Medicaid Managed Care Rule Creates Quality Rating System, Limits Administrative Costs

Medical loss ratio set at 85%

The Department of Health and Human Services (HHS) has issued a final rule on managed care in Medicaid and the Children’s Health Insurance Program (CHIP). The rule is the first overhaul of Medicaid and CHIP managed-care regulations in more than a decade.

The long-awaited rule creates a quality rating system, allows states to set network adequacy standards, and limits how much insurers can spend on administrative costs.

Thirty-nine states and the District of Columbia contract with private insurers to manage their Medicaid populations, and 72% of beneficiaries are enrolled in such managed care plans.

According to the HHS, the final rule has four main goals: 1) supporting states’ efforts to advance delivery system reform and improvements in quality of care for Medicaid and CHIP beneficiaries; 2) strengthening the consumer experience of care and key consumer protections; 3) strengthening program integrity by improving accountability and transparency; and 4) aligning rules across health insurance coverage programs to improve efficiency and help consumers who are transitioning between sources of coverage.

The rule’s key provisions include the following:

  • It sets a medical loss ratio (MLR) of 85% for Medicaid managed care organizations (MCOs), which requires plans to spend that amount of their revenue or more on health care services, covered benefits, and quality improvement efforts.
  • It aligns Medicaid plans’ appeals processes with those of other programs, and sets requirements for disseminating consumer information in accordance with private- market best practices.
  • It requires additional transparency on how Medicaid rates are set “to help ensure the fiscal integrity of Medicaid managed care programs.”
  • It establishes Medicaid’s first quality rating system so that states can publicly report plan quality information.
  • It gives states the flexibility to determine provider network adequacy and access standards for MCOs, for prepaid inpatient health plans, or for prepaid ambulatory health plans, dropping the time and distance standards for some types of providers that the HHS had suggested in its proposed rule.

Sources: FierceHealthPayer; April 25, 2016; and HHS; April 25, 2016.