CMS Proposed Rule on Medicaid Managed Care
June 3, 2015
CMS Proposed Rule on Medicaid Managed Care
Prepaid Inpatient Health Plans (PIHPs) and Prepaid
What Is the Proposed Rule?
Ambulatory Health Plans (PAHPs) to deliver a limited
benefit, such as dental coverage, for a capitated payment.
On May 26, 2015, the Centers for Medicare and Medicaid
Services (CMS) released a proposed rule laying out the
Basic Medicaid Facts:
agency’s plan to update the federal regulations pertaining to
Medicaid managed care, under which states contract with
private health insurers to provide health care to enrollees. In
Total enrollment: 59 million in FY2012, as measured
general, federal agencies develop regulations to implement
on an average monthly basis.
the laws passed by the Congress. CMS has that
responsibility for Medicaid and the State Children’s Health
Total spending: $494 billion in FY2014 ($299 billion
Insurance Program (CHIP). This includes how states deliver
in federal spending).
services to Medicaid enrollees through risk-based managed
care, the primary focus of the proposed rule. The proposed
Comprehensive risk-based managed care accounts
rule also addresses managed care in CHIP and third party
for about 50% of total enrollment (as of FY2011)
liability (TPL) in Medicaid, but those topics are not the
and about 37% of total spending in FY2014.
focus of this brief report.
What Is the Current Status of the Proposed Rule?
Background on the Proposed Rule
CMS is taking public comments on the proposed rule
The proposed rule is the first major federal regulation
through July 27, 2015. Once the comment period closes,
impacting Medicaid managed care since 2002. Because
CMS will review the comments and make any changes
roughly half of all Medicaid enrollees are enrolled in
before preparing a final rule for review by the Office of
comprehensive risk-based managed care, the proposed rule
Management and Budget (OMB). OMB review, which
is likely to impact millions of Medicaid enrollees. As of
typically lasts up to 90 days, is the last step before an
September 2014, 39 states had contracted with MCOs to
agency releases a final rule.
deliver care to their Medicaid enrollees. Some states require
enrollment in managed care. Enrollment has increased over
Background on Medicaid Managed Care
time as states have sought out managed care because it can
make costs more predictable through capitation and may
Medicaid is a joint federal-state program that finances the
improve care for beneficiaries—through better care
delivery of primary and acute medical services, as well as
coordination, for example.
long-term services and supports (LTSS), for a diverse low-
income population, including children, pregnant women,
The proposed rule is also important for the Medicaid
adults, individuals with disabilities, and people age 65 and
expansions under the Patient Protection and Affordable
older. (See CRS Report R43357, Medicaid: An Overview.)
Care Act (ACA; P.L. 111-148, as amended). Many states
are relying on MCOs to deliver services to individuals
Risk-based managed care is a system for delivering care to
newly eligible under the ACA. The proposed rule will
Medicaid enrollees. It differs from the traditional fee-for-
influence how states structure their managed care programs
service (FFS) arrangement in how states pay providers for
going forward. With so many people getting Medicaid
their services. Under FFS, states pay providers directly for
services through managed care and with recent changes to
the services they deliver to Medicaid enrollees. The state
Medicare Advantage and the private health insurance
assumes the financial risk for health care spending under a
market (including the introduction of health insurance
FFS arrangement.
exchanges) as a result of the ACA, CMS is updating the
regulations to make sure they are aligned with today’s
Under comprehensive risk-based managed care, states
health care landscape.
contract with managed care organizations (MCOs), which
are private health insurers. The MCOs in turn contract with
What Is Included in the Proposed Rule?
networks of providers to deliver a comprehensive set of
services. The state pays the MCO a fixed amount for each
The proposed rule has generated substantial interest among
enrollee, called a capitation payment, and the MCO pays
stakeholders, including state Medicaid programs and
the providers. The MCO assumes the financial risk for
insurers, because it makes significant changes to the
spending. Federal regulations provide guidance to states on
existing managed care regulations. Below is a summary of
delivering care through MCOs, including requirements and
the major changes to the regulations grouped by Medicaid
standards for contracts and for setting capitation rates. Risk-
managed care and CHIP requirements.
based managed care also includes state contracts with
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CMS Proposed Rule on Medicaid Managed Care
Medicaid Managed Care
rule is likely to be heavily scrutinized as more and more
states are considering MLTSS to manage costs and quality
Alignment with Other Health Coverage Programs
of care for this population.
CMS has proposed changes to the Medicaid managed care
Network Adequacy
regulations to better align them with the regulations
established under the ACA that are applicable to private
Network adequacy refers to whether or not an MCO, PIHP,
insurers. For example, the proposed rule applies a minimum
or PAHP “adequately makes services accessible and
medical loss ratio (MLR) of 85% to Medicaid to ensure that
available to enrollees.” The proposed rule establishes
capitation rates are actuarially sound and “based on
minimum standards for network adequacy for medical
reasonable expenditures on covered services” for enrollees.
services and MLTSS. For example, the standards should
The minimum MLR refers to the amount of premium
ensure “ongoing state assessment and certification of MCO,
revenue that a health plan spends on the delivery of care or
PIHP and PAHP networks,” and the state must establish
on improving the quality of care as opposed to
network adequacy standards for specific provider types.
administrative costs or profits. CMS chose 85% as the
threshold because it is the standard for Medicare Advantage
Quality
and for large employers in the private market.
The proposed rule requires that states establish a
Setting Actuarially Sound Capitation Rates
comprehensive quality strategy to measure performance and
improve quality of care for their Medicaid programs. It also
The proposed rule establishes standards that states must
requires that states establish a “Medicaid managed care
meet in setting their capitation rates and that CMS will
quality rating system” to include information on
apply during the federal review and approval process.
performance for each MCO, PIHP, and PAHP. The system
These standards would ensure that the rates are actuarially
is designed to be consistent with Medicare Advantage and
sound. The Code of Federal Regulations, at 438.6(c)(i),
the qualified health plans established under the ACA.
defines actuarially sound capitation rates as rates that (1)
have been developed in accordance with generally accepted
Data
actuarial principles and practices, (2) are appropriate for the
populations covered and the services to be provided, and (3)
Encounter data is a key component of CMS’s oversight of
have been certified by qualified actuaries. As part of setting
state Medicaid programs. The proposed rule defines
actuarially sound rates, the proposed rule also requires that
enrollee encounter data as “information relating to the
states consider the historical and projected MLR of the
receipt of any item(s) or service(s) by an enrollee under a
MCO when setting its capitation rate.
contract between a state and an MCO, PIHP, or PAHP”
subject to certain standards. It establishes contract standards
Beneficiary Protections
that define encounter data “submission and maintenance
standards” for MCOs, PIHPs, and PAHPs. The rule
The proposed rule establishes new beneficiary protections,
proposes that federal Medicaid matching payments not be
including a beneficiary support system that is required to
available to states that do not meet the established
provide managed care enrollees with assistance in
benchmarks for “accuracy, completeness, and timeliness”
understanding the health plan materials and options
of data submitted to CMS.
available when enrolling in managed care. This new system
includes standards providing for “choice counseling” so
CHIP
that enrollees can get assistance in choosing health plans.
CHIP is a means-tested program that provides health
Managed Long-Term Services and Supports
coverage to targeted low-income children and pregnant
women in families that have income above Medicaid levels
Existing federal law does not generally permit states to
but have no health insurance. (See CRS Report R43627,
enroll individuals needing LTSS (such as nursing home
State Children’s Health Insurance Program: An Overview.)
care and home health care) into managed care. However,
The proposed rule seeks to align CHIP managed care with
states can do so through waivers of federal law. Many states
Medicaid and the health insurance exchanges where
have obtained approval from CMS to implement Section
appropriate. For example, it establishes an MLR standard of
1915(b) and Section 1115 demonstration projects to begin
85% and codifies managed care provisions established for
using managed LTSS (MLTSS) to deliver services to
CHIP in the Children’s Health Insurance Program
individuals with complex health care needs.
Reauthorization Act of 2009 (P.L. 111-3).
The proposed rule establishes regulations for enrolling the
Kirstin B. Blom, kblom@crs.loc.gov, 7-2397
LTSS population in managed care. It codifies principles
that CMS published in May 2013 based on lessons learned
from the state demonstrations. The principles include
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“stakeholder engagement” to ensure that stakeholders such
as beneficiaries and providers are involved in the
“monitoring and oversight” of the program. The proposed
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