Insurers are livid that the federal government may tell them how to spend their revenue.
The Obama administration released a proposed rule Tuesday for the Medicaid managed care program, which enables Medicaid recipients to get a private health plan subsidized by the state they live in. Regulations governing Medicaid managed care have not been updated since 2003.
The program has skyrocketed in popularity with about 74 percent of the Medicaid population in some type of managed care, according to the Centers for Medicare and Medicaid Services.
The most controversial portion of the rule is the introduction of a medical loss ratio, which outlines how much of a payment to an insurer should be dedicated to providing care and to administrative costs.
The rule recommends that 85 percent of a payment from a state to an insurer must be used to cover a medical claim and 15 percent on administrative costs.
Medicare Advantage, which allows seniors to buy private insurance, already has a similar ratio. They are also used in contracts between companies and insurers.
To be sure, the proposed rule would not install a cap. It would just recommend one for states to adopt.
Insurers are vehemently opposing it.
CMS doesn’t understand that a ratio is factored into contracts between states and managed care programs, said the Medicaid Health Plans of America trade group.
Currently 14 states have passed their own ratio for their Medicaid managed care program, and the percentages devoted to administrative costs varies. However, every state includes some type of cost ratio in its contract, Jeff Myers, president and CEO of the trade group, told the Washington Examiner.
He added that Medicaid, unlike many commercial plans, has to have significant patient communication that falls under administrative costs and could be left out by states.
The cap could undermine critical services such as transporting beneficiaries to and from appointments and other social services that count as administrative costs, according to the American Health Insurance Plans, the insurance industry’s main lobbying group.
One expert questioned whether the ratio is needed at all.
“Aren’t the states doing a good enough job creating a competitive marketplaces?” asked Dan Mendelson, CEO of the research firm Avalere Health.
Medicaid managed care is different than the private and Medicare markets because the profit margins are already low, Mendelson said.
He doubted that widespread adoption of CMS’ ratio would result in large-scale exits from the managed care market. “It just makes things more difficult,” Mendelson said.
Insurers’ revenues have increased due to enrollment booms from Obamacare, but so have their costs.
Take Aetna, which generated $844 million in operating earnings in the first quarter, a 17 percent increase from the same period in 2014. That increase happened as the company’s operating expenses also rose to $2.8 billion from $2.4 billion the year before. Aetna provides insurance to about 23 million Medicaid beneficiaries.
Comments on the proposed rule are due by June 27.
