Public Payers News

Medicaid Managed Care Spending Rose to $107 Billion in 2014

Out of all the funds within the Medicaid program, 38 percent was allocated to managed care spending in 2014.

By Vera Gruessner

- One area in which the federal government has put in excessive amounts of funds is the managed care arena. The reasoning may be due to the growing elderly population of baby boomers. The US Government Accountability Office released a report showing that the Medicaid program spent $107 billion on managed care in 2014, which is a steep increase from the Medicaid managed care spending of $27 billion in 2004.

State Medicaid Expansion

Out of all the funds within the Medicaid program, 38 percent was allocated to managed care spending in 2014. The report shows that total Medicaid spending within the managed care space was higher in 2014 than in 2004 across seven out of eight states analyzed.

The states looked at by the Government Accountability Office include Arizona, California, Florida, Louisiana, Michigan, Pennsylvania, Tennessee, and Washington. The rates of beneficiary payments varied greatly on average between the eight states. Average beneficiary payments could range anywhere from $2,800 to $5,200.

In order to stabilize state Medicaid managed care spending, five out of the eight states required managed care organizations to meet minimum medical loss ratio percentages each year, which establish that a certain amount of the funds are allocated directly to medical care instead of administrative or profit-driven costs.

The state minimum medical loss ratio percents were anywhere from 83 to 85 percent, which is similar to the stipulations for other areas of healthcare established by the Patient Protection and Affordable Care Act.

Within the five states, all managed care organizations had minimums above the state threshold requirements in 2014. State representatives were also found to focus on beneficiary factors when choosing a plan for each beneficiary in the case of the individual foregoing plan selection. This may include choosing the same managed care plan that another family member is already assigned to.

Additionally, the states looked at “quality measures and program goals” when it comes to selecting a coverage plan for certain beneficiaries. These type of auto assignment among beneficiaries ranged anywhere from 23 to 61 percent within the managed care market among seven states that possessed data logging this kind of information.

“The importance of managed care in Medicaid—under which states contract with MCOs to provide a specific set of services—has increased as states expand eligibility for Medicaid under PPACA and increasingly move populations with complex health needs into managed care,” The Government Accountability Office clarified its reasons for completing the study.

“States have flexibility within broad federal parameters to design and implement their Medicaid programs, and therefore play a critical role in overseeing managed care. GAO was asked to examine managed care expenditures and provide information on certain components of state oversight of Medicaid managed care.”

“In this report, GAO analyzes (1) federal expenditures for Medicaid managed care and the range in selected states' payments made to MCOs; (2) selected states' MLR standards and how they compare with federal standards for other sources of health coverage; and (3) selected states' methods for automatically assigning Medicaid beneficiaries to MCO plans.”

“GAO analyzed federal data on Medicaid expenditures for comprehensive risk-based managed care. GAO selected eight states because they used managed care for some portion of their Medicaid population and were geographically diverse. For these states, GAO reviewed state payment data and documentation, including contracts with MCOs, and interviewed state officials. GAO also reviewed federal laws to describe MLR minimums in Medicare and the private insurance market.”

One possible reason for the increased managed care spending within the Medicaid program may be due to the Affordable Care Act’s provision encouraging states to expand their Medicaid coverage among more eligible low-income individuals, the report from the Government Accountability Office stated. Many of those who became eligible for Medicaid coverage were predicted to pursue managed care options.

Since May 2015, a total of 29 states have pursued expanding their Medicaid programs to provide coverage among more low-income families. At this moment in time, more Medicaid beneficiaries such as those with disabilities or in need of long-term care assistance are jumping on the bandwagon of managed care services. All of this could have led to the steep rise in Medicaid managed care spending.

The report outlines that oversight of state Medicaid programs is ever more essential due to the rise in costs associated with the managed care market. In June 2015, the Centers for Medicare & Medicaid Services (CMS) released a proposed rule to improve and modernize some regulations of the Medicaid program. These improvements included ways to “align standards for Medicaid managed care with those for other sources of coverage, improve accountability for the rates paid to MCOs, ensure beneficiary protections, and promote quality care,” according to the GAO report.

While higher managed care spending within the Medicaid program may need greater regulation and better methods for reigning in the rising costs, expanding the Medicaid program across states has led to a drop in the number of uninsured individuals in the US as well as more breast cancer screenings among women enrolled in Medicaid.

The Affordable Care Act has led the rates of uninsured families to fall significantly due to both the federal subsidies offered through the health insurance exchanges along with the expansion of state Medicaid programs. A study from the Radiological Society of North America found that low-income women enrolled in Medicaid were also more likely to receive recommended breast cancer screenings in states that have expanded coverage versus states that have not.

While managed care spending may have risen in the Medicaid program, the greater coverage and access to healthcare services associated with expanding the program may outweigh the disadvantages.