Medicaid Managed Care: Early Results of the PHE Unwinding for the Big Five in Q2 2023

The Medicaid enrollment results for the “Big Five” during the quarter ending June 30 are now in.  The Big Five have the largest share of the Medicaid managed care market:  Centene, CVSHealth (Aetna), Elevance Health (formerly Anthem), Molina Healthcare, and UnitedHealth Group.  They, along with two large nonprofit companies, were the focus of a recent report by the HHS Office of Inspector General that found considerable variation in prior authorization denial rates from company to company.  There was much less variation in enrollment results for Q2:  every one of the Big Five experienced a decline in Medicaid enrollment from Q1 ranging from – 0.3 percent to – 2.4 percent (Table 1).  The cause of this across-the-board enrollment decline was the unwinding of PHE continuous coverage,  which began during Q2 in many states in which these companies do business.

As Figure 1 makes clear, Q2 marks an inflection point.  Total Medicaid enrollment for all of the Big Five, which grew from 30.1 million at the end of March 2020 to 44.2 million at the end of March 2023, is now starting to decline.  At the end of June 2023 it stands at 43.6 million.  As the PHE unwinding plays out and terminations of Medicaid coverage proceed, Big Five total enrollment will almost certainly continue to decline.  The only question is how quickly, and how far—what one of the Big Five CEOs refers to as “the membership slope.”

Looking at the PHE unwinding through the lens of Big Five managements can be instructive, if for no other reason than they appear to have much better access to unwinding data than advocates, providers, or the general public.  Here are some notes on the companies’ Q2 earnings calls and 10-Q financial statements filed with the Securities and Exchange Commission.

Enrollment Data.  Each of the Big Five reports company-wide Medicaid enrollment as of June 30.  As a group, the Big Five have subsidiaries in 38 different states, and they are able to track and report changes in Medicaid enrollment in those subsidiaries from quarter to quarter in real time.  In contrast, the most recent state-by-state Medicaid enrollment data posted by CMS are for April.  The latest PHE unwinding data posted by CMS are also for April.  Both of these CMS postings occurred at the end of July, by which point four of the companies had already announced their results for all three months of Q2.  Those other than MCO managements who are interested in real time PHE unwinding data have to go to sources other than CMS, such as the CCF and KFF unwinding trackers, which are necessarily limited to the data available from state websites and officials.

Capitation Rate Adjustments.  All of the Big Five managements are monitoring the impact of the PHE unwinding on their Medicaid lines of business (although as shown in Table 1, for Molina, Centene, and Elevance Health, Medicaid enrollment is more consequential than for CVSHealth and UnitedHealth Group).  All managements are of course tracking the number of current Medicaid enrollees whose eligibility is terminated.  But they are also assessing the impact of those losses on the health risk of their remaining enrollees as a group: are the remaining enrollees sicker overall, and if so, will the state Medicaid agency adjust their capitation rates to reflect that higher acuity?

The metric Big Five managements are most focused on across all of their lines of business is the percentage of their premium revenues that they have to pay out for medical services to enrollees—what is generically referred to as the Medicaid Loss Ratio (MLR).  In the case of Medicaid, the companies’ objective is to keep the ratio as low as the state Medicaid agency will allow (generally 85 percent).  If their medical costs per enrollee increase (because healthier enrollees are terminated and the remaining enrollees are less healthy as a group), but their premium revenues per enrollee stay the same (because the state has not raised its rates to reflect the greater health needs of the remaining enrollees), then medical costs as a percentage of premium revenues will go up, leaving less premium revenue for investors.  This is why, in their Q2 earnings calls, Centene, Elevance Health, and Molina Healthcare managements indicated that they are closely tracking the enrollees being terminated and advocating with state Medicaid agencies to adjust capitation rates upwards to reflect the greater health care utilization of the remaining enrollees.

To calculate these rate adjustments, the actuaries working for the MCOs need data about those being disenrolled, including basic demographic information such as age.  (Capitation rates for children generally differ from those for adults).  The state agencies and the MCOs have this data, and CMS can request it when it reviews proposed rate adjustments. Unfortunately, CMS does not currently post unwinding enrollment data broken down by age, even with a 3-month lag.  These data are only available from the state Medicaid agencies. Currently eight states (AZ, AR, IN, MA, MO, OK, VA, and WA) report disenrollments separately for children and for adults. Kansas breaks down its disenrollment data by age and by county of residence, which allows advocates and the public to better understand the impact the unwinding is having on children and families.

Re-enrollment of Terminated Enrollees.  All of the Big Five are interested in recapturing as many of their terminated enrollees as possible, either by transitioning them to other products the company offers (e.g., Marketplace or employer group plans) or by re-enrolling them in their Medicaid MCOs. Here's what the CFO of Molina Healthcare told the financial analysts at the company’s Q2 earnings call:  ”Data suggests, and states have verified, that two-thirds of those disenrolled have been procedural rather than due to verification of ineligibility.  Many of these members potentially remain fully Medicaid eligible and will have a high likelihood of reconnecting to the Medicaid program.  Members have 90 to 120 days to reconnect depending on state policies.  Once reconnected, Medicaid coverage and premiums reinstate retroactively to the date of disenrollment.”

It's not clear exactly what the CFO is referring to.  There are currently eight states that have received 1902(e)(14) waivers allowing them to automatically reenroll a beneficiary into an MCO within 90 or 120 days of losing eligibility.  In the states without such a waiver, automatic reenrollment into the MCO can only occur (at state option) within 60 days of loss of eligibility.  So, if an MCO enrollee is procedurally terminated in April, reapplies and is determined eligible in July, the state can automatically reenroll the beneficiary in the same MCO effective in July.  But that is very different from the state paying the MCO premiums for April, May, and June, when the individual was not enrolled either in the MCO or in Medicaid.

The CFO of Elevance Health shared this perspective at its Q2 earnings call: “While we are still very early in the redetermination process, at this time, we are seeing many Medicaid members losing coverage for administrative reasons.  Many of these consumers will likely reenroll in Medicaid in the near to intermediate term.  In fact, many Medicaid beneficiaries who lost coverage for administrative reasons have 30 to 90 days to reenroll, depending on the state, with coverage retroactive to their termination date.”

Not exactly.  There is in fact a federal requirement that applies to redeterminations of children and adults whose eligibility is based on modified adjusted gross income.  If a MAGI beneficiary is terminated for failure to submit the renewal form or necessary information, and the individual subsequently submits the renewal form within 90 days after the date of termination, the state must redetermine the individual’s eligibility without requiring a new application.  That is a very different proposition than retroactive coverage which, as our colleague Joan Alker has explained, is not a solution to procedural disenrollments, either for beneficiaries or for MCOs.  In June, CMS announced a new strategy for reducing procedural disenrollments that allows a state to reinstate eligibility effective back to the termination date for certain individuals redetermined eligible during the 90-day period, but information on which (if any) states have taken up this strategy is not yet available.

On one point there is no confusion:  it’s early in the PHE unwinding, states are proceeding at very different paces and with very different procedural disenrollment rates, and there are many more disenrollments, procedural and otherwise, to come.