CMS’ Proposed Medicaid Managed Care Rule Poses Hurdle for States

Experts are warning that state Medicaid agencies struggling with budget issues could have a difficult time managing the Obama administration’s newly proposed Medicaid managed care rule,Modern Healthcare reports (Dickson, Modern Healthcare, 5/27).


CMS on Tuesday released the proposed rule, which aims to create more standardized practices across states and align managed care standards with those of the private market. The proposed rule would be the first update to Medicaid managed care rules in more than a decade.

The proposed rule calls for managed care plans to adhere to a medical-loss ratio of 85%, which would take effect in 2017. However, unlike the MLR for insurance plans established under the Affordable Care Act, insurers would not be required to repay states if they do not meet the threshold. Instead, states would use the information to set future payment rates so that plans are able to meet the MLR standard.

The proposed rule also aims to create standards to ensure beneficiaries can access adequate provider networks. Specifically, CMS has proposed states adopt distance and time standards for patients seeking behavioral health, ob-gyn and dental services. Further, CMS noted the number of children enrolled in Medicaid managed care plans and called for state rules for networks to reflect pediatric primary, specialty and dental providers.

The proposed rule also seeks greater transparency in how states determine plan payment rates. States would be required to give CMS enough information for the agency to understand the data and the reasoning for the rate.

In addition, the proposed rule includes guidance on long-term care. In the past, many state Medicaid programs had used fee-for-service payments for long-term care, though 26 states were using managed long-term care in 2014, according to CMS.  The proposed rule would let beneficiaries who are enrolled in long-term care change plans or disenroll and move to standard Medicaid coverage if their providers are out of managed care networks (California Healthline, 5/27).

States Could Struggle

According to experts, some state Medicaid agencies might not have enough staff or budget to handle the proposed regulations. Specifically, states could struggle with the proposed rule’s requirements that managed care plans be accredited at least once every three years. In addition, the proposed rule would require states to create a quality ranking system for the plans, similar to those used for Medicare and exchange coverage.

Tom Dehner, a managing principle at the consulting firm Health Management Associates, said some states — including Florida, Maryland, New York and Texas — already have versions of the accreditation requirements, making it easier for them to comply with the proposed rule. However, he noted that implementing a quality ranking system could be more difficult. Still, Dehner said because such systems exist for Medicare and exchange plans, states have the infrastructure needed to create a similar system for Medicaid.

Meanwhile, Gail Wilensky, former CMS director under President George H.W. Bush, said states could face troubles from insurers dropping out of the program because of the new requirements.

Despite the potential struggles, Matt Salo, executive director of the National Association of Medicaid Directors, applauded the proposed rule’s movement toward instituting quality measures for Medicaid managed care plans, adding, “Moving forward, it’s going to be about finding a balance with the CMS (to support) the direction some [states] are already going in” (Dickson, Modern Healthcare, 5/27).

Proposed MLR Likely Will Not Affect Insurers’ Profits

In related news, some experts say the proposed rule’s MLR requirement would not significantly affect insurers’ profits, Modern Healthcare reports.

According to the Kaiser Family Foundation, insurers in 28 of the 38 states that outsource their Medicaid programs to private insurers met MLRs of at least 85% in 2013. Many states already mandate MLR requirements, according to Modern Healthcare.

Further, industry observers said they expected the proposed MLR requirements. Joseph Marinucci, a credit analyst at Standard & Poor’s, said the MLR proposal was “not that much of a stretch” considering many of the plans already reach the 85% threshold. Barclays Capital senior analyst Josh Raskin also said he does not think the MLR will be “impactful for these plans.”

However, Modern Healthcare reports that the proposed MLR requirements might create difficulties for not-for-profit safety-net insurers, which usually cover large numbers of Medicaid beneficiaries with serious and chronic health issues. Such plans have profit margins that vary year over year, meaning a large profit surplus one year could be needed to offset significant losses in another year (Herman, Modern Healthcare, 5/27).

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