IMPLEMENTATION OF 2025 RECONCILIATION LAW: MEDICAID MANAGED CARE RATE SETTING UNCERTAINTY AND POTENTIAL PLAN EXITS

The following information was released by the Henry J. Kaiser Family Foundation:

Authors: Jada Raphael and Elizabeth Hinton

Managed care is the dominant delivery system for Medicaid enrollees with over three-quarters of Medicaid beneficiaries nationally enrolled in comprehensive managed care organizations (MCOs), accounting for half of total Medicaid spending in FY 2024. The 2025 federal budgetreconciliation lawis expected to create managed care rate setting challenges for states as theMedicaid provisionsimpacting enrollment and spending, including program financing changes, work requirements, and more frequent eligibility redeterminations for expansion adults, are rolled out. These changes can create uncertainty about enrollment and acuity as states and their actuaries develop capitation rates. Amid this uncertainty, executives from Elevance Health said during a July earnings call that they were exiting DC's Medicaid market and expect to exit additional markets. Since then, Louisiana announced an Elevance Health plan will exit at the end of 2026. While MCO entries and exits in specific states or markets are not uncommon, decisions by Elevance Health and the other large, multi-state parent firms about overall participation in Medicaid markets could have broad implications for states, enrollees, and providers, given their large share of national MCO enrollment. This policy watch examines recent and anticipated managed care rate setting challenges and the potential implications of MCO exits.

States and plans expect to face new rate setting challenges with implementation of the 2025 reconciliation law. MCOs are at financial risk for services covered under their contracts, receiving a per member per month "capitation" payment for these services. Capitation rates must be actuarially sound and are applied prospectively, typically for a 12-month rating period, regardless of changes in health care costs or utilization. States may use a variety of risk mitigation tools to ensure payments are not too high or too low, including risk sharing arrangements, risk and acuity adjustments, medical loss ratios (MLR), or incentive and withhold arrangements. In KFF's 2025 Medicaid budget survey, many states reported anticipating challenges with projecting the potential impacts of federal policy changes, including work requirements and more frequent eligibility redeterminations for expansion adults, which have implications for member enrollment and acuity (or health risk) on average. Provider tax and state directed payment caps and reductions are also expected to create managed care plan rate setting challenges.

These expected rate setting challenges follow a period of rate settinguncertainty that occurred as millions of peoplewere disenrolled during the "unwinding" of the pandemic-era Medicaid continuous enrollment provision. Higher member risk and utilization patterns began to emerge bylate 2023, and many states sought federal approval to adjust rates to address these shifts inFY 2024 and FY 2025. KFF analysis of National Association of Insurance Commissioners (NAIC)data shows that the average medical loss ratio (percentage of premium revenue spent on medical care costs) for the Medicaid managed care market increased from 88% in 2023 to 91% in 2024, implying a potential decrease in profitability. This was the highest average MLR seen across health insurance markets (including group, individual, and Medicare Advantage) in 2024 and the highest average MLR observed for the Medicaid managed care market in the past decade.

Overall changes in acuity from work requirements are uncertain. During unwinding, plans experienced an increase in member acuity as enrollment declined and remaining enrollees had higher health care needs and costs. Some multi-state parent firms have indicated publicly on earnings calls that they do not expect acuity changes going forward to be as significant (as the shift that occurred during / post unwinding), in part, because work requirement and more frequent eligibility determination policies target expansion adults (and not all Medicaid populations).

Five for-profit, publicly traded companies Centene, Elevance Health, UnitedHealth Group, Molina, and Aetna/CVS account for nearly half of all Medicaid MCO enrollment (Figure 1).These firms have a wide geographic reach in Medicaid, each operating MCOs in 13 or more of the 42 MCO states.

Five For-Profit, Publicly Traded Companies Have Almost Half of the Medicaid MCO Market.

Share of total comprehensive Medicaid managed care organization (MCO) enrollment as of July 1, 2024:

Data are as of July 1, 2024. A parent firm is a firm that owns Medicaid MCOs that provide comprehensive services to Medicaid beneficiaries in two or more states. Aetna was acquired by CVS Health in November 2018 and is therefore referred to as "Aetna/CVS." Anthem changed its name to Elevance Health in 2022.

KFF analysis of Medicaid Managed Care Enrollment Reports, Centers for Medicare and Medicaid Services, U.S. Department of Health and Human Services, 2026.

In July 2026, executives from Elevance Health said they expect to exit Medicaid markets over the next 12 to 18 months. During its second quarter 2026 earnings call, executives reported they are reviewing their overall Medicaid portfolio and will plan to exit markets "where the economics don't support sustainable performance." Elevance executives did not identify the states/markets where the exits are expected to occur beyond DC, or how many enrollees could be affected. Elevance offers MCOs in 21 states (Figure 2). Its share of Medicaid MCO enrollment varies across states, ranging from 6% to 44% (as of July 2024). Medicaid members account for about 20% of the firm's overall medical membership. Executives reported that while acuity shifts are moderating and rates are increasingly reflecting experience, utilization remains elevated compared to pre-pandemic levels. The firm expects its full-year 2026 Medicaid operating margin to be -1.75% (the percentage of revenue left over after paying operating costs) and to see incremental acuity pressure in 2027.

Elevance Health Has MCOs in 21 States.

States in which Elevance Health offers Medicaid MCOs as of January 1, 2026:

Data are as of January 1, 2026, and do not reflect market entries or exits that have occured after that date.

KFF analysis of Medicaid Managed Care Enrollment Reports, Centers for Medicare and Medicaid Services, U.S. Department of Health and Human Services, 2026; and publicly available information posted on Elevance Health's website.

Wellpoint DC (an Elevance subsidiary) exited DC's Medicaid program effective August 1, 2026, following a "mutual agreement" with the DC Department of Health Care Finance. (Wellpoint DC (formerly Amerigroup) was awarded its most recent DC Medicaid MCO contract in 2022 following a contested procurement process.) The contract, which began in April 2023, was scheduled to run through January 2028. In September 2026, the Louisiana Department of Health announced that Elevance's Healthy Blue plan will exit the state's Medicaid program after its contract expires at the end of 2026.

The other large for-profit parent firms (Centene, Molina, UnitedHealth, and CVS) did not discuss planning to exit Medicaid markets during their public Q2 2026 earnings calls. However, Centene reportedly plans to exit Arkansas' Medicaid expansion program in 2027, which uses Medicaid funds to purchase Marketplace coverage, citing current funding challenges.

Managed care plan exits could lead to short-term administrative burden for providers and care disruptions for enrollees. For providers, plan transitions may create additional administrative burden at a time when many may also be helping enrollees navigate new eligibility requirements. Plan transitions may also cause disruptions in care for enrollees if their providers are now out-of-network or they need to obtain new prior authorizations. Disruptions may have more severe consequences for certain populations, such as enrollees who are pregnant or those in the middle of a course of treatment. Federal rules include requirements related to managed care enrollment processes and continuity of care. States can also set requirements for plan transitions through managed care contracts. For example, states can require exiting plans to provide notice of the exit within specified timeframes and to transfer data to the state and the plans receiving their enrollees. States can also set requirements for the receiving plans such as honoring prior authorizations granted by an enrollee's previous plan and allowing enrollees to see out-of-network providers for a certain period after the transition.

Managed care plan exits could also have longer-term effects on the market. For example, plan exits could result in higher quality of care in the market if lower performing plans exit. At the same time, fewer plans in an (already concentrated) market could reduce competition which could have negative effects on cost, quality, and/or access. State procurement policies and program design can be used to help promote competition and quality in the market by influencing the number and mix of plans in a state.

This work was supported in part by Arnold Ventures. KFF maintains full editorial control over all of its policy analysis, polling, and journalism activities.