Skip to content

5 Reasons Feds Are Overhauling Regs On Medicaid Outsourcing

Democrats want wider health care coverage. Republicans want privatization of government programs. They’re both getting their way with the Medicaid program for children and the poor.

Medicaid’s expansion under the Affordable Care Act has drawn lots of attention, although some states have resisted. Medicaid, which serves nearly 68 million Americans, is state-run with the majority of its finances coming from Washington.

But Medicaid management has also undergone profound change, with states increasingly outsourcing the care to private insurers such as Aetna, Centene and UnitedHealthcare.

Avalere Health projects that 76 percent of beneficiaries  in Medicaid and the related Children’s Health Insurance Program (CHIP) will be covered by private managed care by 2016, generating billions in profit for insurance-company shareholders. All but a handful of states now contract with private insurers to deliver comprehensive Medicaid care, according to the Kaiser Family Foundation. (KHN is an editorially independent program of the Kaiser Family Foundation.)

In an attempt to catch regulation up with reality, the Department of Health and Human Services updated its rules for Medicaid managed care this week for the first time in more than a decade. Proposals include quality-rating systems, profit limits and tighter requirements for doctor and hospital networks.

Here’s why HHS acted:

It’s not just core Medicaid for the poor that is shifting to managed care. So is CHIP, which covers kids in lower-income families that make too much to qualify for Medicaid. So is long-term Medicaid care for the elderly and the disabled, which is where the program touches some middle-class families.

Among other goals, HHS wanted to harmonize the rules between the programs and the different populations served.

Managed care is a huge business. Private insurers booked $115 billion in Medicaid revenue last year, according to data compiled from regulatory filings by Mark Farrah Associates and analyzed by Kaiser Health News.

Operating profit on those premiums came to $2.4 billion. Net profit, after accounting for taxes, depreciation and other expenses not directly connected to health coverage, would have been less.

Even so, HHS decided to limit insurer profits by creating a minimum medical loss ratio, similar to standards put in place for other health coverage by the federal health law. Insurers would have to plan to spend at least 85 percent of their revenue on medical care, not on administrative costs or profit.

Capitalizing on “member churn” between Medicaid plans and commercial coverage is a key insurer strategy.

Fluctuating incomes cause people to cycle in and out of Medicaid. When a member gets a job and loses her Medicaid eligibility, her insurer wants to keep the business by signing her up for a commercial plan sold through the health law’s online exchanges.

HHS’ new rules are supposed to control that process — allowing plans to educate members to promote coverage continuity but still prohibiting cold calls, spam and knocks on the door.

Doctor networks for Medicaid plans aren’t all they’re supposed to be. In a national survey last year by HHS’ inspector general, half the doctors listed in official plan directories weren’t taking new Medicaid patients.

HHS now wants states to certify at least annually, perhaps based on direct queries to doctors, that enough caregivers are in the managed-care network and close enough to plan members to serve them.

Health-care quality scores are the future. HHS awards stars to Medicare managed care plans for seniors based on benefits, member satisfaction and management of chronic conditions. Medicare has also started grading hospitals with star scores.

The agency hasn’t said whether Medicaid plans will get stars. But it promises some sort of “quality rating” system based on suggestions from stakeholders.

Related Topics

Medicaid The Health Law