As Medicaid enrollment continues to grow, the financial sustainability of the risk-based managed care model is being tested.
According to an analysis by actuarial firm Milliman, while Medicaid enrollment in managed care organizations (MCOs) grew 8 percent and associated revenue grew 19 percent between 2011 and 2012, financial results "decreased significantly," with the average medical loss ratio (MLR) increasing from 85.5 percent to 87.9 percent.
[See also: States enroll two thirds of Medicaid recipients in managed care plans]
Milliman actuaries Jeremy Palmer and Christopher Pettit studied 162 managed care organizations in 32 states, and found that health plans in the $10 million to $100 million range saw "significantly less favorable financial performance than the larger revenue categories" in 2012, but even larger health plans, like Aetna's, reported losses in some parts of the country.
Milliman's analysis also indicated financial results varied by region.
Kentucky's recently expanded MCO program – which one large insurer recently exited, had an average MLR of 104 percent. All four of the insurers studied by Milliman reported losses.
Oregon, which is using an accountable care platform for Medicaid beneficiaries, had an average MLR of 99 percent, with the for-profit Trillium Community Health Plan reporting a financial gain, compared to a Kaiser Permanente Northwest MCO reporting a loss.
Other states with high average MLRs were Hawaii (95 percent), Kansas (90 percent), Massachusetts (94 percent), Minnesota (91 percent), Texas (90 percent) and Virginia (90 percent). Only one of the five Massachusetts MCOs studied reported a financial gain, along with only two of seven studied in New York – Health Insurance Plan of Greater New York and UnitedHealthcare.
Illinois and Nevada's Medicaid managed care programs showed the lowest average MLRs – 75 percent and 77 percent, respectively – while states like Michigan, Missouri and Wisconsin had average MLRs in the high 80s.
Palmer and Pettit also found pharmacy benefits accounting for up to 20 percent of total claims costs, a large factor especially in states that include drug costs within budget capitation rates.
As some states expand Medicaid under the Affordable Care Act, Palmer and Pettit expect risk-based managed care to continue growing and to be an indicator of the success of some of the latest healthcare financing models being used in Medicaid.