Medicaid spending is an increasing burden on already stressed state budgets. The states find themselves trapped between these growing costs and mounting pressure to ensure access of the underserved to health care services. States are hopeful that managed care is the answer to meeting the seemingly diametric needs of reducing costs while increasing access. However, evidence of performance measured in cost, access, and quality, and financial viability is inconclusive. Nevertheless, there have been some successes and, clearly, Medicaid managed care has potential. The unanswered question is the extent to which states can meet the diverse challenges of both Medicaid and managed care and tap that potential.