Medicaid Managed Care Excess Profits and Maternal and Early Childhood Health in Nebraska

Like most states, Nebraska contracts with managed care organizations (MCOs) to deliver covered services to people enrolled in Medicaid. Unlike most states, Nebraska operates a Medicaid Managed Care Excess Profit Fund. Established in 2020, the Excess Profit Fund holds profits that MCOs are required to return to the state, remittances from MCOs in the event of a failure to meet the required medical loss ratio, and any contractual incentive payments not earned by the MCOs.

The amounts in the Excess Profit Fund are to be used first to offset losses incurred by MCOs under their contracts with the state (not an issue for those MCOs making excess profits). Excess Profit Fund dollars can then be used to “provide for services addressing the health needs of adults and children [in Medicaid], including filling service gaps, providing system improvements, and sustaining access to care as determined by the Legislature.”

What, you might (understandably) be wondering, does any of this have to do with maternal and early childhood health? First Five Nebraska explains:

“More Nebraska families with young children will gain access to home visiting services thanks to $2.5 million allocated in the state budget bill, LB1412, which Governor Pillen signed into law on April 2. … The budget bill’s home visiting provisions appropriate funds from the Medicaid Managed Care Excess Profit Fund to the Nebraska Department of Health and Human Services (NDHHS).”

More specifically, the legislation appropriated, for each of SFY 2023-24 and SFY 2024-25, $900,000 for evidence-based early intervention home visiting programs and $500,000 for evidence-based early intervention nurse home visiting programs.

A separate bill, LB857, also signed into law on April 2, tapped the Excess Profit Fund to finance the Nebraska Prenatal Plus Program, a range of services for at-risk mothers: nutrition counseling, psychosocial counseling and support; general client education and health promotion; breastfeeding support; and targeted case management. In addition, that legislation directs amounts in the Excess Profit Fund for continuous glucose monitors.

The amounts deposited in the Excess Profit Fund are state funds that can be spent for purposes that are eligible for federal matching payments. That is because the state by law accepts federal requirements that apply to Medicaid, including the requirement that the federal government is entitled to its pro rata share of any remittances paid by an MCO to the state for not meeting the minimum MLR standard. As my colleague Elisabeth Wright Burak explains, one opportunity for federal matching is the Maternal, Infant, and Early Childhood Home Visiting (MIECHV) program, which, up to a limit, enables states to receive $3 of federal matching funds for each $1 of state funds invested in home visiting for low-income families.

In Nebraska, virtually all children, parents, and other individuals covered by Medicaid are enrolled in one of three MCOs: Molina Healthcare, Nebraska Total Care (Centene), and United Healthcare. All three are subsidiaries of publicly-traded companies that are among the five that dominate the Medicaid managed care market nationally. Depending on the state, Medicaid managed care can be an attractive business proposition for MCO companies.

MCOs contracting with the Nebraska Medicaid program are allowed to make a profit, but they must return “excess profits.” The risk contract between the state and the MCOs defines “excess profits” as any amount greater than a specified percentage of “the aggregate of all qualifying revenue by the MCO and related parties, including parent and subsidiary companies and risk bearing partners under this contract.” The specified percentage is 2.5 percent in the first contract year and 2.0 percent in every contract year thereafter.

In addition to recouping excess profits, Nebraska, like many other states, requires MCOs to meet a minimum medical loss ratio (MLR) of 85 percent. That is, of the capitation payments the state Medicaid program makes to an MCO on behalf of Medicaid enrollees, the MCO must spend at least 85 percent on paying providers for furnishing covered services and conducting quality improvement activities. If the MCO spends less than 85 percent of its Medicaid revenues on services for enrollees and quality improvement, it must remit the difference between what it spent and 85 percent to the state. In Nebraska, any remittance by an MCO is credited to the Excess Profit Fund.

A requirement that an MCO’s MLR not be lower than 85 percent allows the MCO to spend up to 15 percent of its Medicaid capitation revenues on administration and profit. Raising the 85 percent requirement to, say, 87 percent or higher would increase the share of capitation revenues paying providers for delivering services and reduce the share going to administration and profit. Nebraska has taken a different approach, specifying by statute that “any administrative spending … shall not under any circumstances exceed twelve percent” and that “profit shall not exceed a percentage specified by the department but not more than three percent per year.”

In short, Nebraska has adopted a policy that MCOs doing business with the state Medicaid program should be able to make a profit but not to profiteer. So how is that working out?

It’s hard to tell. There’s no mention of the Excess Profit Fund in the state Medicaid agency’s 29-page annual report to the Governor and the Legislature (Dec. 2023). A report prepared by the Legislative Fiscal Office indicates that in the budget year 2022-2023 the ending balance in the Excess Profit Fund was $67.7 million, but it doesn’t indicate how much, if any, of that amount was attributable to excess profits. The report does, however, indicate that in 2023, the amount of $56.8 million was appropriated from the Fund to cover the cost of the PHE Unwind in 2023-2024.

Nebraska’s Medicaid agency, like those of most states, does not post the Annual MLR Report that each MCO is required to submit. Unlike most states, the agency does post the Managed Care Program Annual Report (MCPAR) that it submitted to CMS in June of 2023. That report indicates that the MLRs for CY 2021 were 92% for Healthy Blue Nebraska, 86% for Nebraska Total Care, and 90% for UnitedHealthcare Community Plan. The state Medicaid agency also posts audits of MCO administrative expenses. A summary of the results for each MCO in CY 2021 is shown in the table below:

It’s not clear how these administrative cost data relate to the data elements used to compute the MLRs reported by the state in the MCPAR (e.g., incurred claims, quality improvement expenses, non-claims costs). Without these data, it’s not possible to estimate the amount of profit (if any) each MCO made in 2021, much less the amount of “excess profit” an MCO was required to return to the state.

Nonetheless, it’s clear from the amount of Medicaid revenues at play here that questions about the reasonableness of administrative costs and profits need to be asked. Nebraska deserves a lot of credit for asking them and for being transparent about the administrative costs. It also earns kudos for reinvesting state dollars in home visiting initiatives to advance maternal and early childhood health. But it could and should provide more visibility into the profits earned by the MCOs with which it contracts.

Andy Schneider is a Research Professor at the Georgetown University McCourt School of Public Policy.