Markets at Risk— Current and Future Challenges in a Managed Care Marketplace. A. Medicaid.


The departure of a number of prepaid managed care plans in Medicaid was first noted in the 1997 and 1998, following a dramatic increase in participation as illustrated in Felt-Lisk’s study of fifteen states with sizeable Medicaid managed care enrollment in Figure 618. What is striking about 

these developments is the considerable variation across states in the extent to which they have experienced withdrawals, or in some instances, refusals to participate and how this created marked diversity in state experiences with prepaid managed care. Some states continue to have strong programs with multiple competing players reporting successful performance; other states, with fewer players by design or attrition, can still maintain sufficient capacity and competition; and still other states have seen programs fail entirely because of plan withdrawals19.

Notable among the findings from studies that have examined withdrawals is that most withdrawals are occurring among predominantly commercial plans (i.e. those that have < 25 percent Medicaid membership) that have had relatively small memberships. When queried about their decisions, plans have suggested that relatively low rates, smaller than expected memberships, and administrative requirements that have been poorly conformed with commercial specifications has led to the business being a low or no margin opportunity20. Moreover, the uncertain and volatile contracting relationships plans have encountered with state agencies that ostensibly “don’t understand the nature of true business partnerships” has prompted many to avoid, reduce, or terminate participation. In fairness to Medicaid programs, it also appears that the downturn in HMO profitability in the mid- to late 1990s was a potent secular trend that forced plans to reevaluate all lines of business.

Figure 6. Commercial Plans in Medicaid Managed Care, 1994-1998

  1. K. Sullivan, “Managed Care Performance since 1980: Another Look at 2 Literature Reviews, “ American Journal of Public Health, 89:1003-1008, 1999.
  2. S. Felt-LiskThe Changing Medicaid Managed Care Market: Trends in Commercial Plans. Washington, DC: Kasier Commission on Medicaid and the Uninsured, 1999.
  3. M. McCue, R. Hurley, D. Draper, and M. Jurgensen, “Reversal of Fortune: Commercial HMOs in The Medicaid Market, Health Affairs,18(1):223-230.