A new report from the Centers for Medicare & Medicaid Services shows that health insurers that offer commercial and Medicare plans operate at a loss for their Medicaid plans, while those that specialize in Medicaid only operate at a profit.
The report seeks to compare the operating and financial performance of health plans within the Medicaid line of business across key plan traits of Medicaid dominant status, publicly traded status and provider-sponsored status, and the potential implications of each sector's performance.
"Health plans that do not specialize in Medicaid are losing money. Higher medical cost rather than administrative cost is the underlying reason for this financial loss," the report noted. "Since Medicaid enrollees do not account for their primary book of business, these plans may not have invested in the medical management programs to reduce inappropriate emergency room use and avoid costly hospitalization."
The report, "Financial Performance of Health Plans in Medicaid Managed Care," which was supported by the Commonwealth Fund, noted a number of potential factors that may be causing the performance discrepancy.
One significant factor was the variance between Medicaid-dominant plans' and its commercial multi-line peers' medical expenses. On average, the Medicaid-dominant plans paid less in medical expenses than the other plans.
Among the possible reasons for this difference was the likelihood that the Medicaid-dominant plans offered utilization and case management services, which results in more cost-effective care. Other factors were that these plans may have enrolled healthier members, restricted access to costly providers and negotiated lower contracted rates with providers in the network.
The report also noted that publicly-traded plans paid out less of their premiums in medical expenses, however, these companies also showed higher administrative expenses.
"Plans specializing in Medicaid and focusing on delivering care to one line of business, allows them to reduce their medical costs. Higher administrative costs may evolve from expending more for a skilled workforce who knows how to manage the distinct cultural and healthcare needs that the Medicaid population requires," the report concluded. "Also, higher administrative costs may stem from implementing and managing programs and information systems that help avoid hospital readmissions and improve patient safety and outcomes."
CMS also noted a difference in the financial performance of publicly-traded, Medicaid-dominant plans and not-for-profit, Medicaid-dominant plans. The public companies operated at very close to a zero percent profit margin, while the non-publicly-traded plans operated at close to a 2 percent profit margin, with lower administrative costs for these plans the primary driver of profit.
Finally, the report noted that provider-sponsored plans incurred lower administrative costs, while also paying a higher percentage in medical expense. The lower administrative costs were attributed to the provider being able to share certain administrative costs such as marketing, customer service and IT systems, with its associated Medicaid health plan.