United States: Medicaid Managed Care Proposed Rule Seeks To Align Medicaid With Medicare Advantage And Qualified Health Plans

On June 1, 2015, the US Centers for Medicare & Medicaid Services (CMS) published its proposed rule on Medicaid managed care (CMS-2390-P).  According to CMS, one of the primary purposes of the proposed rule is to "align the rules governing Medicaid managed care with those of other major sources of coverage, including coverage through Qualified Health Plans and Medicare Advantage plans [...]."1  This advisory, the fifth and final in our series, will examine CMS' actions towards this stated purpose.

To promote alignment with certain other types of health coverage, CMS proposes significant modifications to the existing Medicaid managed care rules in the following major areas:

  • Marketing;
  • Appeals and Grievances;
  • Medical Loss Ratio (MLR);
  • Coordination and Continuity of Care;
  • State Review and Approval of Managed Care Organizations (MCOs), Pre-paid Inpatient Health Plans (PIHPs), and Pre-paid Ambulatory Health Plans (PAHPs); and
  • the Quality Rating System.

If finalized as proposed, alignment with other health care coverage programs will likely be beneficial to enrollees in terms of offering them greater protections, as well as more consistency as they move in and out of the various programs.  Moreover, standardization will ease administrative burdens on CMS and large health plans that market in both private and public markets across multiple States.   However, the proposed rule would impose substantial burdens on States coming into compliance and may disadvantage small health plans, especially PAHPs. After a brief preface concerning the relevant populations being "aligned," we examine various modifications to the key areas in greater detail below.

Medicaid, Medicare Advantage , and Qualified Health Plans—Different Populations and Different Operations

CMS recently released the 2014 Actuarial Report on the Financial Outlook For Medicaid which provides useful background on the characteristics of the Medicaid program and the people it serves.2   The CMS actuaries project that Medicaid will spend US $529 billion (Federal, State and local spending) on 68.8 million enrollees in Fiscal Year 2015.3  Of the Medicaid population, 29.6 million (43 percent) are children; 15 million (22 percent) are previously eligible adults; 10.2 million (15 percent) are individuals with disabilities; 7.4 million (11 percent) are newly eligible adults; and 5.5 million (8 percent) are elderly.  In FY 2013, managed care payments and premiums totaled US $147 billion or 34 percent of Medicaid medical assistance payments.

By comparison, Medicare Advantage (MA) plans are expected to serve 17.6 million individuals in 2015 (31.5 percent of total Medicare enrollees), who are either seniors or who qualify for Medicare because of a disability.4   Most MA plans are coordinated care plans, though a small number are private fee-for-service plans.  A discrete number of specialized MA plans serve individuals who need institutional care or who are dually eligible for Medicare and Medicaid.  According to the 2015 Medicare Trustees Report, Medicare will spend almost US $175 billion on payments to private health plans in 2015.5 Between Medicare and Medicaid, private health plans will receive more than US $300 billion this year from these government programs.

The programs are operationally distinct as well. CMS reports that the Qualified Health Plans (QHPs) offered through State or Federal exchanges (the Marketplace) under the Affordable Care Act (ACA) serve 10.2 million individuals, almost all of whom are adults aged 18 to 65.  The Federal government has not reported how much it has spent on QHP premiums through subsidies.  Still, the Federal payments in connection with these three programs is, by almost any measure, significant.

Despite CMS' goal of better aligning the three programs, Medicaid, Medicare, and the Marketplace will continue to serve very different populations and operate very differently because of differing statutory authorities, populations, and enrollment mechanisms, and other operational issues.  This advisory outlines certain key areas in which CMS has made a deliberate effort to narrow the differences between programs.6

Marketing (Proposed 42 C.F.R. Section 438.104)

Due to past abuses, CMS strictly limited marketing practices of health plans aimed at Medicaid enrollees.  With the development of the Marketplace, and recognizing that individuals may move between Medicaid health plans and QHPs, CMS now proposes to amend the definition of "marketing" in Section 438.104 to expressly allow communications from a QHP to Medicaid beneficiaries. This proposed change is based on a recognition that "consumers may experience periodic transitions between Medicaid and QHP eligibility, and families may have members who are divided between Medicaid and QHP coverage." As such, selecting a carrier that offers both types of products may be the most effective way for some consumers to manage their health care needs.  CMS aims to improve coordination of care and minimize disruptions in care by eliminating a potential impediment to complete and effective information sharing by entities that offer both QHPs and Medicaid entities about coverage options.7

This provision will undoubtedly be welcomed by those entities that offer both Medicaid and QHP products.  It may provide some benefit to enrollees who could gain a greater understanding of how insurance coverage works and what coverage options are available to them and could provide greater continuity.

Appeals and Grievances (Proposed 42 C.F.R. Sections 431.200, 431.220, 431.244, 438.400 - 438.424)

CMS proposes numerous changes to current regulations in an effort to conform existing Medicaid managed care grievance and appeals procedures with QHP and MA rules on appeals and grievances (and, in certain instances, to conform to terms and practices used in the private market).  Part of the goal is to avoid confusion for beneficiaries transitioning between different types of coverage.  In general, States and health plans will be required to shorten the appeals process in favor of the enrollee. Notably, an enrollee's benefits will continue throughout the appeals process. The proposed rule adopts new definitions and establishes new timeframes, notice and recordkeeping requirements, and new rights for the enrollee to present evidence at each level of appeal. For example, MCOs and PIHPs currently are allowed 45 days in which to make a decision about an enrollee appeal; this would be shortened to 30 calendar days (as in the MA context).  An expedited appeal would be shortened from three (3) working days to 72 hours of receiving a request for expedited review (as under MA and certain commercial insurance standards).

The greatest impact is likely to be on PAHPs, which provide only limited benefits, such as dental coverage, long-term services and support ("LTSS"), and behavioral health services. PAHPs will now for the first time be subject to the grievance and appeals system standards.  For example, subjecting coverage for LTSS, which CMS acknowledges are non-medical in nature, to a lengthy appeals process could be costly to a risk-bearing PAHP that is paid on a capitated basis.

Medical Loss Ratio (Proposed 42 C.F.R. Sections 438.4, 438.5, 438.8, and 438.74)

Since the Affordable Care Act's establishment and enforcement of a new medical loss ratio minimum standard, insurers, providers, and stakeholders have been attuned to new developments regarding the MLR and its potential impact on QHPs and other markets.  According to CMS, an MLR "would be an effective mechanism to ensure that program dollars are being spent on health care services, covered benefits, and quality improvement efforts rather than on potentially unnecessary administrative activities."8   CMS believes that an MLR of 85 percent is the "appropriate minimum threshold and is the industry standard for MA and large employers in the private insurance market."9   Thus, the agency's proposed MLR is another example of alignment towards perceived industry standards.  We previously examined the proposed MLR requirements in the first and second advisories in this series.

Calculating a MLR can serve two major purposes: (1) educating consumers who are price sensitive by providing an accurate representation of the proportion of consumers' premiums that a health plan spends on clinical services and quality improvement versus administrative costs and profits, and (2) assisting regulators in recovering rebates from health plans that have spent too little on benefits.  In Medicaid, the former has limited utility because enrollees are not paying premiums and, therefore, price is not generally important to them.  The proposed rule does not accomplish the latter goal either. First, CMS makes it clear that the MLR is not enforceable, either against the State or the health plan.  Second, receiving a rebate in many respects would be an indicator that the State set rates too high in the first place.  Calculating an MLR is a tool, but its net value in lowering the cost of Medicaid managed care may have less of an impact than in other programs.

Coordination and Continuity of Care (Proposed 42 C.F.R. Sections 438.62 and 438.208)

CMS provides that the proposed changes to the existing coordination and continuity of care provisions are intended "to align the Medicaid managed care framework with other public and private programs and improve coordination and continuity of care."10   CMS references a definition of "care coordination" from the Agency for Healthcare Research and Quality ("AHRQ") to explain its new expectations of Medicaid managed care plans.  That definition provides that "deliberately organizing patient care activities and sharing information among all of the participants concerned with a patient's care to achieve safer and more effective care.  This means that the patient's needs and preferences are known ahead of time and communicated at the right time to the right people, and that this information is used to provide safe, appropriate, and effective care to the patient."11 (emphasis added).

CMS asserts that these concepts are already embedded in both the MA program and Marketplace regulations, which seek to ensure that care is coordinated "across settings and with services delivered inside and outside the health plans."  CMS intends to extend these care coordination requirements to community-based LTSS and PAHPs.12   However, as previously discussed, the Medicaid population differs significantly from those served in most MA plans and QHPs.  To that end, CMS requested comments on potentially extending the care coordination requirement to organizations such as protection and advocacy organizations, Legal Aid, and Area Agencies on Aging.

Additionally, CMS proposes that each managed care entity "make their best effort" to complete an initial health risk assessment on each new enrollee within 90 days of enrollment and that all providers, practitioners and suppliers share an enrollee health record.  CMS notes that the standard for an initial health assessment is already explicit in MA regulations, thereby establishing consistent standards.  The Office of the National Coordinator for Health Information Technology (ONC) has released its draft "2015 Interoperability Advisory."   As electronic health records are not fully interoperable, "[p]roviders, payers and vendors are encouraged to take these 'best available standards' into account as they implement interoperable health information exchange across the continuum of care ...."14   The agency seeks comments on how it might reinforce standards in future rulemaking.

State Review and Approval of MCOs, PIHPs, and PAHPs (Proposed 42 C.F.R. Section 438.332)

This new subsection proposes the application of performance standards as a condition of MCOs, PIHPs and PAHPs entering into a Medicaid managed care contract with the State.  CMS proposes that these standards be at least as stringent as those used or recognized by CMS for purposes of accrediting MA organizations and QHPs.  To be accredited, an entity must satisfy requirements on clinical quality measures, patient experience, utilization management, quality assurance, complaints and appeals, and network adequacy and access.

Pursuant to the proposed rule, States would have two options for meeting these requirements: (1) A State could purchase the standards from a CMS-recognized accrediting organization and review and reissue approval of each managed care entity at least once every three years, or (2) a State could deem compliance based on private accreditation.  Approval of each managed care entity's accreditation would be posted on the state's Medicaid website for public view.

Quality Rating System (Proposed 42 C.F.R. Section 438.334)

In another new subsection, CMS proposes to require States to develop and implement a Medicaid managed care quality rating system.  CMS has already applied rating systems to MA plans and QHPs, but does not apply the same performance measures in the rating systems for the different types of plans.15   Performance measures for QHPs are aligned with the National Quality Strategy, which are grouped under three summary indicators: 1) clinical quality management; 2) member experience; and 3) plan efficiency, affordability and management.  Within these three summary indicators are eight domains.16   Each domain has its own set of performance measures, 19 clinical and 10 survey measures.

CMS provides that, "given the overall Medicaid population more closely resembles that of the Marketplace, modeling the quality rating system for Medicaid on that of the QHPs offered through the Marketplaces makes the most sense ...."17   Further, CMS seems to imply that because the overall Medicaid population more closely resembles that of the QHPs, that the existing QHP quality rating system is the more appropriate model for Medicaid managed care. CMS notes that "alignment with the rating system currently in place for the QHPs ... would minimize the burden on health plans that operate in both markets and provide data for the various quality rating systems."18  However, CMS notes that States may appropriately adopt the performance measures in the MA five-star rating system as the default for plans that serve dual eligible enrollees or individuals in need of LTSS.19

Even though CMS seems to be encouraging States to adopt a QHP-like rating system, CMS intends moving forward to develop a Medicaid managed care quality rating system through a "robust" public engagement process. CMS proposes to refine the system over a three to five year period prior to implementation in order to "further identify the respective state and federal roles in implementation and maintenance of the system."20


While the proposed rule seeks to align Medicaid managed care with MA plans and QHPs, as well as certain practices in the private sector, clear differences among the programs will remain. For example, CMS has not standardized procedures and contracting requirements between MA plans and QHPs.  So, while the programs may move closer to each other over time, CMS has signaled that it will continue to make revisions or changes to all three systems.

The comment period on the proposed rule closed on July 27, 2015.  CMS is likely to receive a substantial number of comments that must be analyzed and addressed in a final rule. 


1 80 Fed. Reg. 31098 (June 1, 2015).

2 Centers for Medicare & Medicaid Service Office of the Actuary, 2014 Actuarial Report on the Financial Outlook for Medicaid (http://www.medicaid.gov/medicaid-chip-program-information/by-topics/financing-and-reimbursement/downloads/medicaid-actuarial-report-2014.pdf).

3 Id. at Table 15, p. 61. The Office of the Actuary at CMS defines enrollees in millions of person-year equivalents.

4 2015 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds (http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2015.pdf),  at 153.

5 Id. at 156.

6 Efforts at alignment appear throughout the proposed rule.  In our earlier advisory describing how the Medicaid managed care proposed rule expands program integrity obligations, we highlighted certain ways in which CMS is seeking to align the MA and Medicaid managed care programs though modified compliance and other program integrity requirements and standards.

7 80 Fed. Reg. at 31102.

8 Id. at 31107.

9 Id.

10 80 Fed. Reg. at 31139.

11 Id. at 31140.

12 Id. at 31140.

13 Office of the National Coordinator for Health IT, 2015 Interoperability Standards Advisory (http://www.healthit.gov/sites/default/files/2015interoperabilitystandardsadvisory01232015final_for_public_comment.pdf).

14 80 Fed. Reg. at 31141.

15 CMS notes, however, that "the QHP quality rating system uses a five-star scale, similar in style and format to that of the MA and Prescription Drug Plan rating system," and asserts that using such consistent style and format "would make it easier for beneficiaries, who may be transitioning among these various coverage programs to understand the quality ratings of their health  plan regardless of the payer."  80 Fed. Reg. at 31152.

16 80 Fed. Reg. at 31152.

17 Id. at 31152.

18 Id.

19 Id.

20 Id.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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