, limit the amount that can be used for administrative cost and profit. These state minimums generally ranged from 83 to 85 percent, similar to the 85 percent minimums established in the Patient Protection and Affordable Care Act (PPACA) for other sources of health coverage. All MCOs in the five states had MLRs in state fiscal year 2014 that were above the state-required minimums.
GAO also found that all eight selected states focused on beneficiary factors, such as assigning a beneficiary to the same managed care plan in which a family member is enrolled, when the state selects a plan for the beneficiary in the absence of the beneficiary choosing a plan—referred to as auto assignment. States also considered plan performance, for example, on quality measures and program goals, such as achieving a certain distribution of enrollment across plans. Auto assignments of beneficiaries ranged from 23 to 61 percent of managed care enrollees across the seven selected states that tracked such data.