Medical Loss Ratio Draws Early Reaction in Medicaid Managed Care Rule

In CMS’ 700-page proposed rule to overhaul Medicaid managed care, three words have drawn insurers' attention: medical loss ratio.

This calculation, known as the MLR, dictates how much of the premium that is collected must be spent on actual healthcare and not administrative costs. It’s already one of the more controversial elements of the Affordable Care Act (ACA). Under a sweeping overhaul of Medicaid managed regulations proposed yesterday, the same MLR in the ACA for qualified health plans, 85%, would be recommended in contracts for Medicaid and Children’s Health Insurance Plans (CHIP). Today, 39 states have some form of managed care in Medicaid, and CMS' own surveys show the MLR is below 85% in several states.

This concept, though not entirely unexpected, drew fire from insurer groups last night as the proposal circulated.

America's Health Insurance Plans (AHIP), the giant trade organization representing insurers, announced through its interim CEO that it was pleased with the overall commitment to flexibility in the rule, but the MLR provision was singled out. “An arbitrary cap on health plans' administrative costs could undermine many of the critical services—beyond medical care—that make a difference in improving health outcomes for beneficiaries, such as transportation to and from appointments, social services, and more,” interim AHIP CEO Dan Durham said in a statement.

While CMS described the 85% MLR level as an “industry standard,” not everyone sees it that way. Jeff Myers, the president and CEO of Medicaid Health Plans, told The Hill that he had "strongly encouraged CMS not to go down this route" because individual states already have found ways to address the MLR.

Reaction was slow to come in last evening because so little information about the rule had trickled out in advance of the proposal, which is the first update of Medicaid managed care regulations since 2002. Overall, CMS touts the rule as an effort to align Medicaid and CHIP with the value-based reforms occurring in Medicare Advantage, and to give states more tools to pursue payment reform. Highlights included a call for a rating system, but CMS will take input on what that will look like. Quality measures will be part of the future for Medicaid and CHIP plans, but specifics will take time to develop.

As expected, CMS’ proposal calls on states to take aim at the difficulty consumers are having finding providers, focusing not just on primary care physicians but on availability in key need areas such as pediatrics, behavioral health, and dentists.

In a statement yesterday, the National Association of Medicaid Directors said it would take time to analyze and respond to such a large proposal, but that the group was committed to continuing the progress of the past decade. “The rules must help, not hinder, the outpouring of innovation that states are driving in how to improve the health and well-being of traditionally hard-to-serve populations, such as those needing long term services and supports, those dually eligible for both Medicare and Medicaid, and individuals with multiple chronic conditions,” the statement said.

CMS is accepting comments on the proposal through July 27, 2015.