Medicaid MCO growth

Despite present uncertainties, MCO leaders can still aspire to grow—and make decisions to support that aspiration. Our research shows that the key sources of growth for Medicaid MCOs are strategic, not operational.

Medicaid enrollment in the United States has grown swiftly in recent years. More than 16 mil­lion people who were ineligible for the program  in 2014, or had not yet enrolled in it, now have Medicaid coverage,11. CMS. November 2016 Medicaid and CHIP application, eligibility determination, and enrollment report. November large part because 31 states and the District of Columbia expanded Medicaid eligibility under the Affordable Care Act.2As a result, many public and private institutions have seen a large, rapid influx of Medicaid enrollees. In particular, managed care organiza­tions (MCOs)—health insurers that sign contracts with state Medicaid agencies to deliver care to members for a set fee per month—have grown quickly. Between 2010 and 2016, MCO enroll­ment surged by a compound annual growth rate (CAGR) of 12{b144f7c2b2fb2c3f8860172f1a0a1051cfbd14eeaf3ec8cfcaec014f0890335d}.3

As of late September 2017, without passage of “repeal and replace” legislation, the future pace of Medicaid enrollment growth will largely depend upon the actions of individual states, potentially in concert with ongoing efforts to change federal regulation (and perhaps renewed attempts at new legislation). Even with the longer-­term prospects of Medicaid expansion or contraction unclear, in the near term managed Medicaid is expected to continue growing as states shift more lives, including special needs populations, to Medicaid MCOs.

In this environment, MCO leaders can still aspire to grow—and make strategic decisions to support that aspiration. To identify actions MCO leaders might consider to spur and sustain growth, we studied the factors that contributed to enrollment growth at 120 MCOs to analyze the strategies that yielded the best results. The granular perspective we developed revealed three key insights:

  • The markets in which MCOs choose to compete are more important than taking market share from competitors
  • Building scale is critical to growth
  • Geographical detail matters

Admittedly, the Medicaid MCO market is a highly dynamic one, and so we plan to revisit our analysis of the sources of growth regularly.


Breaking down MCO growth

In 2008, the authors of The Granularity of Growth, a book that discusses McKinsey’s research on corporate growth, described how leaders can push through the “tyranny of the average” by using a detailed approach to un­derstand and capture pockets of opportunity.4This method enables leaders to isolate specific, actionable factors that can stimulate growth.

To understand the factors that spur growth for Medicaid MCOs, we took the same approach by disaggregating the three sources of growth. The first two—portfolio momentum and mergers/acquisitions (M&A)—largely reflect a company’s strategy. (Portfolio momentum reflects how the company’s existing markets are growing and what new markets it enters.) The third type—share gain in existing markets—relates primarily to operational execution. The sidebar, “Three sources of growth,” provides fuller descriptions of these growth drivers.