Insurers with Medicaid managed care plans can breathe one big sigh of relief, but there are still other things with the insurance fee in Medicaid to worry about.
The Centers for Medicare & Medicaid Services has issued answers to some frequently asked questions regarding payment of the Affordable Care Act's health insurance fee in Medicaid, with the main clarification being that it should be reimbursed by the states, in accordance with the Balanced Budget Act of 1997.
CMS believes that the tax is a "reasonable business cost to health plans that is appropriate for consideration as part of the non-benefit component of the rate, just as are other taxes and fees."
States governments "have flexibility" incorporating the tax into managed care capitation rates, on either a prospective or retrospective basis, but they must account for it in payment terms, CMS regulators wrote.
"The capitation payment, net the amount of the withhold, must remain actuarially sound and the state can only claim Federal Financial Participation on the actual expenditures paid," they continued. Any payment for the tax "must be incorporated in the health plan capitation rates and reflected in the payment term under the contract."
The guidance from CMS clears up some questions about whether states would be expressly obligated to cover the insurance fee in Medicaid, said Jeff Myers, president and CEO of the trade group Medicaid Health Plans of America.
"By issuing this guidance, CMS is saying to states that they should pay the fee in accordance with actuarial soundness requirements," Myers said. "We also appreciate that CMS indicated to states that they reimburse plans in a timely fashion since plans have already paid the tax."
A recent Milliman report estimated that the Medicaid managed care portion of the ACA tax will cost the state-federal program about $37 billion through 2024, with states paying about $13 billion.
One important variable remains, though: how much states turn to certain nonprofit insurers who are exempt from the tax.
The health insurance fee, ACA section 9010, is levied on all health plans with the exception of nonprofits deriving more than 80 percent of their premium revenue from Medicare, Medicaid and CHIP.
"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," wrote Milliman actuaries John Meerschaert and Mathieu Doucet.
In 2011, according to the Milliman report, just over 40 percent of Medicaid managed care premiums were paid to nonprofit MCOs, and two of the largest states have mostly nonprofit plans.
In California, Colorado, Minnesota and New York, more than 75 percent of Medicaid managed care premiums in 2011 went to nonprofits, while 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.
Whether or not more states start favoring non-profits in Medicaid bidding as a way to save money, the ACA fee is going to have an impact. On average nationwide, Meerschaert and Doucet expect the fee to lead to a 1.2 percent increase in Medicaid managed care payments this year.