November 3, 2025  – States that use managed care to administer Medicaid long-term services and supports (LTSS) have seen modest reductions in their nursing home populations. However, a new study suggests that these changes have not benefited one group often seen as most suitable for community-based care—residents with low care needs.

The study, published in the Journal of the American Geriatrics Society, analyzed data from nearly one million dual-eligible nursing home residents across 24 states with managed LTSS programs in place by 2021. Researchers found that the proportion of long-stay nursing home residents in these states fell by 5.8% after the adoption of managed care.

Despite this reduction, the share of residents classified as “low-care,” or those needing no physical assistance with basic daily activities and not considered clinically complex, did not decline. These individuals are often the best candidates for transition to home- and community-based services (HCBS), raising questions about how effectively managed care programs are meeting their goals.

The authors point to financial structures within managed care programs as a potential explanation. They highlight how “blended” capitation rates, which are flat payments to managed care organizations (MCOs) that do not vary based on care setting, can create unintended disincentives. While institutional care typically costs more than HCBS, a rise in HCBS users would lower the blended rate in future payment cycles. As a result, plans may be reluctant to shift low-care individuals into community-based alternatives if doing so could reduce future revenue.

Conversely, when institutional services are carved out of capitation payments, MCOs no longer bear financial responsibility for residents placed in nursing homes. This arrangement may encourage plans to move high-need individuals into institutional settings to avoid higher costs associated with community-based care.

The study also raises concerns about the overall effectiveness of managed LTSS programs. With no significant change in the proportion of low-care residents, the findings suggest that the system may not be offering sufficient lower-cost, community-based options to those who could benefit most. Researchers recommend further analysis to determine whether certain subgroups experience better outcomes under managed care, and to assess how payment policies can better align with care quality and member needs.

As states continue to rely on managed care to deliver LTSS, the study underscores the importance of policy structures that support both fiscal responsibility and equitable access to appropriate care settings.