How states can craft the right Medicaid managed care contract

New report offers guidance, methods

As Medicaid revenue continues to grow--revenue to risk-based Medicaid managed care plans grew from $48.1 billion in 2009 to $83.7 billion in 2013--so does the number of individuals covered. Due to this increase in growth, it's important for states to take an active role in choosing how to contract with managed care plans, according to a recent report from actuarial consulting firm Milliman.

While driving down costs remains a top priority, states need to focus on how to best serve their beneficiaries; Medicaid contracting is not a "one-size-fits-all process," as noted in the report.

Listed below are a few things for states to keep in mind as they choose the right managed care contracting methodology, according to Milliman.

Two options to determine capitation rates

Medicaid managed care programs must meet certain technical qualifications that are actuarially sound under federal law. These qualifications, in turn, help states determine the actual capitation rate paid to plans. There are two methods states can utilize: State-established capitation rate and competitive bid capitation rate.

The former requires the state's actuary to establish a single capitation rate or capitation rate range. The state will then determine the value within the range that will be offered to the plan. The plan may accept, reject or negotiate the proposed rate. 

The latter requires the state's actuary to establish a capitation rate range, which will be shared with the plans. The plans will then provide a bid rate which must meet the state's actuary's certified rate range.

The managed care rate setting consultation guide released by the Centers for Medicare & Medicaid Services last October can also help state Medicaid agencies set capitation rates, FierceHealthPayer previously reported.

How to manage plans

The number of eligible health plans in the market can help determine how the state contracts with these plans for a capitation rate. The state does have power to reduce the number of plans under contract by eliminating slots for winning bids.

When it comes to managing costs, the report noted, "States can choose to offer to enroll a greater percentage of auto-assigned lives to health plans that have the lowest bid. An auto-assigned life is a Medicaid member that did not choose a health plan at the time of enrollment." Ultimately, states may be able to avoid overpaying for populations that cost less to manage.

For more:
- here's the report (.pdf)

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