Private Medicaid plans face sweeping new regulations under CMS proposal

The CMS has released a sweeping proposed rule (PDF) intended to modernize the regulation of Medicaid managed-care plans. The Medicaid managed-care population is growing rapidly, but the last regulation governing such plans was issued in 2002. 

In one provision that generated frustration among health insurers in the hours after the draft was posted, the CMS called for health plans to dedicate a minimum portion of the rates they receive toward medical services, a threshold known as a medical loss ratio.

As of 2015, plans doing business with Medicaid and the Children's Health Insurance Program are the only health plans that aren't subject to an MLR. The Obama administration is proposing an 85% threshold for Medicaid managed-care plans, the same as the government demands of large group plans in the private market. 

America's Health Insurance Plans, the largest trade group representing health insurers, quickly responded that applying an MLR to Medicaid managed care fails to reflect much of what the plans do to hold down costs.

“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.

The MLR that the CMS has proposed for Medicaid plans is a suggestion rather than an enforceable mandate. Still, many plans will be affected if states follow through on the agency's suggestion. In a CMS review of 167 managed care plans in 35 states, one in 10 plans had an MLR below 79% and one in four had one below 83%.

Medicaid managed-care enrollment has soared by 48% to 46 million beneficiaries over the past four years, according to consulting firm Avalere Health. By the end of this year, Avalere estimates that 73% of Medicaid beneficiaries will receive services through managed-care plans.