Healthcare Business News

Reform Update: Actuarial study could affect Medicaid managed-care rates

By Virgil Dickson
Posted: May 27, 2014 - 4:15 pm ET

The CMS has unveiled two initiatives that could significantly affect pay and operations for Medicaid managed-care plans and healthcare providers serving millions of low-income and disabled Americans.

The agency has launched a study of the adequacy of how the states set payment rates to plans, which in turn affects the adequacy of reimbursements to providers, said Camille Dobson, a senior policy adviser at the CMS, at the Institute for International Research's Medicaid Managed Care Congress in Baltimore on May 21.

The analysis involves Medicaid policy staff teaming with the CMS' Office of the Actuary to determine if payments are actuarially sound. It will look at whether the payments cover all anticipated medical costs, administrative costs, taxes and fees a plan will be responsible for, but also to ensure that health plans are not overpaid.

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The CMS intends to release the findings of the actuarial review of payments sometime this summer. Dobson suggested that the findings so far have been troubling. “The actuary certifications are concerning from our perspective and these are probably longstanding issues,” she said.

CMS' investigation into actuarial soundness comes after years of criticism that the agency has been inconsistent in reviewing states' rate-setting for compliance with the Medicaid managed-care actuarial soundness requirements. There have been reports that some plans received payments that were too high while others received payments that were too low. A 2010 GAO report found that Tennessee, for instance, received approximately $5 billion a year in federal funds for rates that had not been certified by an actuary.

In addition, the CMS is in the process of drafting a sweeping new rule that will update managed Medicaid regulations. The document will be released by the end of the year. CMS officials believe the new guidelines are necessary given that most of the current rules were drafted in 1998. “They reflect an outdated view of what managed Medicaid does,” Dobson said. She added that the agency felt it was time to update the regulations given that millions more Americans have enrolled in Medicaid due to the expansion of the program under the Patient Protection and Affordable Care Act.

She said she was limited in what she could say about the upcoming proposal, though she said the industry could expect some stronger beneficiary protection language. Further, the document will weave together relevant provisions of major laws that have been passed in the last decade, including the Children's Health Insurance Program reauthorization provisions of the ACA.

One likely update will involve incorporating a 2013 guidance on paying for long-term care using capitated reimbursement rather than fee-for-service payment, according to Medicaid Health Plans of America.

Currently, 37 states and the District of Columbia contract with Medicaid plans, according to Medicaid Health Plans of America, a national trade association. Revenue from Medicaid managed-care contracts totaled roughly $78 billion in 2012, or 18% of the total insurance company revenue, according to research firm Mark Farrah Associates.

Of the estimated 5 million Americans who signed up for Medicaid during the 2014 open enrollment period for insurance coverage on the exchanges, nearly 100% are in managed-care plans, said Barbara Coulter Edwards, director of the CMS' disabled and elderly health programs group at the Medicaid Managed Care Congress.

In February 2012, Sen. Chuck Grassley (R-Iowa) raised the issue of whether inadequate state rates to plans were affecting what healthcare providers were being paid. He sent a letter to all 50 state Medicaid directors stating that he had seen no evidence that the CMS or the states have improved their ability to confirm that managed-care plans are appropriately reimbursing providers for services. “If an entity is paid too little, the access to and quality of care provided to beneficiaries is jeopardized,” Grassley wrote. “If an entity is paid too much, scarce Medicaid resources are diverted away from providing services to beneficiaries,” the letter read (PDF).

The letter was followed by a House Energy and Commerce Committee hearing on the issue in May 2012, during which the GAO reiterated their concerns and noted little progress had been made.

As of 2014, the GAO's recommendations that the CMS implement a mechanism for tracking state compliance, release guidance for CMS officials on conducting rate-setting reviews, and require states to provide the CMS with a description of actions taken to ensure the quality of the data used in setting rates have not been fully implemented though there has been some progress, according to a GAO spokeswoman.

At a Society of Actuaries conference last summer, the CMS said it was on track to address the GAO's recommendations (PDF). Agency officials said the CMS intended to begin proactively establishing rate-setting policy in a way that balances state and federal interests. They said state budget problems sometimes played a role in the actuarial soundness of state rates to plans.

CMS officials also participated in the formation of a proposed Actuarial Standard of Practice, created by the Actuarial Standards Board, that will be mandatory for actuaries to follow once it's finalized later this year. The standard was developed to establish guidance for actuaries preparing state capitation rates for Medicaid plans; up to now actuaries have used various methods to prepare the capitation rates. Comments on this proposed standard of practice were due to the Actuarial Standards Board on May 15.

The definition of actuarial soundness was expanded in the document to include taxes that must be paid by plans. Insurers were concerned about whether they would be reimbursed for the health insurance premium tax established by the Affordable Care Act, which is expected to raise $8 billion in 2014 and $100 billion over the next decade to help fund the health reform law.

Colleges to use Medicaid to cover student healthcare

Some colleges are taking advantage of Medicaid expansion in their states by offering health coverage to students at little or no cost. They are tapping Medicaid payments to cover the premium for students' coverage in student health plans, Kaiser Health News reports.

In states that expanded Medicaid coverage to adults with incomes up to 138% of the federal poverty level, HHS regulations (PDF) issued last year made this possible. Colleges and universities across the country, including in New York, Connecticut and Oregon, are looking to take advantage of the policy. This will be more problematic for schools and students in states that have not expanded Medicaid.

Some schools will offer Medicaid-subsidized coverage in private student health plans, with Medicaid coverage available as backup to fill in any gaps in the student plan.

Medicaid expansion by executive order in Virginia?

Sen. Tim Kaine (D-Va.) believes some Virginia Republicans secretly want Democratic Gov. Terry McAuliffe to expand Medicaid through an executive order rather than going through the Legislature for approval, the Hill reports. He said Republicans in Virginia want it to happen, but don't want to have to be responsible for the vote.

“I actually think there are some who would actually rather he do it in an executive way,” Kaine said. “They want it to happen but they don't want to vote for it to happen and they'd rather he do it.”

Any move by McAuliffe to implement the Medicaid expansion administratively almost certainly would be challenged in court. Hospital leaders in Virginia strongly favor a Medicaid expansion.

Follow Virgil Dickson on Twitter: @MHvdickson

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