The federal government is loosely capping the profits of Medicaid managed-care insurers. But many large companies already live within the proposed ratio, raising questions about the regulation's influence.
Starting in 2017, lump sum rates paid to Medicaid managed-care plans should follow an 85% medical-loss ratio, the CMS said Tuesday. That mark indicates at least 85 cents of every premium dollar must be spent on medical care, while the remaining 15% can go toward administration and profits.
The 85% threshold was mostly expected by industry observers. “It's not that much of a stretch,” said Joseph Marinucci, a credit analyst at ratings agency Standard & Poor's. He adds that 85% MLR is not far from what many plans already reach.
Wall Street analysts were even more bullish, saying the rules provide more certainty for Medicaid plans. “With respect to these regulations, we believe that the passage and lack of any material negative surprises should serve as a clearing event for the space,” Josh Raskin, a senior analyst at investment bank Barclays Capital, said in a research note Tuesday. He added that the 85% minimum MLR is not “impactful for these plans.”
Many states already mandate a Medicaid benefits ratio. Twenty-eight of 38 states that outsourced their Medicaid programs to private insurers had average MLRs of at least 85% in 2013, according to the Kaiser Family Foundation.
Implementing a MLR for Medicaid and the Children's Health Insurance Program would bring the programs in line with the private health insurance market and Medicare Advantage, the CMS said. The Affordable Care Act required MLRs of 80% and 85% for individual and large-group policies, and Medicare Advantage has an 85% requirement.
The primary goal of the MLR is to prevent insurers from restricting patient care to pad their bottom line. However, setting a MLR that is too high could discourage insurers from participating and could leave managed-care beneficiaries with fewer options.
CMS studies found the average MLR of Medicaid plans between 2011 and 2013 was between 85.5% and 87.9%, although a quarter of plans had MLRs below 83.6%. “Thus, we would expect a substantial number of plans would likely not meet a minimum loss ratio of 85% each year,” the CMS said in Tuesday's rule.
However, many large for-profit health insurers that focus almost exclusively on Medicaid have MLRs that are above the CMS proposal. Molina Healthcare posted a Medicaid MLR of 88.7% in the first quarter this year. Centene Corp.'s Medicaid MLR totaled 87.6%. WellCare Health Plans had a Medicaid ratio of 87%. Their overall profit margins generally don't exceed 3%.
Anthem and UnitedHealthcare, two of the largest private Medicaid insurers, are more profitable, but they do not separately list out their Medicaid MLRs in federal financial filings. Anthem said it does not release that level of information by business unit. UnitedHealthcare did not respond to requests for information.
MLR regulations for not-for-profit safety net plans could pose some problems. Those plans typically cover high numbers of Medicaid patients with acute and chronic conditions, and their profit margins could vary widely from year to year. A large surplus one year may be needed to offset large losses in another.
The Association for Community Affiliated Plans, which represents 59 safety net insurers, did not immediately address the government's MLR proposal and said it will continue to review all provisions. In October, the organization sent a letter to the CMS arguing that a nationwide MLR with little state-by-state flexibility could disproportionately affect its member plans.
Medicaid plans that don't meet the 85% figure will not face penalties but they will have their rates reduced in future years.
The CMS did not set a federal guideline for a maximum MLR, instead passing that responsibility onto states. The agency said if MLRs are greater than 100%, then “there is a possibility that the capitation rates were set too low.” States should consider the maximum MLR “to ensure that the capitation rates are adequate for necessary and reasonable administrative costs,” the CMS said.
