Protecting essential services by eliminating waste in Missouri Medicaid

If you polled Missourians, you would be hard-pressed to find someone who enjoys paying taxes, regardless of political affiliation. Yet most Missourians recognize that some services are essential — things like roads, schools, and programs that support independence, self-sufficiency and community health.

These services provide stability not just for individuals, but for entire communities. The expectation is simple: if tax dollars must be spent, they should be spent wisely.

As physicians, our mission is to help people live healthier lives. But even the best medical knowledge or the newest treatments do little if our patients can’t access care or afford the medicines they need. Medicaid has long helped bridge that gap, ensuring Missourians can get timely care before small problems become serious ones. Medicaid helps keep families healthy, communities stable, and local economies strong- making it a highly effective use of taxpayer dollars.

Missouri legislators carry the responsibility of stewarding hard-earned tax dollars wisely. In times of fiscal uncertainty, that responsibility becomes even more challenging — and even more important.

The budget unveiled by Governor Mike Kehoe includes a reduction of ~$600 million across state funds. These constraints follow last year’s elimination of the capital gains tax, which reduced general revenue by an estimated $360–600 million annually, and ongoing discussions about eliminating the state income tax — which currently comprises ~65% of Missouri’s general revenue. More recently, conversations have expanded to reduction or elimination of property taxes, which would place additional strain on public services, including Missouri schools.

In this fiscal climate, Missouri lawmakers will need to make difficult decisions on how to allocate limited resources.

As the federal reconciliation bill began moving forward in 2025, a group of Missouri physicians began discussing how the state might preserve Medicaid access despite growing budget pressures. One potential opportunity emerged: reducing administrative costs by transitioning Missouri’s Medicaid program away from managed care organizations and toward direct state administration. Preliminary estimates suggest this approach could not only save hundreds of millions of dollars annually but improve healthcare outcomes.

Since the legislative session began, Missourians have heard repeated warnings about possible cuts to essential programs. Proposed reductions include services that help Missourians remain healthy, and those with disabilities live safely in their homes, or engage more fully in their communities.

Legislators from both parties have expressed a clear commitment to identifying and eliminating wasteful spending beforecutting essential services.

Representative Darin Chappell pledged to eliminate unnecessary spending before reducing vital programs, stating his intention to “wring every last penny” of waste before making cuts that could harm vulnerable Missourians.

These are reasonable goals. Transitioning to direct state administration for Medicaid offers a viable option to retain essential services and achieve meaningful savings without reducing benefits or eligibility.

Medicaid is one of the largest components of Missouri’s budget and one of its most important services. The program provides healthcare coverage to more than 1.2 million Missourians, nearly one in five Missourians. The program covers 40%of births, half of Missouri’s children, and ~66% of nursing home residents.

Medicaid is particularly important in rural communities, where hospitals often operate on thin margins. Since 2004, at least 12 rural hospitals in Missouri have closed; many others remain financially vulnerable. Medicaid funds keep these facilities open,  ensuring access to care.

In Missouri, the federal government currently funds approximately 78%of the Medicaid program — roughly $12.5 billion annually.

Missouri lawmakers are right to look for ways to control costs before reducing access to care. One potential solution could help address both at once.

Missouri currently contracts with managed care organizations (MCOs) to administer much of its Medicaid program. These organizations manage benefits and process claims for Medicaid enrollees. While managed care was intended to improve efficiency, it has come at a substantial administrative cost.

Missouri already directly administers the most medically complex portion of Medicaid, with administrative overhead estimated at approximately 1-3%. By comparison, managed care organizations operating in Missouri are estimated to have administrative overhead costs closer to 12%.

This difference represents a significant opportunity for savings.

Estimates suggest that transitioning to direct state administration and direct payment to providers could reduce Medicaid spending by up to $150 million in general revenue annually, primarily through lower administrative costs. There would also be one-time savings between $230-420 million from the claims lag on the outgoing managed care program after MCOs were paid their last fee.

At a time when lawmakers are considering cuts to disability services, and prevention programs, savings of this magnitude deserve serious consideration.

Another example of hidden administrative costs include legislation like HJR154 and SJR108 which would make Medicaid work reporting requirements a permanent part of Missouri’s Constitution. While work requirements are often intended to encourage employment and reduce spending, evidence from other states underscores that they increase administrative costs and cause eligible individuals to lose coverage due to paperwork and reporting requirements rather employment status while having no impact on employment numbers.

For Missouri, implementation costs are projected to reach approximately $131 million in the first year alone.

Missouri’s administrative capacity further heightens these concerns. The state has consistently struggled to meet federal Medicaid processing timelines, with periods where 50–72% of applications exceeded the 45-day federal requirement. Missouri has also been sued for failure to properly administer SNAP benefits, reflecting broader capacity challenges within the DSS. Under federal HR1, failure to maintain an error rate <3% could jeopardize $1.2 Billion in Medicaid funding.

If the goal is to eliminate wasteful spending, administrative inefficiencies deserve as much scrutiny as direct program costs.

Transitioning Missouri’s Medicaid program away from managed care organizations and toward direct administration would not solve every budget challenge. But it represents a practical opportunity to reduce waste while protecting services that Missourians rely on.