The Medicaid Innovation Outlook — Where Are We and Where Do We Go from Here?
Author: Uma Veerappan
Medicaid is the nation’s largest health insurance program, covering 1 in 5 Americans. Despite the size of this population, beneficiaries face significant barriers that have yet to be overcome.
Housing instability, food insecurity, lack of transport, and other challenges that traditional healthcare was not built to address may create barriers to seeking care, making the integration of health and social interventions critical. Chris Palmieri, President & CEO of Commonwealth Care Alliance (CCA), shared that “Medical issues often take a backseat to these [social determinants] that are critical for folks to live more robust lives.” CCA in particular has made significant investment in addressing these barriers, and spends between $30-$50M dollars per year on transportation for its members.
Even if a beneficiary does seek care, access is a challenge. Only 74% of providers accept patients with Medicaid. This is in part due to lower reimbursement rates as well as payment delays and claims denials.
For those who have received care, it has historically been challenging to develop trust and continue to engage with these individuals. In fact, 40% of Medicaid beneficiaries indicate they’ve been treated by a provider they don’t trust, and many are overwhelmed by complex systems that feel designed to work against them.
Medicaid & The New Administration
Before diving into how innovation in the Medicaid space has evolved in recent years, we want to address the question that’s likely on your mind… “What will the new administration mean for companies in this space?”
What is clear is that we are in a dynamic environment, evidenced by President Trump’s early actions outlined in a memo from the Office of Management and Budget to direct federal agencies to “temporarily pause all activities related to obligation or disbursement of all Federal financial assistance, and other relevant agency activities that may be implicated by the executive orders, including, but not limited to, financial assistance for foreign aid, nongovernmental organizations, DEI, woke gender ideology, and the green new ideal” which has resulted in confusion and fear.
We are prepared for a period of regulatory uncertainty with potential reform around block grants, work requirements, and spending cuts. While we don’t expect these changes to happen overnight, it’s important to acknowledge how they may add incremental pressure on Medicaid.
Many of these changes will require adaptability on a state-by-state level. We anticipate states having discretion on priorities to pursue and maintain and these decisions will be important to track.
For startups, potential divestment from government-led institutions may pave the way to further innovate alongside health plans, health systems, and other groups. Here are some predictions on what we may see:
- Excitement around technology-focused companies: Companies which employ technology such as artificial intelligence as a lever to drive down total cost of care.
- Acceleration in value-based models for Medicaid: The need to make dollars in Medicaid go farther may accelerate investment in companies that employ value-based arrangements that blend physical, behavioral, and social interventions to efficiently deliver care. This may also be driven by regulatory reforms which leave Medicaid plans with more complex populations (ex: blind, disabled, dual eligible, etc.).
- Top priorities including maternal, child, and behavioral health will remain areas of focus: Appropriately delivering care to these groups will remain critical to managing costs within this population.
- Focus on demonstrable ROI: Outcomes data will be more important than ever given funding may be constrained. Some social determinants of health may benefit from the new administration, such as food-as-medicine, while others may struggle if they are not able to demonstrate attributable ROI.
Now, let’s dive into funding trends to startups, drivers of the momentum to this sector, and advice founders have for successfully building in this historically underserved population.
A Look at Medicaid Digital Health Funding To-Date
In 2022, total Medicaid spend was reported to be $824B. However, from 2011 to 2022, only 7.7% of the $101B invested in digital health was raised to support companies engaged with Medicaid plans, and much of this was concentrated in a handful of startups. Medicaid spend continues to increase (total spend in 2024 was $880B), yet digital health funding in Medicaid focused companies remains significantly lower than in non-Medicaid focused companies. Some contributors to this hesitancy may include regulatory intricacies due to the interplay of state and federal laws, the reimbursement landscape, and the complex intersection of health and social care.
Drivers for Medicaid Digital Health Startups
There are a few drivers that serve as tailwinds for startups building for Medicaid.
- There is growing recognition that a subset of this population drives the majority of Medicaid spend — these are members with significant physical, behavioral, and social challenges. Medicaid plans are actively seeking solutions to improve care delivery and coordination.
“It’s difficult to do everything on our own so we’re looking to agile, VC-backed partners that can move quickly and understand both our needs as well as those of end users.” — Chris Palmieri
- Managed Care Organizations, or MCOs, are mandated to allocate at least 85% of their premium revenue towards medical costs, as defined by the Medical Loss Ratio, and agencies are looking to contract out inefficiencies to improve the value of services delivered, often including innovative programs from early-stage startups.
- Medicaid waiver programs approved by the Biden administration granted states flexibility to test new approaches in care delivery, and an opportunity to offer digital first solutions to Medicaid beneficiaries.
Overall, we believe startups who prioritize policy acumen, population health data, and effective go-to-market strategies are best positioned to succeed. This may include startups that act as providers themselves or startups that support existing Medicaid providers, creative models combining tech with on-the-ground resources built with the understanding that it’s not possible to impact health outcomes without addressing social determinants, population health data models to identify drivers of utilization and costs to provide insight into risk factors, and solutions that support enrollment process & member engagement.
Building for Medicaid? Tactical Advice on Building & Selling
In Q3 2024, we hosted a group of incredible founders (Dan Brillman, CEO & Co-Founder of Unite Us, Adaeze Enekwechi, CEO of Cayaba Care, and Nikita Singareddy, CEO & Co-Founder of Fortuna Health) for our Expert Roundtable Series on Building for Scale in Medicaid (watch the recording here). During the discussion, we asked the founders to share advice for other operators working to build and scale companies in Medicaid. Here is what they had to say…
- Understand the community
“Our navigators are hired within each community — they understand the nuances and this makes a big difference in engagement. We meet members where they are — in the home, at coffee shops, virtually — we are not dictating how the relationship has to be established” — Adaeze Enekwechi, PhD
2. Build trust
“You earn trust by doing the things you say you’re going to do. This is a population that has consistently been oversold.” — Nikita Singareddy
3. Evolve Faster Than the Market
“Skate to where the puck is going, stay a couple of years ahead of the market.” — Dan Brillman
Of course, this won’t be without headwinds. At Unite Us, for example, Dan shared the “mission and vision has stayed the same over 11 years, but the problems we navigate of course will change.”
Important to note that this group was energized by the challenge. As Nikita articulated “If you love the things that other people fear — the complexity, the challenges — that can be your competitive advantage.”
Advice for Founders, on Contracting with Medicaid MCOs
Later in our roundtable session, we spoke with Karen Amstutz, former CMO of Amerihealth Caritas, who urges early-stage companies to be thoughtful when approaching managed care plans to deploy solutions. A few tactical suggestions she shared include:
- Pilot & demonstrate outcomes: Prove your solution is effective in the plan’s own environment. Through execution, demonstrate engagement, cost savings, & clinical outcomes.
- Contracting: Contracting as a provider may be preferred by MCOs because there are standard provider network contracts which can be leveraged and because the expenses flow directly into the medical expense category. In contrast, when contracting as a vendor, contracts are less standardized and the contract expenses are incorporated into the annual administrative budget, which is more heavily scrutinized.
- Understand how to “go big,” if the opportunity exists: How are purchasing decisions made? Will local plans pilot, and if successful this opens doors to national expansion? Or does the plan explore opportunities nationally first before local plans can adapt?
- IT security: This is table stakes — as you are designing the solution, make sure appropriate certifications are in place. When working with MCOs, ask for their IT security requirements early in the relationship.
- Investigate Pricing: What price point will be successful in each market? Fee schedules may vary by market — analyze these variables to guide successful market entry & growth.
- Consider additional funding streams: Federal funding streams could supplement growth. For example, “if you’re solving for food insecurity, understand that 20% of people who can get SNAP benefits aren’t getting them; this doesn’t cost the managed care plan anything.”
Conclusion
We are in a period of regulatory uncertainty and while changes will not happen overnight, we acknowledge the potential pressure these changes would place on Medicaid and will continue to keep a close eye on policy reform. While these changes may present new complexities, they also highlight the critical need for scalable, impactful models that improve care outcomes for Medicaid beneficiaries. Startups and investors have an opportunity to reimagine Medicaid, and success will hinge on ability to demonstrate measurable outcomes and navigate policy intricacies under a shifting environment.
