Federal officials have granted Kansas permission to overhaul Medicaid, allowing the state to turn the $2.9 billion-a-year program for the needy over to three private insurance companies next year as planned, Gov. Sam Brownback announced Friday.

The state already has awarded contracts to subsidiaries of three multibillion-dollar, out-of-state companies and assigned each Medicaid participant to one of them so the firms can begin managing the entire program Jan. 1. The state covers medical services for about 395,000 poor, disabled and elderly Kansans, and the companies have three-year contracts.

The administration of the Republican governor has argued that moving all of the state's Medicaid participants into a managed-care program will give them better coordinated and more comprehensive services while controlling costs. State officials have projected that the changes will save Kansas more than $1 billion over the next five years, though critics are skeptical.

Kansas needed the U.S. Department of Health and Human Services to waive some of its rules if the overhaul was to go forward because the federal government provides the majority of funds for states' Medicaid programs.

Brownback called the announcement "extraordinary" and said Kansas would continue to work with federal officials to finalize the terms and conditions of the waiver ahead of the Jan. 1 start date.