Fiscal Committee approves Medicaid managed-care incentive pool; officials say withhold funds drive quality

The Fiscal Committee on May 16 approved an incentive-pool mechanism in Medicaid managed-care contracts that built a roughly 2% adjustment into capitation rates as a performance pool for MCOs. State officials told the committee the pool is intended to motivate plans to meet higher quality and operational metrics.

The item, listed as 25126, was introduced by the Department of Health and Human Services. Henry Littman, the state's Medicaid director, described the structure during questions from committee members: "we have an agreement with Medicaid managed care organizations, and we pay them a monthly capitation rate. Built into that capitation rate is, approximately 2% ... a withhold," Littman said. He added that the withheld amounts create a competitive pool the MCOs can earn back if they meet progressively stronger performance targets.

Kathleen Carr and Nathan White clarified implementation details and actuarial constraints. Nathan White, chief financial officer with the Department of Health and Human Services, explained the actuarial requirement: the total funding must meet actuarial certification and the design ensures the dollars remain available within the program for redistribution. Henry Littman told members the program was first introduced in the 2024 procurement and strengthened in the most recent procurement.

Littman and White also described how the program operates in practice. Littman said the pool funds are paid out at the end of the program based on relative plan performance, though future procurements may phase incentives earlier in the contract period. Addressing the semantics of the term "withhold," Littman said the state effectively pays capitation up front and then reconciles based on performance and federal matching rules: "that's the way we do it, and that's, I think, to relate to how the federal match works," he said.

Committee members asked about outcomes tied to the incentive structure. Littman said outreach tied to similar performance measures helped reduce enrollment of people who no longer needed coverage—"we've reduced enrollment by about 11,000 individuals in the past year," he said—describing those decreases as people who said they no longer needed coverage or had moved out of state.

Committee members asked whether any funds remain at year-end if MCOs underperform. Littman said the program stretches targets relative to previous performance and, because of the actuarial design of the rates, funds are expected to remain available within the program until redistributed according to the performance rules.

The committee voted to adopt the item. The committee chair called for the question and members indicated approval by voice. The item was adopted.