States report there being a "sweet spot" in the number and distribution of MCOs in the state, statewide and in specific geographic regions. States use competitive contracting in an attempt to award contracts to obtain the number of plans they feel is needed in each geographic area: not too few (assuring choice of plans, especially in rural areas) and not too many (so that beneficiaries are not distributed too thinly across too many plans, which could lead to financial problems for small plans). Too many health plans also means a greater administrative burden for the state in terms of management and oversight.
When there are too many plans, it may be difficult for competing plans to solicit providers for their network without paying a premium, especially for "rare" providers such as hospitals and specialists.
Each plan has to have a broad provider network, particularly as it relates to hospitals. As we have gained more plans, hospitals are gaining an advantage because they know the plans have to have an adequate hospital network. So now the hospitals are ending up having a better negotiating position, because they know the plans need them. That’s an unintended consequence that’s making us think, "Gee, we need to look at this more." (State Official)
Having an adequate number of plans is viewed as an important safeguard for the state in case a plan leaves the market or goes out of business. Having this occur without an adequate fallback could be potentially disruptive for program beneficiaries. In addition, having a sizeable number of plans is also viewed by several states as a good way to instill a sense of competition among plans.
We have also added some plans because we thought it would be good to introduce more competition because some of the plans were giving us a lot of pushback, and we wanted to make sure that we had other options. (State Official)
On the other hand, a large number of small (and potentially financially fragile) plans may be a possible disadvantage of any-willing-provider contracting. Too many plans can mean that there is "not enough business to go around," in that there are too few covered lives available for each health plan. When there is no guaranteed market share for health plans, this can discourage plans from participating.
We don’t get them a set amount of lives, which they might like to have. Some plans have chosen not to come in because they needed a lot more lives than we were able to give them. (State Official)
In order to help new plans add enrollees, some states have used the auto-assignment process, whereby beneficiaries who do not select a Primary Care Provider within a specified period of time after enrollment are assigned to one of the smaller, new plans.
Figure 5 shows that the number of Medicaid risk-based managed care enrollees in a state is directly related to the number of Medicaid MCOs. For example, most states have from four to nine plans, with smaller states in terms of both Medicaid enrollment and geographic area (e.g., Connecticut, Delaware, and Rhode Island) having fewer. Five states (California, Florida, New York, Texas, and Wisconsin) contract with 14 or more MCOs. These states all have either (1) very large Medicaid risk-based managed care enrollment (California and New York); (2) a large geographic area to cover (Texas); or (3) any-willing-provider contracting (Florida and Wisconsin).
Figure 5: Number of Medicaid MCOs by Risk-Based Managed Care Enrollment
in Study states, 2010
|State||Total MCO Enrollment (in millions)||Number of Medicaid managed care plans|
|Sources: (1) Gifford et al., 2011; (2) Review of state documents.|