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U.S. insurers facing tighter oversight of Medicaid plans

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(Bloomberg) — In the first major overhaul in more than a decade, the U.S. has proposed new rules for private health insurers who run Medicaid and children’s health plans covering millions of people.

The proposed rules, issued Tuesday by the Centers for Medicare & Medicaid Services (CMS), call for plans to report what portion of the money they’re paid actually gets spent on health benefits, and say states should take that into account when setting rates. The proposed guidance would also have states set standards for access to doctors and hospitals, and create a ratings system for plans.

The last major update for Medicaid managed care plans was in 2003. Since then, Medicaid, which covers the poor, and the Children’s Health Insurance Program (CHIP) have expanded, in large part because of 2010’s Patient Protection and Affordable Care Act (PPACA). Managed-care firms have also taken on a bigger role, and cover more than half of beneficiaries.

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Managed care “has evolved into the dominant delivery system in Medicaid,” Vikki Wachino, director of the Center for Medicaid and CHIP Services, said on a conference call Tuesday. “We aimed to better align Medicaid managed care policies and best practices with those of other managed care programs.”

Big health insurers like Aetna Inc. (NYSE:AET), Humana Inc. (NYSE:HUM), Anthem Inc. (NYSE:ANTM), and UnitedHealth Group Inc. (NYSE:UNH) offer the Medicaid plans, as do specialized firms such as Molina Healthcare Inc. (NYSE:MOH), Centene Corp. (NYSE:CNC), WellCare Health Plans Inc. (NYSE:WCG) and Health Net Inc. (NYSE:HNT).

Ratio reporting

The rules call for managed Medicaid plans to report  their medical loss ratio (MLR) and spend at least 85 percent of their revenue on benefits.

“That is the provision that’s more impactful to the plans directly,” said Lindy Hinman, senior vice president at Avalere Health. “It’s intended to cap the amount you can spend on administrative costs.”

There’s no requirement that plans pay back premiums in excess of the ratio, as PPACA now requires private health insurance plans to do.

Industry criticism

Jeff Myers, the chief executive officer of Medicaid Health Plans of America, an industry group, said having one medical-loss ratio for plans in every state doesn’t make sense, and that states already have medical spending levels built into contracts with plans. He said his group is still reviewing the proposed rule.

America’s Health Insurance Plans (AHIP) called the medical-spending rule “arbitrary” and said it could undermine critical services that aren’t health care, such as transporting patients to appointments.

Medicaid and CHIP now cover more than 70 million people in the United States. PPACA expanded eligibility and the Medicaid program has added 12.6 million enrollees since the start of last year, according to the research group RAND Corp. Medicaid is state-run, but funded and overseen in part by the federal government.

Private Medicaid plans operate in 39 states and cover more than half of all Medicaid beneficiaries, according to the Henry J. Kaiser Family Foundation. In return for a promise of lower costs and better-managed care, states typically pay private insurers a fixed sum for each Medicaid member.

CMS also included rules for private plans that pay for long-term care for the elderly and disabled. That population is growing as the U.S. ages.

California has the largest number of people enrolled in managed-Medicaid plans, followed by New York and then Florida, according to Avalere Health.

States were allowed to opt out of expanding their Medicaid programs in a 2012 Supreme Court decision on PPACA, and 21 have since decided not to increase eligibility. Under PPACA, the federal government is supposed to pay the full cost of expansion through 2016 and 90 percent of the cost thereafter.