Feds unveil long-awaited overhaul of Medicaid managed care

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The federal government on Tuesday unveiled a long-awaited regulatory package that sets national standards for managed care under Medicaid, marking the biggest changes to the growing program in more than a decade.

The nearly 700-page rule, described by some groups as an “uber rule,” contains instructions about what state Medicaid programs must do when hiring private health plans to handle long-term care for the elderly and disabled – also known as managed care.

The Centers for Medicare and Medicare Services (CMS) is proposing that Medicaid managed care groups align their standards with those in the private marketplace to create more uniform practices across states.

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Those changes will help to “ease the administrative burden on issuers and regulators” while also providing “an appropriate level of protection for enrollees,” CMS wrote in the rules.

But the proposed rule is likely to draw fire from many of the 39 states that have enjoyed considered leeway in their own use of managed care.

Another one of the biggest proposed changes has already been introduced to government health programs via ObamaCare – the medical loss ratio.

The medical loss ratio, also known as MLR, sets the minimum amount of all premium dollars that are directly spent on healthcare. The policy, widely despised by insurers, is intended to cut overhead spending.

The proposed rule from CMS would set the medical loss ratio at 85 percent, which it described as the “industry standard” for large employers in the private health insurance market.

The rule quickly drew ire from Medicaid health plans.

“It’s a lot like a Swiss watch. There are a lot of moving parts, but you know deep down, its going to be very expensive,” Jeff Myers, the president and CEO of Medicaid Health Plans, said Tuesday.

Myers said he had “strongly encouraged CMS not to go down this route” because every state has already implemented some form of medical loss ratio.

He warned that the proposed rules could “destabilize the programs that are developed on a state level.”

Managed care organizations – which are known for their sometimes-controversial pay-for-performance structure – have exploded in popularity since the 1970s. Thirty-nine states, representing 90 percent of Medicaid beneficiaries, now have contracts with managed care groups.

Under the managed care model, states pay the managed care groups a fixed monthly premium – also known as a “capitation rate” for each patient – instead of the more traditional fee-for-service model.

Doctors are offered incentives to limit costs, which often means that individuals are kept in their homes rather than in more expensive nursing home facilities.

The federal government has not released rules on managed care since 2003.

Nearly 30 million people are now enrolled through managed care, which amounts to about two-thirds of people with Medicaid. That’s up from just 2.7 million people with managed care in 1991.

The rules have been under review by the Office of Management and Budget since March.  

This story was updated at 5:58 p.m.