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Journal Article


Financial Performance of Health Plans in Medicaid Managed Care

The Issue

States have been covering an increasing percentage of Medicaid beneficiaries in managed care plans in a bid to improve quality of care, control costs, and provide better access to care. Medicaid enrollment, which has already grown 50 percent over the past decade, is expected to rise significantly after 2014 as a result of the Affordable Care Act's Medicaid expansion provisions.

This Commonwealth Fund–supported study reviewed the financial performance of different types of Medicaid managed care plans, comparing plans that manage predominantly Medicaid members with multiproduct plans that offer other insurance products, like commercial or Medicare plans, and comparing plans owned by publicly traded companies with provider-sponsored plans that are affiliated or owned by hospitals, health care systems, or medical clinics. To determine financial performance, the researchers looked at medical loss ratios (i.e., the percentage of premium revenue insurers spend on medical expenses), administrative cost ratios (i.e., the percentage of premium revenue spent on administration), and operating margins.

What the Study Found

Using data from plans' 2009 financial statements, as well as health plan financial filings from state insurance commissioners, the researchers found that:

  • Plans specializing in the Medicaid market had a significantly lower medical loss ratio (87.7% vs. 90.6%) than multiproduct plans. These plans also had a higher operating margin (1.3% vs. –1.0%) than multiproduct plans serving multiple markets.
  • Publicly traded plans had a significantly lower medical loss ratio (87.4% vs. 90.1%) and a significantly higher administrative cost ratio (12.7% vs. 10.1%) than non–publicly traded plans. The higher administrative expense led to a lower operating margin among the publicly traded plans (0.2% vs. 0.6%).
  • Provider-sponsored plans had a significantly higher medical loss ratio (90.6% vs. 88.4%) than non–provider-sponsored plans and a significantly lower administrative cost ratio (8.9% vs. 11.9%).


The lower medical costs of Medicaid-dominant plans are possibly the result of more cost-effective care, the enrollment of healthier beneficiaries, restriction of access to costly medical providers, and lower rates negotiated with contracted providers. Health plans that do not specialize in Medicaid are losing money because of higher medical expenses, not higher administrative costs. Plans that do not specialize in Medicaid may not be investing in the medical management programs necessary to reduce inappropriate emergency department use and avoid costly hospitalizations.

Publication Details



M. McCue, "Financial Performance of Health Plans in Medicaid Managed Care," Medicare & Medicaid Managed Care, 2012 2(2):E1–E10.