Managed care plans are likely to face cuts under plans to use block grants or per capita caps in Medicaid, but they also could have new opportunities amid a greater shift to managed care.

Feb. 23—Medicaid managed care plans will have to pay back $7.5 billion to states in 2017 under risk mitigation programs, according to the latest federal projections.

Most states cover newly eligible adults through managed care programs and use risk mitigation strategies to offset the possibility that the costs of those beneficiaries are greater or less than projected.

Reported and estimated collections from risk mitigation are expected to increase from $1.2 billion in 2016 to $7.5 billion for 2017, according to the latest report from the Centers for Medicare & Medicaid Services (CMS). Those clawbacks stemmed from estimated payments to those plans of $3.2 billion in 2014 and $5.5 billion in 2015.

The higher-than-needed payments stemmed from a lack of data on the healthcare costs of newly eligible enrollees under the expansion of Medicaid eligibility in 31 states as authorized by the Affordable Care Act (ACA).

Newly eligible enrollees were estimated to cost $4,281 per person, according to a 2015 actuarial report by the U.S. Department of Health and Human Services. But per enrollee costs for the newly eligible were actually $6,365 that year, according to the recent CMS report. However, those costs declined to $5,926 in 2016 and were expected to further decrease by 6.3 percent in 2017 and 3.3 percent in 2018, when they would fall below the $5,764 projection for previously eligible enrollees. Costs per newly eligible adult were 27.7 percent higher than those of other Medicaid adult enrollees in 2015 and were estimated to be 13.6 percent higher in 2016.

The financial impact of the clawbacks is not yet clear.

“It’s more than expected in that going in they expect to not have to do any clawbacks,” said Ari Gottlieb, director at the PwC network.

But those growing clawbacks most likely have not had much of a financial impact, Gottlieb said in an interview, because they have not come up in the earnings calls of publicly traded Medicaid plans.

“We’d actually heard that a number of plans were making big profits on this in 2015 and 2016 as a result of states estimating costs as too high, so it’s not surprising that there would be market corrections,” Matt Salo, executive director of the National Association of Medicaid Directors, said in an interview. “Not saying that’s exactly what you’re seeing here, but that is a dynamic at play.”

It is possible that Medicaid providers could owe a large part of the clawbacks because many Medicaid plan contracts—such as in California—pass along such financial risk to them, Gottlieb said.

Big Growth

Medicaid managed care plans cover 54.7 million Medicaid beneficiaries—or 73 percent of total enrollment, which is an increase from 55 percent in 2013, according to a PwC report. Since 2013, private Medicaid health plans added 20.5 million beneficiaries to their rolls, while the number in fee-for service or public managed care decreased by 2.8 million.

The number of private Medicaid health plans declined in 2016 for the first time in three years, dropping from 195 in 2015 to 183, according to PwC. The reduction stemmed from plans consolidating, ceasing operations, losing contracts, or exiting Medicaid.

Among the states that recently have expanded managed care is Iowa, which launched a new program in April 2016 to expand the share of managed care enrollees from 10 percent to 95 percent. Louisiana recently increased its proportion of managed care enrollees to 93 percent, from 69 percent in 2015, as part of the state’s Medicaid eligibility expansion.

Three Medicaid insurers in Iowa said they expected a combined $450 million loss for 2016, according to published reports. Industry observers said such losses may have stemmed from the state’s rapid rollout and don’t echo the financial situation of plans nationwide.

Policy Changes

Among recent policy changes that may bolster Medicaid plans was a new set of standards, effective July 5, 2016, for states to follow in developing actuarially sound capitation rates and for CMS to apply in its review and approval of rates.

“Going forward, there's a chance the new administration would seek to remove that requirement, though the rule was published far enough back that rewriting it would demand a complete process of issuing a new draft for public comment, reacting to the comments, and so on,” Robert Atlas, president of EBG Advisors, said in an interview. 

Repeal and Replace

The largest policy change drawing Medicaid insurers’ attention is the Republican plan to repeal and replace the ACA. That plan, as most recently indicated in an outline by House Speaker Paul Ryan (R-Wis.), would replace the federal funding of the Medicaid expansion with funding set at pre-expansion rates. States would be able to use either a per capita or block-grant funding approach.

Advocates of the change cite spiraling federal Medicaid costs, which by 2025 will be $741 billion just for the newly eligible population, according to CMS.

But under either per capita caps or block grants, large cost shifts to the states would occur over the long term if the growth rate in the federal funding failed to keep up with healthcare cost trends, Atlas noted.

However, if the federal matching rate (currently 95 percent) returned to the pre-ACA match (ranging from 50 percent to 75 percent), many expansion states are likely to find state money to retain the broader coverage, Gottlieb said.

“If it goes back to 50-50 you’ll see some states pull back, but a lot of them will keep eligibility where it is,” Gottlieb said.

He estimates that no more than 4 to 5 million of the 20 million newly covered since mid-2013 will lose coverage under such a scenario.

Ed Haislmaier, a senior research fellow at the Heritage Foundation who is helping congressional Republicans craft an ACA replacement agreed states with large Medicaid enrollments are likely to find state funding to keep most enrolled. He noted several states, such as New York, already covered most of their expansion population through waivers before the ACA expansion.

But others doubted even enthusiastic Medicaid expansion states would sustain enrollments if federal funding were reduced to the pre-ACA match.

“It’s almost impossible,” said Hannah Katch a senior policy analyst for the Center on Budget and Policy Priorities. In such a scenario she expected states to cut eligibility, provider rates, and covered services.

And she expected states to cut the rates of Medicaid insurers as part of any effort to offset lost federal funds.

Katherine Hempstead, a senior adviser for the Robert Wood Johnson Foundation, said states may target rate cuts to certain categories of beneficiaries while preserving rates among beneficiaries with high-cost care coordination needs.

She noted Medicaid plans could have new opportunities to expand coverage in the 19 states that have not adopted the expansion if those states were lured by per capita funding to expand eligibility.

“I would imagine if we see a per capita cap or something like that then we would see an expansion of managed care, so there could be some volume opportunities for companies in places that haven’t gone through managed care yet,” Hempstead said in an interview.

Haislmaier noted in an interview that the Trump administration is more likely to approve state waivers rejected by the Obama administration, which sought to provide more state coverage through approaches like uncompensated care pools or boosting hospital funding for treating uncovered patients.

“There is an argument that you might be better off just treating them because they are not going to stay enrolled, which is what we found in that population both in Medicaid and the exchanges,” Haislmaier said.

Another possible downside of block grants for Medicaid plans, according to Katch, is that approach would eliminate federal support for one-time emergency funding states frequently provide to insurers when they have an unexpected spending spike, such as those seen in recent years when costly new medications came to the market.

Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Thursday, February 23, 2017