A Primer on Using Medicaid for People Experiencing Chronic Homelessness and Tenants in Permanent Supportive Housing. 7.2. Medicaid Managed Care Payment Mechanisms


In recent years states have moved away from using fee-for-service payment for many of the health care services covered by Medicaid, relying instead on Medicaid managed care approaches to organizing payment and delivery of medical and/or behavioral health services for growing numbers of Medicaid beneficiaries.

In a managed care delivery system, people get most or all of their Medicaid services through an organization under contract with the state. States may adopt one or more of three different managed care arrangements:91

  • Managed care organizations;
  • Limited benefit plans;
  • Primary care case management programs.

Medicaid managed care organizations, also often referred to as health plans, are responsible for delivering a defined set of Medicaid benefits to a group of people who are enrolled as plan members. The health plans receive capitated financing with a fixed amount of reimbursement per-member per-month to pay for covered benefits and other expenses for administration and care coordination. The plans then contract with health care providers under arrangements that are intended to deliver covered services while also reducing costs and increasing the quality of care.

Limited benefit plans allow states to "carve-out" certain services for which the state contracts with specialized health plans that have established provider networks to deliver Medicaid-covered dental care, mental health or substance use treatment, transportation, and other services.

With Medicaid-financed primary care case management arrangements, states make payments to primary care providers for care coordination services in addition to reimbursing the costs of health care services, usually on a fee-for-service basis. Primary care providers receive a small monthly fee per patient to deliver case management services that include coordinating referrals for specialty care and other health services.92

The first two of these arrangements have been and are likely to continue to be most relevant to Medicaid financing for services delivered to people experiencing chronic homelessness and those who live in PSH. In addition, some states are developing enhanced primary care case management programs and using these to serve high-cost Medicaid beneficiaries with complex needs and/or patterns of avoidable use of inpatient and crisis services as well as the family and children beneficiaries who have been the more usual recipients of primary care case management. As these programs evolve, there may be opportunities for states to tailor the programs to address the needs of people who are homeless or living in PSH.

7.2.1. How Medicaid Managed Care Is Evolving

Medicaid managed care arrangements are evolving rapidly in most states and are increasingly important when considering how Medicaid services are provided to people experiencing chronic homelessness or living in PSH. In 2013, almost 50 million Medicaid beneficiaries received benefits through some form of managed care, either on a voluntary or mandatory basis.93 Until recent years, though, the Medicaid beneficiaries with the most complex health care needs and who have the greatest cost of care--seniors and people with disabilities--have remained in fee-for-service.

In many states, Medicaid managed care began with a focus on enrolling children and families. A growing number of states now allow people with disabilities to enroll in managed care plans, and some states require that most seniors and people with disabilities do so. Many states are also using managed care plans to provide coverage to people who became newly eligible for Medicaid in 2014 under the terms of the Affordable Care Act.

Some states have separate managed care arrangements for medical care and behavioral health care services, "carving out" the latter and administering them under specialized limited benefit plans. When medical and behavioral health services are administered by different managed care organizations, the plans often use different provider networks and separate payment systems. Under these circumstances, states may require managed care plans that are responsible for medical care to coordinate care with other Medicaid services that are financed or delivered separately, particularly for seniors and people with disabilities. In other states, the health plans are responsible for mental health benefits and other behavioral health services as well as medical care. Even when the same managed care plan is responsible for both medical care and behavioral health services, many health plans subcontract responsibility for managing behavioral health services to a specialty managed care organization. Finally, some states make the health plans responsible for LTSS, including nursing home services and HCBS, while other states administer LTSS separately and may pay for them on a fee-for-service basis.

States' decisions about the scope of services covered through managed care plans will have implications for opportunities to coordinate care across providers and settings as well as for opportunities to achieve and reinvest savings. For example, some of the services in PSH that are defined as specialty mental health services produce savings by reducing costs for medical hospitalizations and emergency room visits. If the same managed care plan is responsible for both mental health and medical costs, the plan will be able to realize savings attributable to mental health services, and potentially reinvest those savings to expand effective service interventions linked to housing for plan members who experience homelessness. If health plans are also responsible for costs of long-term care, they may be able to recognize and reinvest savings associated with interventions that reduce nursing home stays and use more of their resources to expand the availability of care management, community support, and a range of HCBS that can reduce the need for care in nursing homes. If these benefits are covered through separate managed care plans, however, states will need to look for ways to align incentives for the plans to deliver services that contribute to reducing overall Medicaid costs and improving outcomes for beneficiaries.

Medicaid managed care organizations must comply with extensive federal requirements to assure that members get appropriate care. Health plans must ensure quality and provide reasonable and timely access to an adequate network of providers and they must establish procedures for handling appeals and grievances. Because of these requirements, managed care plans may improve the availability of care for some beneficiaries who have found it difficult to access the care they need in fee-for-service Medicaid programs.

In most cases, when Medicaid beneficiaries are required to enroll in managed care plans, they have a choice between at least two plans, and the right to change managed care plans periodically. Medicaid managed care implementation is often accomplished under a waiver of some Medicaid rules, including a waiver of "freedom of choice" requirements.94 When people are enrolled in managed care plans, instead of accessing care from any qualified Medicaid provider willing to serve them, they must also select or be assigned to a primary care provider or medical home. These waiver provisions allow health plans to contract with a limited set of providers and to establish rules and procedures that govern where members may receive services that the plan will reimburse.

For reasons noted in Chapter 2, beneficiaries often do not choose a plan and provider for themselves but instead find themselves auto-assigned to a plan and a primary care provider based on limited information about individual needs or existing relationships with care providers. When Medicaid beneficiaries are auto-assigned to a provider, they can select a different primary care provider in the plan's network, but often health plans will not make these changes until the next month after a request is made. States and health plans need to ensure that procedures are in place for quickly making changes in provider assignment and for facilitating access to the most appropriate care providers for people who are homeless, supportive housing tenants, and people with behavioral health disorders. If they receive accurate and timely information and cooperation from the Medicaid program and the health plans, PSH case managers and homeless assistance programs and behavioral health service providers can help people navigate the process of selecting health plans and primary care providers, and requesting changes when needed.

Many states have used Medicaid managed care arrangements to incentivize improved performance, care quality, and better health outcomes through setting expectations, requiring appropriate measurement, and monitoring performance. These requirements are particularly important for adults with chronic health conditions and people with disabilities, for whom the challenge of care coordination is substantially greater than it is for young families.

For example, performance measures that require health plans to reduce hospital readmissions may create incentives for the plans to identify patients who are homeless and at high risk for complications and readmission if they are not connected to housing and appropriate supports at the time of hospital discharge. Partnerships with medical respite programs and PSH and attention to the needs of people experiencing homelessness and PSH tenants during care transitions can help health plans achieve performance goals related to reducing hospital readmissions and improving health outcomes.

As growing numbers of people with disabilities, including PSH tenants and people experiencing chronic homelessness, enroll in Medicaid managed care, health plans need to expand their provider networks to include Medicaid providers who have experience with homeless people and high-risk, hard-to-reach populations. In addition to providers of medical and behavioral health services, health plans can benefit from collaborations with organizations that have experience serving people experiencing homelessness or living in PSH. These service providers are often working to help facilitate access to health care and coordinate care for people who are chronically homeless and for PSH tenants; they are seeking to understand how managed care plans work for the people they serve. These providers can be valuable partners in helping plans effectively manage care for this group of beneficiaries.

Managed care arrangements can offer promise for people with more complex health care needs, including those who are or have been chronically homeless, because one expectation for their performance is care coordination. But existing systems for care coordination in many health plans were developed to meet the needs of relatively healthy children and parents. These systems will probably need to be modified to meet the needs of people with more complex health conditions and service needs. Many Medicaid managed care plans rely on telephone contacts to coordinate care for their members, but as CMS notes, for people who are the most frequent users of emergency and inpatient care, "Telephonic case management alone has had limited success, perhaps because people may be difficult to reach by phone and require more-intensive, in-person interventions to build trust and provide needed supports."95

Some states and managed care plans are working to develop and implement newer approaches to providing these more-intensive face-to-face interventions through a variety of models. States have the option to require or encourage plans to provide or contract for intensive, in-person care management services for their most high-need members, including those who have experienced chronic homelessness.

Capitation, which provides a fixed per-member per-month payment to health plans for all covered services, offers strong incentives for plans to control costs by reducing avoidable hospitalizations, emergency department visits, and stays in skilled nursing facilities. Evidence shows that the "whatever it takes" approach to services that has been developed in housing first programs for people who have been chronically homeless produces significant reductions in the utilization and costs of these expensive crisis services. Case managers, nurses, and other staff in these programs take the time needed to establish trusting relationships and offer assistance with basic needs for homeless people who may at first be reluctant to stop drinking or take medications for mental health disorders. They use motivational interviewing and other practices to encourage people to take steps toward changes that support housing stability and enhance well-being and connections to appropriate health care. While capitated financing could potentially offer health plans the flexibility and the incentives to pay for some of these services, based on evidence that they will reduce unnecessary use of crisis services, states may need to expand their service definitions or seek approval from CMS to allow health plans to use Medicaid financing to pay for services that are not specifically defined as covered benefits in their Medicaid state plan.

As part of 1115 demonstration waiver requests, states may request CMS approval to use Medicaid to pay for "costs not otherwise matchable." As part of 1115 or 1915(b) waiver requests, states may request CMS approval to use savings achieved through the implementation of managed care to pay for additional services.

  • In Michigan a 1915(b) waiver is used to allow the state to cover Community Living Supports and Services. These services assist individuals with the skills and supports they need to live in the community.

  • In Massachusetts, the CSPECH provides nonclinical support services for adults experiencing chronic homelessness. The intent is to help people access and sustain permanent housing and avoid unnecessary hospitalizations. CSPECH operates under a Medicaid 1115 waiver that authorizes Massachusetts to use Medicaid to pay for medically necessary "diversionary services" as alternatives to inpatient services.

View full report


"PSHprimer.pdf" (pdf, 1.43Mb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®