June 3, 2015
CMS Proposed Rule on Medicaid Managed Care
Prepaid Inpatient Health Plans (PIHPs) and Prepaid
Ambulatory Health Plans (PAHPs) to deliver a limited
benefit, such as dental coverage, for a capitated payment.
What Is the Proposed Rule?
On May 26, 2015, the Centers for Medicare and Medicaid
Services (CMS) released a proposed rule laying out the
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
general, federal agencies develop regulations to implement
the laws passed by the Congress. CMS has that
responsibility for Medicaid and the State Children’s Health
Insurance Program (CHIP). This includes how states deliver
services to Medicaid enrollees through risk-based managed
care, the primary focus of the proposed rule. The proposed
rule also addresses managed care in CHIP and third party
liability (TPL) in Medicaid, but those topics are not the
focus of this brief report.
What Is the Current Status of the Proposed Rule?
CMS is taking public comments on the proposed rule
through July 27, 2015. Once the comment period closes,
CMS will review the comments and make any changes
before preparing a final rule for review by the Office of
Management and Budget (OMB). OMB review, which
typically lasts up to 90 days, is the last step before an
agency releases a final rule.
Background on Medicaid Managed Care
Medicaid is a joint federal-state program that finances the
delivery of primary and acute medical services, as well as
long-term services and supports (LTSS), for a diverse lowincome population, including children, pregnant women,
adults, individuals with disabilities, and people age 65 and
older. (See CRS Report R43357, Medicaid: An Overview.)
Risk-based managed care is a system for delivering care to
Medicaid enrollees. It differs from the traditional fee-forservice (FFS) arrangement in how states pay providers for
their services. Under FFS, states pay providers directly for
the services they deliver to Medicaid enrollees. The state
assumes the financial risk for health care spending under a
Under comprehensive risk-based managed care, states
contract with managed care organizations (MCOs), which
are private health insurers. The MCOs in turn contract with
networks of providers to deliver a comprehensive set of
services. The state pays the MCO a fixed amount for each
enrollee, called a capitation payment, and the MCO pays
the providers. The MCO assumes the financial risk for
spending. Federal regulations provide guidance to states on
delivering care through MCOs, including requirements and
standards for contracts and for setting capitation rates. Riskbased managed care also includes state contracts with
Basic Medicaid Facts:
Total enrollment: 59 million in FY2012, as measured
on an average monthly basis.
Total spending: $494 billion in FY2014 ($299 billion
in federal spending).
Comprehensive risk-based managed care accounts
for about 50% of total enrollment (as of FY2011)
and about 37% of total spending in FY2014.
Background on the Proposed Rule
The proposed rule is the first major federal regulation
impacting Medicaid managed care since 2002. Because
roughly half of all Medicaid enrollees are enrolled in
comprehensive risk-based managed care, the proposed rule
is likely to impact millions of Medicaid enrollees. As of
September 2014, 39 states had contracted with MCOs to
deliver care to their Medicaid enrollees. Some states require
enrollment in managed care. Enrollment has increased over
time as states have sought out managed care because it can
make costs more predictable through capitation and may
improve care for beneficiaries—through better care
coordination, for example.
The proposed rule is also important for the Medicaid
expansions under the Patient Protection and Affordable
Care Act (ACA; P.L. 111-148, as amended). Many states
are relying on MCOs to deliver services to individuals
newly eligible under the ACA. The proposed rule will
influence how states structure their managed care programs
going forward. With so many people getting Medicaid
services through managed care and with recent changes to
Medicare Advantage and the private health insurance
market (including the introduction of health insurance
exchanges) as a result of the ACA, CMS is updating the
regulations to make sure they are aligned with today’s
health care landscape.
What Is Included in the Proposed Rule?
The proposed rule has generated substantial interest among
stakeholders, including state Medicaid programs and
insurers, because it makes significant changes to the
existing managed care regulations. Below is a summary of
the major changes to the regulations grouped by Medicaid
managed care and CHIP requirements.
www.crs.gov | 7-5700
CMS Proposed Rule on Medicaid Managed Care
Medicaid Managed Care
Alignment with Other Health Coverage Programs
CMS has proposed changes to the Medicaid managed care
regulations to better align them with the regulations
established under the ACA that are applicable to private
insurers. For example, the proposed rule applies a minimum
medical loss ratio (MLR) of 85% to Medicaid to ensure that
capitation rates are actuarially sound and “based on
reasonable expenditures on covered services” for enrollees.
The minimum MLR refers to the amount of premium
revenue that a health plan spends on the delivery of care or
on improving the quality of care as opposed to
administrative costs or profits. CMS chose 85% as the
threshold because it is the standard for Medicare Advantage
and for large employers in the private market.
Setting Actuarially Sound Capitation Rates
The proposed rule establishes standards that states must
meet in setting their capitation rates and that CMS will
apply during the federal review and approval process.
These standards would ensure that the rates are actuarially
sound. The Code of Federal Regulations, at 438.6(c)(i),
defines actuarially sound capitation rates as rates that (1)
have been developed in accordance with generally accepted
actuarial principles and practices, (2) are appropriate for the
populations covered and the services to be provided, and (3)
have been certified by qualified actuaries. As part of setting
actuarially sound rates, the proposed rule also requires that
states consider the historical and projected MLR of the
MCO when setting its capitation rate.
The proposed rule establishes new beneficiary protections,
including a beneficiary support system that is required to
provide managed care enrollees with assistance in
understanding the health plan materials and options
available when enrolling in managed care. This new system
includes standards providing for “choice counseling” so
that enrollees can get assistance in choosing health plans.
Managed Long-Term Services and Supports
Existing federal law does not generally permit states to
enroll individuals needing LTSS (such as nursing home
care and home health care) into managed care. However,
states can do so through waivers of federal law. Many states
have obtained approval from CMS to implement Section
1915(b) and Section 1115 demonstration projects to begin
using managed LTSS (MLTSS) to deliver services to
individuals with complex health care needs.
The proposed rule establishes regulations for enrolling the
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
“stakeholder engagement” to ensure that stakeholders such
as beneficiaries and providers are involved in the
“monitoring and oversight” of the program. The proposed
rule is likely to be heavily scrutinized as more and more
states are considering MLTSS to manage costs and quality
of care for this population.
Network adequacy refers to whether or not an MCO, PIHP,
or PAHP “adequately makes services accessible and
available to enrollees.” The proposed rule establishes
minimum standards for network adequacy for medical
services and MLTSS. For example, the standards should
ensure “ongoing state assessment and certification of MCO,
PIHP and PAHP networks,” and the state must establish
network adequacy standards for specific provider types.
The proposed rule requires that states establish a
comprehensive quality strategy to measure performance and
improve quality of care for their Medicaid programs. It also
requires that states establish a “Medicaid managed care
quality rating system” to include information on
performance for each MCO, PIHP, and PAHP. The system
is designed to be consistent with Medicare Advantage and
the qualified health plans established under the ACA.
Encounter data is a key component of CMS’s oversight of
state Medicaid programs. The proposed rule defines
enrollee encounter data as “information relating to the
receipt of any item(s) or service(s) by an enrollee under a
contract between a state and an MCO, PIHP, or PAHP”
subject to certain standards. It establishes contract standards
that define encounter data “submission and maintenance
standards” for MCOs, PIHPs, and PAHPs. The rule
proposes that federal Medicaid matching payments not be
available to states that do not meet the established
benchmarks for “accuracy, completeness, and timeliness”
of data submitted to CMS.
CHIP is a means-tested program that provides health
coverage to targeted low-income children and pregnant
women in families that have income above Medicaid levels
but have no health insurance. (See CRS Report R43627,
State Children’s Health Insurance Program: An Overview.)
The proposed rule seeks to align CHIP managed care with
Medicaid and the health insurance exchanges where
appropriate. For example, it establishes an MLR standard of
85% and codifies managed care provisions established for
CHIP in the Children’s Health Insurance Program
Reauthorization Act of 2009 (P.L. 111-3).
Kirstin B. Blom, email@example.com, 7-2397
www.crs.gov | 7-5700