Winding Down the Financial Alignment Initiative: State Strategies to Transition Dual Eligible Members to D-SNPs

Medicare-Medicaid IntegrationPolicy Analysis and Development
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Dual eligible individuals (people enrolled in both Medicare and Medicaid), often face challenges navigating their health care between two complex benefits programs. In 2011, the Centers for Medicare & Medicaid Services (CMS) set out to test ways to enhance care for this population by launching the Financial Alignment Initiative (FAI). This demonstration authorized 13 states to pilot approaches to integrate care for dually eligible individuals through a capitated model (i.e., using managed care plans), a managed fee-for-service model, or an alternate approach. Ten states tested the capitated model by creating Medicare-Medicaid Plans (MMPs), where the MMP enters a three-way contract with the state and CMS to provide Medicare and Medicaid benefits under one plan; two states opted for a managed fee-for-service model; and one state worked with CMS on an alternative model.

As the FAI ends on December 31, 2025, there are eight states currently participating in the capitated model that will transition their MMPs into new dual eligible special needs plans (D-SNPs). D-SNPs are Medicare Advantage plans that only enroll dually eligible individuals and must coordinate the delivery of Medicare and Medicaid services.

The transition from FAI into D-SNPs signals changes in the Medicare-Medicaid integration landscape as states consider lessons from the demonstration and map out long-term strategies for integrated D-SNPs. In this blog, we look across states transitioning out of the capitated model to review updates as they transition MMPs into integrated D-SNPs.

Building on the Demonstration

States transitioning out of the FAI demonstration are well-positioned to enhance future integrated D-SNP products by applying best practices from the demonstration, such as aligning enrollment to offer a more integrated experience for members and carrying over benefits from the demonstration.

Aligning Enrollment to Enhance Integration

States can enhance coordination by requiring D-SNPs to become an Applicable Integrated Plan (AIP), which cover Medicaid benefits and only enroll full-benefit dually eligible individuals whose Medicaid is covered by the D-SNP or an affiliated Medicaid plan – known as exclusively aligned enrollment. AIP D-SNPs retain important enhancements from the demonstration, such as integrated member materials, state-specific care coordination requirements, and integrated appeals and grievances. These FAI features received wide support from members and advocates across all participating states, as reflected in reports from Michigan and Rhode Island. Many of the transitioning states will offer D-SNPs that are AIPs for the first time.

Level of D-SNP Integration with Medicaid Benefits

There are three types of D-SNPs, each with a different level of integration and requirements for aligned enrollment: coordination-only D-SNPs, Highly Integrated D-SNPs (HIDE SNPs), and Fully Integrated D-SNPs (FIDE SNPs). These types of D-SNPs are designated based on the scope of Medicaid benefits each state provides through contracting with Medicaid managed care organizations.

Few demonstration states currently offer D-SNPs with high levels of integration or exclusively aligned enrollment. However, after the transition from MMPs to D-SNPs, many states will offer D-SNPs with a higher level of integration than they have today. Michigan, South Carolina, and Texas plan to transition MMPs into HIDE SNPs and Illinois, Massachusetts, Ohio, and Rhode Island plan to transition MMPs into FIDE SNPs.

Table 1: Overview of MMPs and Future D-SNP Integration in FAI States

Services Table
FAI Participant State Demonstration Geography Demonstration Enrollment (As of May 2025*) Highest Level of D-SNP Integration, Post 1/1/26 Anticipated Geography of Integrated D-SNPs for 2026
Illinois Statewide 77,300 FIDE SNPs Statewide
Massachusetts Regional 40,130 FIDE SNPs Statewide
Michigan Regional 34,670 HIDE SNPs Regional, with plan to expand HIDE SNPs statewide in 2027
New York Regional 1,720 FIDE SNPs Regional
Ohio Regional 55,430 FIDE SNPs Statewide
Rhode Island Statewide 11,080 FIDE SNPs Statewide
South Carolina Statewide 8,280 HIDE SNPs Statewide
Texas Regional 15,830 HIDE SNPs Regional

*Data provided from the Integrated Care Resource Center, Monthly Medicare-Medicaid Plans Enrollment Report (May 2025). Enrollment has been rounded to the nearest tenth.

Benefits

The FAI demonstration gave participating states flexibility to offer additional benefits beyond standard Medicare and Medicaid coverage. To carry forward these additional benefits and meet specific needs of the state’s dual eligible population, Massachusetts proposed a Section 1115 Demonstration waiver amendment that would allow FIDE SNPs to continue to provide community-based services that promote and support independent living, address health-related social needs, and retain demonstration rules for continued Medicaid coverage during a deeming period. The proposed amendment also expands these benefits beyond the demonstration population to also include the state’s existing Senior Care Options FIDE SNP program. Similarly, Illinois’s procurement documents for FIDE SNPs noted that plans will be responsible for covering health-related social needs, which was approved in 2024 as part of the amendment for the state’s HealthCare Transformation 1115 Demonstration waiver.

Contracting with Managed Care Organizations (MCOs)

At this point, most FAI transition states have completed selection of MCOs for their new integrated D-SNPs. The procurement process presents an early opportunity for states to establish their requirements for new D-SNP contracts and incorporate elements of the demonstration three-way contracts. MACPAC's June 2023 Report to Congress on Medicaid and CHIP noted procurement as a key area for monitoring potential challenges in states’ transitions. Almost all states have pursued a procurement process for the new D-SNPs, except for South Carolina and Texas which are maintaining the same MCOs currently offering MMPs. States that went through a procurement process generally offered contracts to both the MMP parent companies and new organizations.

Looking Ahead

States have the important job of carrying out a smooth transition for MMP enrollees while also establishing requirements for new D-SNPs. As our team supports several states in navigating this transition, we are also monitoring developments across all transitions such as state-specific requirements for D-SNPs, processes for cross-walking MMP enrollees into D-SNPs, and provider and stakeholder engagement strategies.

Aurrera Health Group has extensive experience with both the FAI and D-SNP model over the last decade supporting California on policy development, implementation, and stakeholder engagement for the state’s transition. Our team has published articles on D-SNP integration considerations with Health Affairs, which includes lessons learned from California’s stakeholder engagement work for the FAI transition, and impacts of federal policy updates on state approaches to integrated programs.

If your state or organization is interested in learning more about Aurrera Health’s capabilities in supporting Medicare-Medicaid integration policies and programs, please reach out to Aurrera Health’s Managing Principal Kristal Vardaman.

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