Federal Spending for Medicaid Managed Care Tops $100B

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By Nathaniel Weixel

Jan. 19 — Federal spending for Medicaid managed care represented over one-third of the total federal Medicaid spending in fiscal year 2014, according to a government report (GAO-16-77) released Jan. 19 that highlights how states are increasingly turning to managed care as they expand Medicaid coverage under the Affordable Care Act.

The Government Accountability Office report said federal spending on Medicaid managed care rose from $27 billion in fiscal year 2004 to $107 billion in FY 2014. Managed care as a proportion of total federal Medicaid spending was higher in seven of eight selected states in fiscal year 2014 compared with fiscal year 2004, but total and average per beneficiary payments by states to managed care organizations (MCOs) varied.

The importance of managed care in Medicaid—under which states contract with MCOs to provide a specific set of services—has increased as states expand eligibility for Medicaid under the ACA and increasingly move populations with complex health needs into managed care, the report said. States have flexibility within broad federal parameters to design and implement their Medicaid programs, and therefore play a critical role in overseeing managed care.

Medicaid managed care plans serve some or all Medicaid enrollees in 39 states and the District of Columbia, and more than half of all Medicaid beneficiaries receive all or some of their care from risk-based managed care organizations.

The report comes as the Centers for Medicare & Medicaid Services is working to issue a final rule by April that would completely change the Medicaid managed care delivery system. The rule was proposed in June 2015. It aims to align Medicaid and Children's Health Insurance Program managed care plans with other sources of health insurance coverage (228 HCDR, 11/27/15).

The rule would represent the first update to managed care regulations since 2002. While certain new standards may represent a change for some states, other states may have already adopted similar standards in managing their programs.

Coverage Expansion

According to the report, there was significant growth in federal spending from 2013 through 2014, which suggests that the Medicaid expansion to low-income adults—and the increased availability of federal funds beginning in January 2014—also contributed to growth.

Under the ACA, the federal government will pay for the complete cost of expanding Medicaid through 2016. After that, the government's contribution will drop to 95 percent in 2017, and eventually to 90 percent by 2020. The federal share won't fall below 90 percent.

Medical Loss Ratio

According to the CMS, Medicaid and CHIP are the only health benefit coverage programs that don't utilize a minimum medical loss ratio (MLR) for managed care plans. The proposal would change that by requiring a minimum 85 percent MLR—which means that at least 85 percent of premium dollars should be spent on medical care, while no more than 15 percent can be spent on administrative costs and profit.

Many states already require an MLR, but there is no current federal minimum. According to the GAO report, five of the eight selected states had a minimum MLR percentage, which generally ranged from 83 percent to 85 percent. All managed care organizations in those five states had MLRs in state fiscal year 2014 that were above the state-required minimums, the GAO said.

The 85 percent minimum is currently the industry standard for Medicare Advantage and large employers in the private market. The CMS said its process for setting the MLR was more closely aligned with the commercial rules for plans in the ACA exchanges, such as those offered by companies including Aetna Inc. and Humana Inc. The proposal also didn't specify a maximum MLR; it left it up to the states to decide.

To contact the reporter on this story: Nathaniel Weixel in Washington at nweixel@bna.com

To contact the editor responsible for this story: Janey Cohen at jcohen@bna.com