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August 17, 2015 01:00 AM

Anthem, UnitedHealthcare among winners of Iowa Medicaid contracts

Bob Herman
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    Iowa's Department of Human Services has awarded Medicaid managed-care contracts (PDF) to AmeriHealth Caritas, Anthem, UnitedHealthcare and WellCare Health Plans, a move that will funnel the state's $4.2 billion Medicaid program into the hands of private insurers.

    For the winners, it's a fresh source of revenue and profit in an era when more health insurers are relying on government programs to pad their finances. The three-year contracts go into effect Jan. 1, assuming each winning company signs the final paperwork. Iowa's bid also left many managed-care companies in the dust, including one that already had some of the state's Medicaid business.

    Iowa announced the winners Monday afternoon in a “notice of intent to award” document. Anthem, UnitedHealthcare and WellCare are for-profit, publicly traded insurers that have large chunks of state Medicaid business across the nation. AmeriHealth is a not-for-profit insurer owned by Independence Blue Cross and Blue Cross and Blue Shield of Michigan.

    Iowa has about 560,000 Medicaid beneficiaries. The state expanded Medicaid under the Affordable Care Act and decided earlier this year to outsource its entire program under one managed-care system.

    Thirty-nine states and the District of Columbia farm out their Medicaid programs by paying fixed amounts of money to private managed-care plans. The plans, which are generally paid a monthly fee for every member, are then responsible for care management of the state's low-income beneficiaries. Excluding the new expanded Iowa contract, private insurers manage the Medicaid benefits for 46 million Americans, according to consulting firm Avalere Health.

    States have increasingly moved to managed Medicaid instead of the regular fee-for-service payment system because states can create more predictable Medicaid budgets if they pay predetermined rates. Managed care is also viewed as the best mechanism to root out unnecessary healthcare procedures.

    “This patient-centered approach will mean that Medicaid members get the right care, at the right time, and in the right setting,” Charles Palmer, Iowa's health department director, said in a statement Monday.

    But concerns have been raised over whether managed Medicaid actually saves states money or improves care quality. In 2012, Connecticut ended its 15-year experiment (PDF) with Medicaid managed care citing “uncertain cost-effectiveness” and “limited partnership with providers.” New federally proposed rules also aim to ensure managed Medicaid plans have adequate provider networks.

    Iowa will require each of the four companies to maintain a medical-loss ratio of 85%, which stipulates that at least 85% of the capitated payments must be spent on beneficiaries' medical care. That is the same ratio the federal government suggested state Medicaid agencies use in its proposed rule earlier this year.

    Anthem became one of the largest managed Medicaid insurers after it acquired Amerigroup in 2012. UnitedHealth Group also has a sizable Medicaid business that is growing. But financial analysts believe the contract is most beneficial for WellCare, which is much smaller than Anthem and UnitedHealth and therefore more reliant on these types of opportunities. WellCare's stock closed the day up 4.5% to $89.71.

    Seven other companies put in bids for Iowa's Medicaid contract: Aetna, Centene Corp., Gateway Health Plan, Magellan Health, Medica, Meridian Health Plan and Molina Healthcare.

    Magellan works with Iowa to manage behavioral healthcare services for Medicaid members, but the company will lose that contract since the state is consolidating all Medicaid care management. Magellan said Monday that the Iowa business generated $262 million of revenue in the first half of this year. Its stock fell almost 4% at the end of the day to $55.89.

    Centene losing out on the Iowa contract was somewhat surprising. The St. Louis-based company, which is in the process of acquiring Health Net, is a managed Medicaid powerhouse and has won numerous state contracts in the past year alone.

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