I have had the chance to work in state government twice in my career. In fact, I have worked in two Commonwealths: Massachusetts and Virginia. Anyone that has spent time in both knows that the two states are very different. Massachusetts has the Red Sox, while, when I was living in Virginia, I spent a lot of nights going to AAA baseball games. Bostonians celebrate Patriots Day, while Virginia is now known as the Oyster Capital of the East Coast. They also opted into Medicaid at different times—Massachusetts in 1966 and Virginia in 1969.
Historically, US Centers for Medicare and Medicaid Services (CMS) has given states latitude to tailor their Medicaid programs to the individual populations they serve. CMS set policies like mandatory benefits and minimum standards on what populations need to be covered and the Federal Medical Assistance Percentage, which determines how much federal funding states receive for their program. But, outside of these federal policies, state programs vary along many dimensions. Some states have been innovative, taking advantage of flexibility in the law to “waive” various provisions to run the programs their own way. Others have taken a highly regulatory approach. Some states have relatively generous payment rates for managed care plans, and in other states, many managed care plans struggle to stay above water.
Just a few weeks ago, CMS proposed a rule that would make updates to policies for Medicaid managed care for the first time in more than a decade (see the June 2, 2015 Health Care Current). The proposed rule aims to create more national standards for the Medicaid programs using managed care and to align them with standards for exchange plans. It includes access, quality, managed long-term services and supports and rate-setting provisions and also proposes to cap how much of health plans’ premium dollars should be spent on administrative costs.
When I worked in Virginia, many states were just beginning to develop managed care programs for mothers and children. But today, Medicaid managed care is no longer an experiment. Now, 39 states and the District of Columbia have managed care programs, paying $115 billion to plans which earned $2.4 billion in operating profits last year. Nearly one in four Medicaid beneficiaries are in managed care plans. In these states, private plans provide coverage and access with state oversight. Arizona and Tennessee have been pioneers in transitioning their entire Medicaid programs into managed care.
As states show more interest in moving their Medicaid populations into managed care and health plans become more engrained into Medicaid programs, the medical loss ratio (MLR) and network adequacy requirements proposals in the rule are likely to be in focus for these stakeholders. At a high level, these provisions have constructive goals: to make managed care plans more efficient and give enrollees better access to care.
But, two questions come to light around these policies and may get attention over the next several months.
Could setting an MLR for Medicaid managed care penalize health plans that use administrative dollars for programs that aim to reduce health care spending, including fraud and abuse? The proposed regulation would set a standard MLR of 85 percent. This would require managed care plans to spend no more than 15 percent of the premium dollars that they receive on administration and profit. The rest would need to go to medical care. A few years ago, the National Association of Insurance Commissioners, managed care plans, regulators and consumer advocacy groups debated a similar policy for commercial plans and a compromise was reached for these stakeholders.CMS is considering a policy that would differ from that framework a bit. For example, it would create an allowance for fraud and abuse spending.
Should network adequacy requirements be based on time and distance requirements that typically start from current care patterns and get set into regulation? States should continue to have oversight over Medicaid managed care plans to make sure that enrollees have access to care. But, access is more than how far away a provider is. Quality and availability also matter. Policies that allow managed care plans to negotiate with providers may help drive down costs even more. Narrow networks are one tool that plans have to negotiate with increasingly concentrated providers. Non-face-to-face visits (e.g., telephone and video appointments) also have enormous potential to help reduce costs. These visits often leverage care teams that do not always include physicians.
Health plans that can work with providers to drive better health outcomes may see opportunities to expand and increase their market share. Flexible administrative solutions may help organizations to more effectively respond to future changes and opportunities. Health plans can take steps to improve care delivery by creating incentives for providers that reward medical cost containment and improve health outcomes at the same time. States that respond to changes in regulations by maintaining a policy of openness and transparency with health plans may find more opportunities for collaboration in their Medicaid program. Ultimately, flexibility and creativity may be a key to managing this transition.
As stakeholders mobilize around this regulation, I hope they will keep in mind that while a core set of standard measures to evaluate quality can bring out opportunities for improvement and highlight innovations that are bearing fruit, states and managed care plans may need flexibility to continue innovating. Excessively rigid regulation can work against innovation. CMS should consider whether these standards align well with its goal (and states’ goals) to get plans to manage risk effectively and develop innovative ways to do this.