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Major Reforms Proposed for Medicaid Program: How Are Patients Impacted?

June 18, 2015

The Centers for Medicare and Medicaid Services (CMS) has issued long-awaited proposed rules for Medicaid managed care organizations.  However, the 39 states that contract with managed care plans for their Medicaid populations are expected to resist the new rules, which some observers say will reduce autonomy on the part of states to determine how to run their Medicaid programs.  It will be critical within these next few months to watch how the proposed rules evolve into a final rule.

The Centers for Medicare and Medicaid Services (CMS)

 

Last month, the Centers for Medicare and Medicaid Services (CMS) issued long-awaited proposed rules for Medicaid managed care organizations – private insurance companies that receive a set amount to money from state agencies to care for entire Medicaid populations. The proposed rules, which govern a program that has expanded significantly over the past decade to include about 46 million beneficiaries and 73 percent of the total Medicaid population, have not been updated since 2003. The 39 states that contract with managed care plans for their Medicaid populations are expected to resist the new rules, which some observers say will reduce autonomy on the part of states to determine how to run their Medicaid programs.

The more than 600-page document, currently open for public comment on the federal register, proposes the following rules, among others:

 

  • Sets a required medical loss ratio (MLR) for plans at 85 percent. MLR is the percentage of a health plan’s revenue that is spent on actual medical care instead of administrative expenses and profits;

  • Requires plans to be transparent about which health providers and services are covered, ensuring that consumers understand their “network adequacy” and have options within a certain distance from their zip code before enrolling;

  • Requires states to provide more accurate figures regarding payments to health plans to ensure that plans are not being overpaid or underpaid in capitated (per-patient budget instead of traditional fee-for-service) arrangements;

  • Allows Medicaid beneficiaries in managed long-term care to switch to fee-for-service plans without extra expense if their long-term care provider is out-of-network.

 

The motivation for these changes, according to CMS administrator Andy Slavitt, is to bring Medicaid managed care plans in line with reforms that have been implemented, and proven tenable, across other parts of the health insurance industry. CMS found that while medical loss ratios of Medicaid managed care plans are on average higher than the 85 percent minimum, one in four were below 83 percent and one in 10 were below 79 percent.

Medicaid managed care, which primarily includes seniors and persons with disabilities who tend to require more long-term treatment and care, is a costly system. Enrollment in managed care has increased dramatically over the last few years and the non-partisan Congressional Budget Office (CBO) estimates that Medicaid’s yearly spending which is currently at $60 billion, will exceed $100 billion a year by 2023.

While seniors and those with disabilities are the populations that will be most impacted by these proposed rules, other patients with Medicaid will benefit as well. Currently, Medicaid programs have time/distance rules where primary care providers must be available to those enrolled within a certain time or distance. The proposed Medicaid rules would seek to expand this requirement to OB/GYN, behavioral health and dental care. This would mean that Medicaid members would have greater access to services that might have been out of reach before.

These proposed rules seek to provide more uniformity in regulations across states and increase accountability. Nationwide it was found that nearly 40% of Medicaid/Medicare certified nursing homes only receive a 1 or 2 star rating out of 5 on the CMS scale. Advocates of these changes believe that best practices should not vary from state to state. CMS’ Slavitt said in a statement, “this proposal will better align regulations and best practices to other health insurance programs, including the private market and Medicare Advantage plans, to strengthen federal and state efforts at providing quality, coordinated care to millions of Americans with Medicaid or CHIP insurance coverage.”

Not surprisingly, the proposed regulations are being met with strong resistance from Medicaid managed care organizations. Jeff Myers, President and CEO of the Medicaid Health Plans of America (MHPA), says that the rules diminish state decision-making and autonomy. “States, because of the nature of providing care for their individual citizens, may choose to have some things included in the MLR and some things not included. The way in which you manage case management or other ancillary services varies state to state.”

Those different methods, as Myers and his counterpart at America’s Health Insurance Plans (AHIP) have stated, include administrative expenses that provide personal care management services to keep patients healthy and avoid expensive hospital visits. If plans are compelled to keep non-medical expenses under 15 percent of revenue, it could compromise these services in addition to the targeted overhead expenses and profit.

“An arbitrary cap on health plans’ administrative costs could undermine many of the critical services – beyond medical care – that make a difference in improving health outcomes for beneficiaries, such as transportation to and from appointments, social services, and more,” said Dan Durham, the interim CEO of AHIP.

Recent analysis from commentators has indicated that the new rules should not be a significant challenge for insurers. Joseph Marinucci, a credit analyst at Standard & Poor’s, told Modern Healthcare that “it’s not much of a stretch” because most plans already reach an 85% MLR. From Josh Raskin, a senior analyst at Barclays Capital: “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.”

With these proposed rules, CMS is attempting to bring the Medicaid managed care industry into line with existing rules across the industry. While the impacted stakeholders are pushing back, observers do not think the rules will dramatically alter the Medicaid managed care landscape from a business standpoint.

It will be critical, however, to watch how the proposed rules evolve into a final rule based on comments submitted in the next two months. Josh Gorman, founder of a health consulting firm, told Bloomberg that “this is literally the biggest healthcare regulation in a dozen years.”

And while the battle over details is fought mostly between federal regulators and the industry, the growing number of Medicaid beneficiaries who rely on managed care coverage ought to be represented in the process as well.

 

Authors’ note: If you have comments regarding these proposed changes, we encourage you to review the proposal and leave your comments. You can make comments until July 27, 2015.

Student Blog Disclaimer
  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.

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