Missouri’s Medicaid program is heading into its hardest budget years in at least a decade.
A federal law passed by Congress last year, the One Big Beautiful Bill Act, threatens more than $1 billion in penalties unless the state lowers its error rate below 3% starting in October 2029. It also imposes new mandates on the Department of Social Services. The state allotted $132 million to implement the law in its fiscal year 2026 supplemental budget alone.
Missouri is about to recommit to its current approach to Medicaid. The state Department of Social Services is weighing bids that would extend the state’s Medicaid managed care contracts — arrangements now worth $9.3 billion a year in state and federal money — through fiscal year 2028, even as the new federal law tightens what the state can spend.
Patient advocates, doctors and some lawmakers are all circling the same question: how to wring more out of the program, or protect the parts of it federal law doesn’t require, before the state budget gets too tight. The stakes run to hundreds of millions of dollars and reach nearly every low-income family, pregnant woman and foster child in the state.
One answer surfaced Thursday, the 61st anniversary of the federal Medicaid program, where a group of physicians and patient advocates gathered in St. Louis to point at the private insurers Missouri pays to run the program for 80% of enrollees. If the state managed Medicaid directly, they argued, it could save up to $259 million a year in general revenue — and potentially protect benefits the state might not be able to afford otherwise.
The figure comes from a September report by Physicians for a National Health Program, which advocates for a single-payer system.
The state’s managed care companies dispute the premise. The overhead the report would eliminate, they say, is what pays for the care coordination and preventive services that keep enrollees out of emergency rooms.
Missouri has paid private insurers to manage parts of the program since the 1990s and expanded their role in 2015 to cover all but benefits for people with disabilities and those 65 and over. No lawmaker has formally proposed reversing that. But during Senate debate on the budget in April, Democratic state Sen. Maggie Nurrenbern of Kansas City said that as Medicaid approaches a crossroads, lawmakers should consider direct administration of the state’s program — a fee-for-service model — as a way “to sustain care while controlling costs.”
“I’m asking that we have a real conversation next year as to what we can do to help rein in some costs, and I think that it starts by looking at direct administration of Missouri’s Medicaid program,” said Nurrenbern, who serves on the Senate Appropriations Committee.
Connecticut terminated its managed care contracts in 2012. Connecticut Governor Ned Lamont launched a study in 2024 exploring the possibility of returning to a managed care model. The study concluded that managed care would not likely save the state money, finding that only 3.8% of Connecticut’s Medicaid expenditures go to administrative costs.
Managed care organizations are paid a fixed amount per person per month, called a capitation payment. They must use a minimum percentage of those payments for medical care. If they spend at least that percentage and have money left over, they can keep it as profit. But if the cost of patients’ care exceeds what they were paid, they are financially liable for that amount.
Missouri contracts with three managed care plans: Healthy Blue, part of Elevance Health; Home State Health, part of Centene Corporation; and UnitedHealthcare Community Plan. Show Me Healthy Kids, the state’s managed care plan for foster children, is also contracted to Centene. The state spent $7.6 billion in state and federal funding on managed care plans in fiscal year 2026, and the budget for this year includes $9.3 billion for the plans, according to the department.
Advocates of ending managed care argue that private insurers have a built-in incentive to deny or delay Medicaid patients’ access to care through prior authorizations and excessive Medicaid enrollment checks.
Proponents of managed care organizations counter that the model offers states budget predictability and encourages preventative care because companies save money when patients stay well.
In a written response to The Independent, the Missouri Health Plan Association, which represents the state’s managed care organizations, said privately managed Medicaid allows the state to hold insurers responsible for access to cost-effective care.
“Unlike fee-for-service Medicaid, which rewards the volume of services provided, managed care encourages investments in prevention, primary care and coordination to improve health outcomes and reduce avoidable hospitalizations and emergency room visits,” the association said.
The debate revolves around how to incentivize quality, cost-effective care.
Priya Pal, a physician-researcher at the Washington University School of Medicine who co-developed the report, told The Independent extra prior authorizations often stand between patients and necessary care. She gave the example of a colleague who cared for a toddler with plaque psoriasis, an itchy autoimmune skin condition.
The colleague, Pal said, prescribed over-the-counter ointments. When those didn’t work, she tried topical steroids. When she tried to get authorization in November for the next line of treatment, non-steroid-based immunotherapies, the managed care company initially rejected the prior authorization, saying she didn’t try Vaseline.
But she had tried Vaseline, Pal said, and it was in the records she sent the managed care company. It was the end of January before the toddler got the medication, which worked.
“The family is struggling to handle their toddler, who’s tired and crying, and they think the physician is not on their side because the medication’s not coming through,” Pal said. “In the meantime, the physician is trying to argue with the insurance company that this is something important.”
Rates, rules, oversight
The advocates’ report argues that the department could run the state’s Medicaid program more cheaply than private insurers.
Ed Weisbart, a retired physician and Missouri chair of Physicians for a National Health Program, told The Independent savings to the state would come from lower administrative costs.
The report’s $259 million rests on managed care organizations keeping 13% of what states pay them for overhead — including costs of processing claims, prior authorizations and profit. That number comes from a June 2025 analysis showing manage care companies nationwide spent an average of 87% on medical payments and quality improvement between 2015 and 2024.
Missouri’s plans spent an average of 91.83% on medical payments for overhead in fiscal year 2024, the most recent year with available data, according to the department. The two figures aren’t directly comparable — one covers a single year in Missouri, the other a decade nationally, and the share of payments spent on care fluctuates year to year, responding to factors such as a heavy flu season or the COVID-19 pandemic.
Weisbart said the opportunity for the state to save money is still significant.
“There’s a range of things that the insurance companies do that the state, frankly, wouldn’t be doing,” Weisbart said.
That includes extra prior authorizations and enrollment checks, Weisbart said. The state would have to spend some money on claims processing for Medicaid recipients currently enrolled in managed care plans. And the report’s authors recommend that states invest funds in care coordination — for instance, care managers who help enrollees navigate Medicaid and access needed care.
Weisbart said savings could be used to protect Medicaid benefits that are optional under federal law.
“Our point is, if we’re going to have to make some cuts to Medicaid, why don’t we stop paying the overhead and profits of the insurance industry and retain pharmacy and prescription and dentistry and home health care?” Weisbart said. “Let’s do that rather than paying the insurance companies.”
The state’s managed care plans say there isn’t significant room for savings.
The association told The Independent that managed care in Missouri “does not permit plans to deny medically necessary care” and that plans provide an array of “social supports,” including help to “find providers, schedule appointments, coordinate transportation and navigate care across physical health, behavioral health, pharmacy and other services.”
Todd Richardson, former director of MO HealthNet who now lobbies for the association, told The Independent that managed care organizations are necessary to ensure there are financial incentives for care that makes enrollees healthier.
“If you want to meaningfully control costs of Medicaid, you’re not going to meaningfully do it by limiting access to care or trying to control networks,” Richardson said. “You’re going to meaningfully do it by improving health outcomes.”
Current budget pressures on Medicaid from the One Big Beautiful Bill Act, he said, make it more important for managed care organizations to invest in care coordination.
“What I think comes on the back side of the (federal law’s) financial pressure is a whole lot more focus on saying, ‘How do we do a better job at managing chronic conditions? How do we do a better job of getting people into preventative care?’” Richardson said. “…Those are all things that are inherently good to do for the participant, but they’re also some of the things that are giant drivers of cost.”
Richardson pointed toward value-based payments — a system that compensates doctors based on patients’ health outcomes instead of the quantity of services performed — as a way to incentivize effective care.
“If we can collectively through (managed care organizations’) care coordination and outreach and (doctors’) care delivery improve these outcomes and save the state money, then we should all be able to share in that savings, which gets to a much better system of aligned incentives,” Richardson said.
In its statement to The Independent, the association said the state also has tools to hold managed care organizations accountable. The state withholds 2.5% of payments, which plans can earn back only by meeting quality targets it sets.
Weisbart said attaching compensation to health outcomes could penalize doctors for treating patients who are sickest or most at risk.
Pal said the One Big Beautiful Bill’s cuts to states’ Medicaid funding make it more urgent to channel resources toward medical care.
“We should now more than ever not be taking a cut off the top and giving it to a third party corporation,” Pal said, “and instead ensure that it goes toward patient care.”