Iowa opens Medicaid program to managed-care bidding

Two health insurers already operating in Iowa have indicated they will bid on Iowa's new proposal to outsource its $4.2 billion Medicaid program to managed-care companies. It's the latest state move to privatize the health insurance program for low-income Americans.

The Iowa Department of Human Services recently released a request for proposals, saying it will contract with two to four insurers to manage benefits and care for the state's Medicaid population. The contract also will cover residents with coverage through the state Children's Health Insurance Program and people who qualify for substance-abuse services.

Chris Rigg, an analyst at Susquehanna Financial Group, said in an investor note that he expects most or all Medicaid managed-care companies to bid for the Iowa business.

Bids are due May 8, and preliminary winners are scheduled to be announced around July 31. Iowa officials will negotiate final terms with the winners in August before the contract goes into effect Jan. 1, 2016. The state expects the contracts, which will pay insurers a capitated per-member, per-month amount, will save $51 million in 2016, Iowa Department of Human Services spokeswoman Amy McCoy said.

Iowa is not the only major Medicaid contract in play this year. Georgia is rebidding the Medicaid managed care for its roughly 1.5 million enrollees. Anthem, Centene Corp. and WellCare Health Plans are the incumbents, and Georgia said it could choose up to four insurers.

More than two-thirds of states contract out some or all of their Medicaid program to private companies. The Congressional Budget Office estimated that federal spending on Medicaid managed care will increase 39%, from $74 billion in 2013 to $103 billion in 2015. HHS believes 57% of Medicaid beneficiaries were enrolled in Medicaid managed-care organizations as of July 1, 2011, compared with 10% in 1991. The consulting firm Avalere Health projects that 75% of Medicaid beneficiaries will be covered by managed-care organizations starting in 2015.

But some experts say it's not clear that contracting out Medicaid programs to private managed-care companies saves money or improves quality. Nevertheless, Medicaid managed care is attractive to states because it provides greater predictability on costs. Insurers are paid a negotiated fixed rate for each beneficiary. If plans wind up spending more on enrollees than the capitation amount, the insurance company is on the hook for the difference.

Iowa's request for proposals could be a boon for the winning insurers. The state last year expanded Medicaid under the Affordable Care Act through a waiver program called the Iowa Health and Wellness Plan. Iowa's Medicaid program had about 570,000 low-income enrollees as of last November, according to data from the Kaiser Family Foundation.

Under the waiver, adult Medicaid members under the expansion are charged a monthly contribution toward their premium if they don't complete a wellness exam or health-risk assessment. They also receive premium assistance, which could go toward Medicaid or a marketplace plan. Those members will be included in the new managed-care contracts, McCoy said.

For-profit Meridian Health Plan of Iowa said it will submit a bid before the deadline. Meridian already covers 41,000 Iowa Medicaid members (PDF).

Magellan Health, a for-profit managed-care company that also works with Iowa's Medicaid program, intends on submitting a bid as well, the company said in a regulatory filing last week.

Wellmark and Aetna, two of the biggest insurers in Iowa, declined to comment on prospective business. Anthem, Molina Healthcare and UnitedHealth Group—publicly traded companies with large volumes of Medicaid members—also declined to comment. Medicaid insurers Centene and WellCare did not respond to queries about whether they would submit a bid.

Correction, July 28, 2015:

This article has been updated to indicate that Meridian Health Plan is a for-profit company.