Low rates could drive insurers from Medicaid managed-care plans

Several states soon may see an exodus of managed Medicaid plan insurers if they don’t increase rates to help companies offset rising administrative costs, according to a new report.

More than 50 million Medicaid beneficiaries in 39 states receive healthcare through managed-care programs, but many states aren’t paying insurers enough money to generate an adequate margin on that business. Unless states increase Medicaid insurance companies’ rates, insurers may have to rethink managed care altogether, according to a report from the Society of Actuaries.

Nationally, managed Medicaid margins—the difference between revenue and expense—average around 2%, according to the report. Although there’s a temptation to call that amount profit, that’s not the case, according to Sara Teppema, the report’s co-author and an actuary for Blue Cross and Blue Shield of Illinois, Montana, New Mexico, Oklahoma and Texas.

“It’s about a lot more than just profit,” Teppema said. “There are other things that have to be factored in when we’re talking about margins.”

That includes, for example, income taxes and funds to cover unexpected expenses, such as a public health crisis. Companies also have had to dip into their margins for technology to comply with new alternative pay models or Medicaid requirements, the report said.

“States need to understand that insurance companies are footing the bill for extra costs,” said Dr. Don McCanne, a senior health policy fellow at Physicians for a National Health Program, an advocacy organization.

The report, which included data from the National Association of Insurance Commissioners’ annual filings, did not break down actual profit numbers since that information isn’t disclosed on those reports.

“Without providing an opportunity for sustainable margins, states would not attract and retain managed-care organizations in their programs and would be forced to forgo the (savings) that the model promises to deliver,” the report said.

Some states are already seeing the impact of those unsustainable rates. Minnesota faced a setback late last year when Medica announced it would not continue its managed plan in 2017. Medica’s canceled plan covered more than 300,000 beneficiaries.

Officials at Medica said they felt they had no choice but to exit the market. The company lost $187 million in 2016 and estimated it would have lost another $100 million had it stuck around in 2017.

“If we accepted the state’s final offer, we would put the organization’s solvency at risk,” Greg Bury, a spokesman for the company, said in a statement. “While serving Medicaid enrollees is an important part of who Medica is, we cannot risk our ability to serve 1 million non-Medicaid members if the entire organization is at risk.”

The Society of Actuaries’ findings come as Republican lawmakers mull ways to cut Medicaid funding to states.

“This document may be designed in part to provide a little bit of a defense against potential cost-cutting measures,” said Katherine Hempstead, a senior adviser at the Robert Wood Johnson Foundation. Insurers feel vindicated by the study. “This ends the erroneous assumption that managed Medicaid plans are making money hand over fist,” said Alexander Shekhdar, vice president of federal and state policy at Medicaid Health Plans of America.

The report found some plans that had higher margins than the national average. Trilogy Health Insurance, a Medicaid plan in Wisconsin, had a margin of more than 17% in 2015. However, the report indicates the margin is the result of an increased payment from the state after the plan had a negative margin of 32% in 2014. The plan had entered several new markets that year and the rates didn’t cover the plan’s costs that year.

What happened with Trilogy is not an anomaly, experts say.

“There is room for improvement on actuarial soundness in managed Medicaid,” Leerink Partners analyst Ana Gupte said. “Plans typically lose money in the first one to two years of new contract implementation and seek rate increases as they gain medical claims experience.”

There’s a growing need to ensure that plans find managed care lucrative as states add more and more residents to managed-care rosters. Many of these new populations previously have been excluded from managed care because of their complex health needs, according to Michael McCue, a professor of public health at Virginia Commonwealth University.

This includes people who need long-term support and services and dual-eligibles, who are eligible for both Medicare and Medicaid and often face multiple chronic conditions.

It’s unclear if the report will cause states to act, as states feel they now take margin into account when developing rates. Not ensuring plans are adequately paid would be counterproductive to ensuring access to coverage said Matt Salo, executive director of the National Association of Medicaid Directors.

“There’s no value in an undercapitalized partner in this,” Salo said.