Holding Insurers Accountable: Should We Add an MLR to Medicaid?

A hot issue in many states today is whether or not to move more Medicaid beneficiaries, and often very vulnerable beneficiaries, into managed care. Indeed, many managed care companies are interested in getting or keeping a foot in the Medicaid market given the expansion of Medicaid coming in 2014.  And many, though not all, states are looking to managed care to contain costs.

Evidence is not clear as to whether managed care actually saves money. An often expressed concern (by me and others) is whether managed care companies, particularly those who must provide a return to their shareholders, will do so by skimping on needed care by erecting barriers rather than rolling up their sleeves and doing the hard work of actually managing care for better long term health outcomes. One tool that might help to address this concern is the medical loss ratio (MLR).

The medical loss ratio idea has been around for a while but got a big boost in the Affordable Care Act, which requires that insurers spend at least 80 cents (in the individual and small group market) or 85 cents (in the large group market) of every premium dollar on medical care or quality improvement.  Medicare Advantage plans must also apply an 85/15 ratio to their premium dollars. Thus insurers cannot spend more than 15 or 20 cents of every $1 on administrative costs including executive salaries, profits, marketing expenses and other “overhead.” Insurers must publicly report how they spend their premium dollars and, starting in August 2012, must provide rebates to individual consumers if they don’t meet their MLR requirement. HHS estimates that nine million people could be eligible for $1.4 million in rebates in 2011 alone; some private analysts estimate this rebate amount could be higher.

While the ACA’s MLR has gotten a lot of attention, another noteworthy consumer MLR development has received less attention.   CMS included an 85/15 MLR provision in the recently approved (December 2011) Florida managed care pilot waiver for both managed care companies and provider-sponsored networks that are operating under capitation.  The terms and conditions of the waiver require the state to report quarterly on whether plans are meeting the 85/15 ratio.  The MLR requirement will take effect on July 1, 2012. Details on how this provision will be enforced are not yet available.

This was the first time, I believe, that CMS has required a state to do so as other federal MLR requirements do not extend to Medicaid. Eleven states have their own MLR requirements for Medicaid MCOs (AZ, CA, DC, HI, IL, IN, MD, NJ, NM, OH, VA, WA) according to a recent Kaiser report on managed care in Medicaid.

Florida’s waiver applies only to plans in the five pilot demonstration counties that have been in operation since 2007. Still pending is a request from the state of Florida to go statewide with capitation for all long-term care services as well as acute care for virtually all Medicaid beneficiaries. It will be interesting to see if a similar MLR requirement is included should this request be granted.

Joan Alker
Joan Alker is the Executive Director of the Center for Children and Families