GOP health plan could doom Medicaid managed care

Unless it's significantly revamped by the Senate, the House Republicans' bill capping federal Medicaid payments to the states could put Medicaid managed-care plans out of business.

The American Health Care Act, passed by the House in early May, would convert Medicaid from an open-ended entitlement to a system of per capita or block grant payments to the states. The growth of those payments would be kept below projected increases in actual Medicaid costs.

The bill also would phase out enhanced federal payments to the states for the ACA's expansion of Medicaid to low-income adults. In total, it would reduce federal Medicaid spending by a projected $834 billion over 10 years, according to the Congressional Budget Office.

But the House bill, which Senate Republicans currently are revising, isn't all bad news for Medicaid plans, because plans might see their enrollment increase, at least in states that didn't end their Medicaid expansion programs, experts said.

"States are going to look for what gives them budget predictability, and that's what managed care does," said Joe Moser, who served until recently as Indiana's Medicaid director and led the implementation of the state's Healthy Indiana 2.0 program. "You will see more states expanding their managed-care populations to more difficult populations."

Currently, more than 50 million people, or about 73% of Medicaid beneficiaries, are covered through Medicaid managed care, according to research firm PwC. Disabled people and those in need of long-term care and support largely remain outside of managed care.

But states could curb costs by shifting those populations to managed care as federal funds shrink, said Ari Gottlieb, a healthcare industry analyst with PwC, also known as PricewaterhouseCoopers. "A per capita cap could accelerate the trend of managed care," he said.

Nevertheless, the current fixed-payment formula congressional Republicans are proposing to use puts plans at risk. Insurers say the proposed formula would not provide adequate resources if there's an unexpected economic downturn, if major new public health needs develop, or if expensive new prescription drugs or other treatments emerge.

The House GOP bill would use fiscal 2016 as a baseline for each state's per-capita spending on five beneficiary groups—the elderly, blind and disabled people; children; adult expansion beneficiaries; and adult non-expansion beneficiaries.

Payments would increase annually at the rate of the medical component of the Consumer Price Index, except for the aged, blind and disabled, for whom it would rise at medical CPI plus 1 percentage point.

In federal fiscal 2016, total Medicaid spending reached $548 billion, with nearly half of all spending flowing through Medicaid managed-care plans. Managed-care spending hit $269 billion in 2016, up from $238 billion in 2015, according to the consulting firm Health Management Associates.

Locking the baseline at 2016 increases the odds that states will cut payment rates to managed-care plans if enrollment and/or medical costs rise, according to Leerink Partners analyst Ana Gupte.

Nationally, Medicaid plans' operating margins average average around 2%.

"I expect margin compression as states claw back rates in Medicaid to offset the funding pressure from the rollback in Medicaid funding and a move to per capita caps," Gupte said.

To ensure the financial viability of Medicaid plans under a per capita cap system, insurers hope Senate Republicans will revise the House bill's framework for federal Medicaid payments to the states.

"The concept of a per capita cap is fine," said John Lovelace, president of Medicaid, Children's Health Insurance Program and Medicare Advantage plans at UPMC in Pennsylvania. "It's a devil in the details conversation."

Insurers want Senate Republicans to revise the funding formula so that the baseline year for calculating the capped federal payments to the states changes at least every two years.

Insurers also want the Senate to include a provision that would require states to continue following federal actuarial soundness rules in setting payment rates to Medicaid plans.

Current federal rules require that rates paid to Medicaid plans cover all of the plans' medical costs, administrative costs, taxes and fees.

Without this protection, and if the House bill passes with no changes, the consequences could be dire for insurers, said Meg Murray, CEO of the Association for Community-Affiliated Plans, which represents safety net plans. Her group has strongly criticized the House bill's Medicaid provisions and other aspects.

"What we're worried about is that plans wouldn't be able to survive," Murray said. "It could end up fundamentally undermining the (Medicaid) managed-care system and all the good things that have occurred because of it."