The finalized rule that will overhaul managed Medicaid is mere weeks away from being released. Ahead of its unveiling, the Obama administration is turning to Congress to add more enforcement "teeth" to a key policy in the rulemaking.
The CMS sent a shudder through the insurance industry last year when it suggested that states set a medical-loss ratio (MLR) of 85% for Medicaid plans, meaning at least 85 cents of every premium dollar must be used for medical care. The remainder can go toward administration, marketing and profit. Plans would not be penalized if they don't meet the ratio, but states could lower future payments if plans don't meet the minimum MLR.
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.
Days before the Obama administration sent a sweeping managed Medicaid finalized rule that included the MLR to the Office of Management and Budget for review, it released a legislative proposal deep down in its fiscal 2017 budget that would give the CMS explicit authority to mandate that states recoup funds when a Medicaid managed-care organization, or MCO, fails to meet the MLR threshold.
“By forcing Medicaid managed-care plans to return amounts spent in excess of the medical loss ratio, the CMS will have better leverage to ensure that these plans are operating efficiently and using money to provide and improve health services,” said Jon Kammerzelt, a health law attorney at Quarles & Brady. “In other words, the president's legislative proposal gives the medical loss ratio some 'teeth.' "
The legislative proposal in the budget suggests that the administration believes that states have the legal authority to set their own MLR. But the White House may not believe the federal government has existing legal authority to require states to enforce an MLR and collect remittances, added Mandy Pellegrin, a regulatory analyst at Obsidian Research Group.
Health plans are against Congress granting the new authority. “The (85%) MLR is an arbitrary number that's wholly unnecessary given the requirement already in place that states set actuarially sound rates for Medicaid health plans,” said Jeff Myers, CEO of Medicaid Health Plans of America. Indeed, many insurers already meet or surpass the 85% MLR.
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.
If it is permitted to implement a remittance policy related to a minimum MLR, the CMS must also make payments to plans when MLRs are considered too high, according to the Association for Community Affiliated Plans.
Such a policy is particularly important for safety net health plans which, because of their basic inability to exit a state when rates are inadequate, may find themselves in a situation where they are never able to recover from a particularly difficult rate year.
The chances that Congress will consider this proposal before the election is unlikely, especially because it's related to the divisive ACA, according to Bob Atlas, who is president of the EBG Advisors unit of healthcare law firm Epstein Becker and Green.
It's also unclear if managed Medicaid needs a national MLR, Atlas added. 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.
Second, while states all take different approaches to setting capitation rates, their methods, combined with the federal mandate for actuarial soundness, leave little room for excess MCO profit, Atlas said.
“Overall, there's a lot of transparency and competition,” Atlas said. “It's not easy for MCOs to squeeze providers on payment rates because Medicaid fee-for-service rates, the starting point for most negotiations, are almost always low to begin with.”
In the absence of any legislation to implement the HHS fiscal 2017 budget proposal, the CMS could finalize its proposed rule because it falls short of mandating states to impose a binding MLR requirement, according to Jeremy Earl, a healthcare attorney at McDermott Will & Emery.
The OMB review can take up to 90 days, which means the final rule with the MLR requirements could be published by mid to late May.
