Kansas lawmakers get overview of Medicaid financing as costs rise; capitation payments largest driver

Megan Leopold, a fiscal analyst with the Legislative Research Department, told the Committee on Welfare Reform on Oct. 27 that capitation payments to managed care organizations and several recent legislative changes are the primary drivers of rising Medicaid spending in Kansas.

Leopold said the Medicaid budget is split between the Kansas Department of Health and Environment and the Kansas Department for Aging and Disability Services. "KDHE oversees the medical piece of the program ... and the administrative piece of the program," she said, while KDADS manages behavioral health services, nursing and waiver programs.

The presentation outlined three funding drivers committee members asked about: capitation payments to MCOs, the federal medical assistance percentage (FMAP) and provider-related policies such as hospital provider assessments.

Why it matters: Capitation payments — the per-member, per-month payments KDHE sends to the state’s three contracted managed care organizations — account for the majority of Medicaid spending. As those payments and the rates that underlie them rise, state costs increase even when membership is stable or falling.

Leopold said Kansas now uses three MCOs — Sunflower, United and Healthy Blue — and that KDHE pays the plans a per-member, per-month amount that varies by "rate cell," the eligibility category that reflects expected cost and need. She told the panel there are 34 rate cells, ranging from children who qualify under poverty guidelines to waiver and long-term care populations.

On caseload estimates, Leopold described the state’s twice-yearly Human Services caseload-estimating process, which includes KDHE, KDADS, the Division of Budget and other agencies. That group reviews agency data, recent policy changes and demographic trends and issues a memo documenting changes to the estimate; Leopold handed the committee a recent gray caseload memo and a detailed Medicaid funding chart.

Federal match and recent legislative additions: Leopold noted the annual FMAP change can materially shift state costs. She gave the example that the change from 65.75% (fiscal 2025) to 64.69% (fiscal 2026) increased the state share by about $30 million for that comparison. She also pointed to recent legislative actions — summarized in a handout titled "Legislative Additions for KanCare 2020 to 2024" — that increased state spending by raising provider rate floors and adding services.

On provider assessments, Leopold outlined the Health Care Access Improvement Program and described testimony about a provision in the budget bill (House Bill 2007) to raise the hospital provider assessment from 3% to 6%. That change, she said, will increase hospital assessments that then draw additional federal match and are returned to hospitals; she described the mechanism as designed to increase federal dollars that flow back to hospitals.

Leopold corrected one chart during the presentation after a member pointed out a labeling error, saying, "I see that was an error on my part. I did the chart incorrectly." She told the committee staff would correct the chart and supply the corrected figures.

The committee asked about staffing and administration. KDHE representatives said approximately 600 people work in health care finance and related Medicaid functions, with roughly 300 dedicated to eligibility processing; KDHE offered to provide exact counts on request.

What the committee will get next: Leopold said the caseload memo is circulated to legislative leadership, House Appropriations and Senate Ways and Means and that she regularly presents the estimate at joint budget meetings. She also noted that KDHE is developing more public data tools and a scorecard to make MCO performance and other metrics more transparent over time.

Less critical details and follow-up: Committee members asked about the frequency of rate recalculation (agency and actuarial processes review rates generally twice a year) and whether federal policy changes could affect Kansas; KDHE said it is monitoring federal developments but had no official federal changes to report at the briefing’s end.

Leopold concluded by offering to provide written follow-ups on several committee questions, including detailed explanations of autism and waiver spending trends and the provider assessment mechanics.

Ending: The committee chair said the panel plans more informational hearings on related topics in coming weeks and adjourned after scheduling additional bill hearings.