For a robust Medicaid Managed Care system to work, companies must be reasonably compensated

April 16, 2014

By Rick Murdock

Many people don’t fully realize that members of the Michigan Association of Health Plans are largely responsible for delivery of Medicaid services in Michigan for nearly 1.3 million persons – a number that soon will be rising as the Health Michigan program kicks into gear later this Spring.

I recently testified before the Senate Appropriations Subcommittee Community Health about some opportunities for further savings by delivering Medicaid services through private sector companies – and some concerns we have about how current programs are being funded.

Let’s talk about concerns in this post, and next week we will look at opportunities for further savings for taxpayers.

Today, members of our association participate in the Medicaid Managed Care Program through a competitive bid process for the awarding of contracts. This market-based system saves the state about $400 million over what would be incurred if state employees managed the system. Because the companies who win these bids are rigorously managed by the department to ensure they meet quality requirements, Medicaid recipients receive good services, and surveys show recipients are quite satisfied.

But to assure the entire managed care program is financially viable and strong full actuarial soundness must be implemented.  In other words, companies must be compensated for the costs they actually incur, including smart management administration that makes high quality and savings possible.

A key indicator of “actuarial soundness” is the industry average margin for Medicaid Health Plans.  A strong and viable system would yield margins minimally between 2 percent and 3 percent each year.  That’s not happening, according to the Medicaid Health Plan margins as reported in year-end filings with the state Department of Financial and Insurance Services, as margins have steadily slipped from 2.01 percent in 2010 to 1.20 percent in 2012.

And we anticipate that in 2013, the overall Medicaid Health Plan average margin will continue to drop and may be less than 1 percent.

Continued success of our highly regarded Medicaid Managed Care system and projected success for the Healthy Michigan Act cannot occur without sound financial support.

I told the Senate subcommittee that to adequately fund actuarial soundness for regular Medicaid and the Healthy Michigan Act combined, (including coverage for the state and federal taxes and fees) will minimally require at least an additional two percent or $130 million in total dollars over the amount recommended in the FY 15 Executive Budget for these two line items.  At the current federal match rate, this would require an additional $25-$30 million in General Fund support —the remainder coming from federal match.

If Michigan wants to continue to have a robust, competitive bidding process among companies that are providing high quality services, it needs to consider this issue carefully as it moves the state budget forward.