States Want To Integrate Medicare And Medicaid, But They Need Federal Resources And Flexibilities

Editor’s Note

This article is the latest among a series in response to the latest developments in policy and research affecting the dual-eligible population. Other authors will contribute to the series as well.

The series is produced with the support of Arnold Ventures. Included articles are reviewed and edited byHealth Affairs Forefront staff; the opinions expressed are those of the authors.

The series will run through August 30, 2022; submissions are accepted on a rolling basis.


Over the past decade, state and federal policy makers have worked to better integrate Medicare and Medicaid benefits, financing, and administrative processes to improve care for the more than 12 million people in the United States dually eligible for these programs.

Federal legislation and rulemaking have made it possible for states, health plans, and providers to develop several integrated care models: the Program for All-Inclusive Care for the Elderly (PACE), state-based demonstrations under the federal Financial Alignment Initiative, and programs in which Dual Eligible Special Needs Plans (D-SNPs) are closely aligned with Medicaid managed care plans.

But despite federal policy actions and state investments, only about 12 percent of full-benefit dually eligible individuals were enrolled in an integrated care program in 2020.

A Range Of State Experiences And Perspectives

States have a range of experiences with Medicare-Medicaid integration (exhibit 1). A little less than half of states have a demonstration under the Financial Alignment Initiative and/or an aligned D-SNP/Medicaid managed care model. Thirty states have one or more PACE organizations. Some states have significant experience designing and operating these programs, while others are still considering how and when to move forward.

Exhibit 1: State participation in Medicare-Medicaid integration demonstrations

Source: Author’s analysis.

This article highlights perspectives from state Medicaid officials on the federal policies that have advanced Medicare-Medicaid integration and areas where they believe additional federal policy actions are needed. In March 2022, my colleagues and I solicited the thoughts of Medicaid representatives in four states with varying degrees of experience developing and operating integrated care models: Maine, New Mexico, Ohio, and Tennessee.

We focused on these four states in part because they use different approaches to achieve Medicare-Medicaid integration: Tennessee has a long-standing integrated program based on aligned D-SNPs and Medicaid managed care plans; New Mexico has both D-SNPs and a Medicaid managed long-term services and supports program but much less experience with integrated care; Ohio operates MyCare Ohio, a capitated model demonstration under the Financial Alignment Initiative; and Maine is seeking to advance integration in a Medicaid fee-for-service environment.

Federal Policies Related To Medicare-Medicaid Integration

Federal policies related to Medicare-Medicaid integration fall into several broad categories, including financial incentives, flexibility, and permanency/sustainability (exhibit 2). We asked state Medicaid representatives to reflect on how their integration efforts have been shaped by federal policies in each of these areas and offer perspectives on what has been beneficial and where new or refined federal policies are needed.

Exhibit 2: Federal policies related to Medicare-Medicaid integration

Source: Adapted from Center for Health Care Strategies, State Efforts to Integrate Care for Dually Eligible Beneficiaries: 2020 Update.

Financial Incentives

Dually eligible individuals often have a range of care needs that, depending on the service required, are paid for primarily by Medicare (for example, emergency department visits and inpatient hospitalizations) or Medicaid (for example, certain behavioral health supports and long-term services and supports). Historically, state investments in increased Medicaid services to improve care for dually eligible individuals resulted in savings that accrued to Medicare due to lower acute care use. As a result, states had little incentive to create integrated care programs if they reap no financial benefit.

Beneficial Federal Policies. The Financial Alignment Initiative, created by the Centers for Medicare and Medicaid Services (CMS) in 2011, allowed states to test new approaches to serve dually eligible individuals with opportunities for shared savings.

For example, officials in Ohio, which launched the MyCare Ohio demonstration under the Financial Alignment Initiative, noted that the state benefited from the initiative’s shared savings achieved through its rate-setting structure. They said that the demonstration’s financing structure allowed the state to invest in a comprehensive approach to benefit design, including increased access to homemaker and home attendant services, the addition of supplemental benefits, and the option to self-direct some home- and community-based services to better meet the needs of enrollees.

Gaps In Federal Policy. To date, states operating D-SNP-based integrated care models have not been able to access savings. Massachusetts hopes to launch a Duals Demonstration 2.0 that combines One Care, its Financial Alignment Initiative demonstration for dually eligible individuals younger than age 65, with Senior Care Options, its D-SNP-based integrated care model for dually eligible individuals ages 65 and older. The state proposed a joint savings approach, but it is negotiating the details with CMS.

Opportunities to access Medicare savings from D-SNP-based programs may encourage other states to implement similar programs. Medicaid officials in Maine and New Mexico said that sharing savings through D-SNP-based models would be helpful. An Ohio official noted that without a shift in federal policy, transitioning from a Financial Alignment Initiative demonstration to a D-SNP-based program in the future would mean a loss of shared savings potential because that model does not support state savings.

Officials in Maine favored the idea of state Medicaid agencies receiving an enhanced Federal Medical Assistance Percentage for creating more integrated systems of care for their dually eligible populations. This approach or alternatives such as federal grant dollars could support states both with and without managed care-based Medicaid programs.

Tennessee, which has a D-SNP-based integrated care model, agreed with the need to align financial incentives between Medicare and Medicaid, including shared savings opportunities, but urged federal policy makers to take a long-term view and create a truly integrated program in which benefits, administration, and financing are fully integrated and dually eligible populations can access a benefit package that addresses all their care needs.


One challenge in serving dually eligible populations is working within the bounds of Medicare and Medicaid program rules, which are frequently at odds with each other. Different requirements for provider networks, health plan marketing, beneficiary notices, and grievance and appeals processes, among other things, make it difficult for states, health plans, and provider organizations to build models that effectively meet the needs of dually eligible populations.

Beneficial Federal Policies. Over time, CMS has provided increased flexibility in program requirements that have allowed states more freedom to develop innovative and responsive integrated care programs. Perhaps most significantly, beginning in 2013, the agency required D-SNPs to meet state-specified contract requirements.

States’ ability to add requirements to D-SNP contracts or limit whom they contract with gives them the opportunity not just to shape but to lead the design of integrated care programs. Tennessee said that this flexibility led to the state’s decision a decade ago to only contract with new D-SNPs if they were aligned with TennCare managed care plans. Going forward, Tennessee hopes to further align its Medicaid and Medicare D-SNP contracting through a competitive procurement in which it would only contract with aligned plans.

CMS recently proposed new rules for D-SNPs that would provide additional flexibilities for states, particularly around plan oversight. Officials from Maine noted that this could give states more insight into the internal workings of D-SNPs. As Maine officials begin thinking about leveraging their D-SNP contracting authority to promote integrated care, they are seeking to better understand the capacities needed to monitor D-SNP activities.

Gaps In Federal Policy. Through the annual Medicare Advantage rulemaking process, CMS created flexibilities to integrate grievance and appeals processes, develop integrated beneficiary notices, and alter other administrative processes that make it easier for states to align their Medicaid programs with rules that D-SNPs must follow. One area where states are eager to see increased flexibility is in D-SNP network adequacy standards that are set by CMS. In states such as New Mexico that have many frontier and rural counties, D-SNPs may struggle to build provider networks that meet CMS requirements, therefore posing a barrier to statewide coverage of aligned Medicaid managed care plans and D-SNPs. Additional federal flexibilities could help states with similar challenges attract D-SNPs and build integrated care programs.


Federal policy makers have sought to ensure the permanency and sustainability of integrated care programs. Without that support, states, health plans, and other stakeholders could be reluctant to invest in program development, and the programs may not grow quickly enough to remain viable over the long term.

Beneficial Federal Policies. When D-SNPs were authorized by Congress in 2003, they required annual reauthorization, but the Bipartisan Budget Act of 2018 provided permanent operating authority for D-SNPs. Between 2018 and 2022, the number of D-SNPs increased by 77 percent, and D-SNP enrollment increased by 93 percent. To be sure, other factors—such as state requirements to operate aligned D-SNPs—may influence the growth of Medicare products. Regardless, the expansion of D-SNPs over the past four years is a sign of increased confidence in this platform as a foundation for integrated care.

CMS has taken several actions to promote enrollment in integrated models. For example, the agency permitted states operating a capitated model Financial Alignment Initiative demonstration to use passive beneficiary enrollment (with provisions for opt-out). Ohio viewed this element as a key strength of the demonstration model. They believed that giving beneficiaries the choice of passive enrollment into the demonstration or mandatory enrollment into the state’s Medicaid managed long-term services and supports program allowed the state to meet its enrollment goals and helped to sustain enrollment over time. Ohio’s approach preserved beneficiary choice but also created clear incentives to enroll in the more integrated care option. Ohio provided choice counseling at multiple points, and the recently launched My Care, My Choice tool provides additional counseling and enrollment resources for potential enrollees.

On the D-SNP platform, Tennessee noted that CMS policies to allow default enrollment—automatic D-SNP enrollment of newly Medicare-eligible individuals who are already enrolled in an affiliated Medicaid managed care plan—has been very successful. State officials reported that default enrollment significantly increased the number of dually eligible individuals enrolled in aligned D-SNPs and Medicaid plans, and once enrolled, these individuals choose to stay with their assigned plans over the long term.

Gaps In Federal Policy. In its recent Notice of Proposed Rulemaking, CMS noted that it had made or proposed changes in Medicare Advantage policy to significantly increase the level of flexibility available on the D-SNP platform making it more akin to the capitated model Financial Alignment Initiative demonstrations. It suggested that with those changes, the demonstrations should be transitioned to D-SNP-based programs to reduce the burden on states of operating and overseeing multiple integration models and on beneficiaries who often have an overwhelming choice of Medicare Advantage plans.

Public comments will inform CMS’s ultimate decision on the future of the demonstrations, but Ohio expressed concern that losing the demonstration platform would result in loss of access to shared savings for the state. They also noted that this would likely impact funding—currently available through the demonstration—for the state’s Ombudsman program and State Health Insurance Assistance Program (SHIP) that play a vital role in educating dually eligible individuals about the benefits of integrated care and addressing beneficiary grievances.

Tennessee also commented on the need for more federal policy making to support D-SNPs’ long-term sustainability—or ideally, to create a new more fully integrated program model. The Medicaid and CHIP Payment and Access Commission (MACPAC) described the proliferation of so called “D-SNP look-alikes” —Medicare Advantage plans that are not D-SNPs but have a cost-sharing structure and supplemental benefits that mimic D-SNPs without the D-SNP regulations requiring care coordination. These plans attract the enrollment of dually eligible individuals and draw them away from more integrated plan options.

CMS took some steps to limit D-SNP look-alikes in its Contract Year (CY) 2021 Medicare Advantage and Part D Final Rule, but Tennessee believed that additional limits were needed to control the growth of competing products that do not offer the same degree of integration as D-SNPs. Similarly, Tennessee commented that Institutional Special Needs Plans or I-SNPs, which enroll individuals who need the level of care provided by a long-term care facility for 90 days or longer, also attract dually eligible individuals who may be better served by an integrated Medicare-Medicaid product, especially as the state seeks to provide increased access to home- and community-based services.

Looking Ahead

All of the state leaders interviewed for this article expressed support for recent federal policies to promote Medicare-Medicaid integration for dually eligible populations. At the same time, they pointed out several areas where additional federal policy making would further states’ ability to advance integrated care models.

With an anticipated MACPAC recommendation that states develop an integrated care strategic plan, support remains strong for additional federal policy making around integrated care. Our interviews confirmed that state interest in improving care for dually eligible populations will continue to grow as long as they can access needed federal flexibilities and have the resources needed to craft programs that effectively meet the needs of their dually eligible populations. States value continued partnership with federal policy makers and look forward to opportunities to advance truly integrated care.

Author’s Notes

Thank you to the following state Medicaid officials for lending their time and perspectives to the development of this article: Olivia Alford, director, delivery system reform, Office of MaineCare Services, and Paul Saucier, director, Office of Aging and Disability Services, Maine Department of Health and Human Services; Nicole Comeaux, JD, MPH, state Medicaid director, Tallie Tolen, LTSS bureau chief, and Jeannette Gurule, LTSS deputy bureau chief, New Mexico Medicaid; Karla Warren, formerly integrated care manager, Ohio Department of Medicaid; and Patti Killingsworth, assistant commissioner, chief of long-term services and supports, TennCare.

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