The Medicaid program has experienced significant changes since 2010, when the Affordable Care Act (ACA) was passed. Since then, the number of beneficiaries has risen approximately 40 percent (to about 73 million in 2018, from 55 million),1 a result of both eligibility expansion and the carving in of additional populations. This growth has attracted greater interest and participation from health insurers, provider-led health plans, investors, and healthcare service vendors. These stakeholders, together with federal and state governments, are reshaping the program in significant ways. Below we describe the major trends and what they mean for Medicaid stakeholders.
Growth in Medicaid managed care is likely to continue because of program expansion and the transition of complex high-needs populations into managed care—and despite any enrollment reductions that result from community engagement and work requirements.
Since the 2012 Supreme Court decision that made state Medicaid expansion voluntary, 37 states (including the District of Columbia) have expanded the program.23 Possible expansion by additional states could further increase Medicaid enrollment. In July 2017, 29 of the 39 states with Medicaid managed care programs in place reported that more than 75 percent of their beneficiaries were in managed care (compared with 16 states in 2014).4 The shift of members into managed care is expected to continue as states explore ways to gain access to the capabilities that managed care may provide, utilize managed care models to implement innovations that can improve both quality and efficiency, manage cost trends, and increase budget predictability.
Earlier this year, the Centers for Medicare & Medicaid Services (CMS) announced its support of state efforts to improve Medicaid enrollee health outcomes by incentivizing community engagement among able-bodied, working-age Medicaid beneficiaries.5 Initial analysis suggests up to 1.4 to 4 million enrollees could dis-enroll if work requirements are rolled out nationwide.6
Nevertheless, the likely net effect of the program changes is still growth in Medicaid managed care enrollment over the next 10 years.
Medicaid is projected to be a trillion-dollar program by 2026,7 and its demographics will be much broader than in the past. Capabilities deeply tailored to each subsegment will be required to effectively serve this population.
Over the past five years, Medicaid expansion has been the major factor changing program demographics. Expansion adults—the fastest-growing segment—increased Medicaid enrollment by about 27.5 percent from 2013 to 2018.8 Over the next decade, the elderly are expected to be the fastest-growing segment (anticipated annual increases: 2.9 percent among the elderly vs. 1.3 percent overall). Driven in part by faster growth in the higher-needs elderly population, Medicaid is projected to become an approximately $1 trillion program that covers about 82 million beneficiaries by 2026 (Exhibit 1).9 In 2018, it was a $629 billion program covering about 73 million beneficiaries.
Although each of the Medicaid subsegments has somewhat different consumer needs, broader shifts in consumer preferences—particularly the desire for convenience and the adoption of digital tools—are likely to affect all of them. McKinsey’s 2017 Consumer Health Insights Survey found that the proportion of healthcare consumers who reported using retail clinics had increased to 24 percent (from 9 percent in 2013).10 Additionally, about 70 percent of survey respondents said they now preferred digital solutions to phone/in-person solutions for common healthcare interactions. With the expansion of Medicaid, it is likely that a growing number of beneficiaries will have previously had coverage through the individual exchanges, employer-sponsored insurance, or Medicare—and will expect Medicaid service levels to be comparable to those in other segments.
The expectations and needs of state Medicaid agencies are evolving, particularly in terms of managed Medicaid program oversight, cost management, technology and operations modernization, innovation, and social determinants of health.
A typical Medicaid agency addresses the healthcare needs of at least one in five of a state’s citizens. These agencies are increasingly being asked to play multiple roles: their traditional one as payer-purchaser and operator as well as the new roles of market-shaper and innovator. Simultaneously, the agencies are facing competing priorities (e.g., expanding coverage while containing costs), uncertainty about future funding levels, and an increasingly complex ecosystem of service providers challenging traditional paradigms (e.g., virtual or remote care delivery models). Going forward, the major areas of focus for state Medicaid agencies will include:
- Effective oversight of managed Medicaid programs. States are increasingly seeking integrated, affordable solutions, and thus are “carving in” services and populations into integrated managed care programs. The proposed rule to modernize Medicaid managed care regulations11 aims to align the standards governing Medicaid managed care with those of other major coverage sources, strengthen actuarial soundness payment provisions, bolster efforts to reform delivery systems, ensure appropriate beneficiary protections, enhance program integrity, and require states to establish comprehensive quality strategies for their Medicaid and CHIP programs. State Medicaid leaders will need to define their path for complying with the new regulations, in large part through changes in oversight and performance management of their managed Medicaid programs.
- Modernization of operations and technology. Prompted by new regulations, enhanced funding, and improved data availability, Medicaid agencies are placing increasing emphasis on improving outcomes and transparency, and on building modular rather than monolithic systems. To achieve these goals, many agencies may require significant technology and operational changes, accompanied by effective organizational change management and capability building.
- Innovations in care delivery and payment. Replacing FFS payment with meaningful provider risk-sharing can achieve significant results. In our experience, comprehensive state value-based care programs often yield savings of 2 percent or more in medical spending.
- Ability to address social determinants of health. Though many Medicaid programs may address social determinants of health informally, a growing number of states (19 in 2017) are contractually requiring Medicaid MCOs to screen and refer beneficiaries for social needs.12 Major opportunities for addressing social determinants include setting a clear, ROI-driven mandate for improvement; accessing relevant resources to support improvement programs (e.g., waivers, federal grants, and matching funds); establishing robust financial incentives to encourage action; and using longitudinal data collection and advanced analytics to enable performance management.
- Effective cost management. In states with large managed Medicaid programs, cost management is largely achieved through contracting with and performance management of managed care organizations (MCOs). In contrast, states may take direct action to manage costs in fee-for-service (FFS) programs. Nevertheless, in both managed care and FFS programs, states have an opportunity to lead the way on better cost performance (e.g., through the end-to-end redesign of program integrity and the use of such levers as vendor management, deployment of advanced technologies, and improved recovery operations).
Private health insurers have been rapidly expanding their participation in Medicaid through organic and inorganic moves and are taking bold action to enhance their competitiveness.
The combination of enrollment and revenue growth is making Medicaid one of the fastest-growing value pools in healthcare. The steady stream of RFP opportunities likely to lie ahead is attracting the interest of regional and national health insurers.
Large national players are investing heavily in this area by expanding their footprint in new markets and populations, and they are scaling their capabilities through horizontal and vertical mergers, acquisitions, and partnerships. Consolidation has ensued: 70 percent of managed Medicaid enrollment today sits with health insurers with over 500,000 lives, compared with 53 percent in 2010.13 Acquisitions and membership growth have enabled these national payers to differentiate themselves from smaller MCOs by having more integrated suites of offerings (e.g., by combining pharmacy benefits management, home-based care for high-need populations such as dual-eligible members, and their owned provider assets), distinctive technical solutions (including care management and member engagement tools), and the ability to more significantly invest in social determinants of health.
New entrants—both well-capitalized technology players and investor-backed start-ups—are pursuing aggressive plays to disrupt traditional business models and win the hearts and minds of Medicaid consumers.
Supported by approximately $1.5 billion in private-equity and venture-capital funding over the past five years,14 investor-backed start-ups (e.g., Landmark) and technology companies (e.g., CityBlock, a spin-out of Alphabet’s Sidewalk labs) are becoming noteworthy players in the Medicaid market. These new entrants are launching high-touch care delivery models, both through clinics and at home, supported by innovative technology platforms that enable more coordinated and integrated care across physical, social, and mental health. In addition, they frequently take on risk for specialized populations (e.g., dual-eligible beneficiaries) through partnerships with MCOs. These players could be potential collaboration partners for MCOs seeking new models for managing complex populations—but they could also evolve into formidable competitors as they build out their market positions.
Some of the shifts in private-sector participation in Medicaid are summarized in Exhibit 2.
These trends present opportunities and risks for Medicaid stakeholders. Medicaid program expansion, changing demographics, increasing MCO consolidation, and new disruptive entrants are requiring state Medicaid agencies to redefine their priorities and capabilities, as well as their expectations from health insurers and other partners. Health insurers will need to evolve their capabilities to deliver innovative, compelling, and affordable solutions encompassing the “whole person”—not just the clinical services that members require. Healthcare providers that seek to participate in Medicaid need to evolve their care delivery models to effectively serve the highly heterogenous Medicaid population in a financially sustainable manner.