With a new fiscal year approaching in many states, a big financial cloud is hanging over Medicaid managed care organizations: the Affordable Care Act's insurance fee.
The main trade group for Medicaid managed care organizations, Medicaid Health Plans of America (MHPA), is asking the Centers for Medicare & Medicaid Services to fully clarify for states how the Affordable Care Act's insurance fee should be factored into rates -- an issue that in the ACA's statute isn't all that clear.
Alongside the Balanced Budget Act of 1997, which requires actuarially-sound Medicaid plan rates to include medical costs and taxes, it seems likely that states have to cover the ACA fee, argues Jeff Myers, MHPA president and CEO, in a letter to CMS.
But, without direct guidance from CMS and/or the IRS, some states may decline to pay, posing the risk of some upheaval at a time when full-risk capitated managed care is covering more than half of Medicaid beneficiaries, and as a number of large states, including Florida, Illinois and Texas, expand managed care.
Across the country, Medicaid plans are getting different responses from different states on the issue.
"Because of this lack of clarity on what is or should be clear policy, it is incumbent on CMS to provide direct guidance to the states rather than informal discussions regarding particular state decisions," Myers wrote in a letter to the federal agency.
"Medicaid health plans and states need clear written direction from CMS that tells Medicaid agencies that the insurance tax and the income tax effect must be factored into the rate-setting process and covered in payments to plans," he wrote. "As a tax, it should be treated like any other cost of doing business and handled in accordance with regulations at 42 CFR 438.6(c) that require actuarially sound rate-setting."
The health insurance providers fee, from section 9010 of the ACA, is levied on most health insurers, with the exception of nonprofit health plans with more than 80 percent of premium revenue from Medicare, Medicaid and CHIP. Classified as an excise tax, the fee is not eligible for a deduction and has to be paid as a "gross up," in full.
"In accordance with actuarial sound rate-setting standards, both the insurance tax as well as the gross up should be included in the capitation rates paid to health plans," Myers argues in the letter to CMS.
To make this issue more complicated, a case is being made for scaling back or repealing the tax, at least in public programs. That case is being bolstered by the argument that in government-sponsored insurance programs the tax will have the unique effect of "the federal government taxing states and itself," as Milliman actuaries John Meerschaert and Mathieu Doucet wrote in a report earlier this year.
Meerschaert and Doucet estimate that the Medicaid managed care portion of the ACA tax will cost the Medicaid program about $37 billion through 2024, with states paying about $13 billion.
Depending on how states react to that new cost -- with Medicaid already accounting for the largest single budget item for many states -- Medicaid managed care contracts could start hewing to nonprofit insurers exempt from the fee. Since the ACA sets the total amount of the tax that has to be collected and then divides that among plans, that type of transition to nonprofits could translate into cost-shifting.
"The treatment of non-profit Medicaid MCOs in the health insurer fee calculation may distort the competitive balance between for-profit and non-profit MCOs, creating a situation where state governments will incur the additional cost of funding increased Medicaid managed care payments if they contract with for-profit MCOs," Meerschaert and Doucet wrote.
In 2011, just over 40 percent of Medicaid managed care premiums were paid to nonprofit MCOs and two of the largest states have mostly nonprofit plans, according to the Milliman report.
In California, Colorado, Minnesota and New York, more than 75 percent of Medicaid managed care premiums in 2011 went to nonprofits, according to Milliman's analysis. In Massachusetts, New Jersey, Ohio, Oregon and Virginia, nonprofit MCOs collected at least half of all premiums that year.
In 18 states that year, including Florida and Michigan, less than 25 percent of all Medicaid managed care payments went to nonprofit MCOs.