Today, the US Centers for Medicare & Medicaid Services (CMS) published its long anticipated proposed rule on Medicaid managed care.  The ambitious proposal (CMS-2390-P) represents the first update to managed care regulations since 2002, and proposes dozens of changes that would revise the existing standards and requirements for Medicaid managed care plans and align Medicaid and the Children’s Health Insurance Program (CHIP) with other sources of health care coverage, including the Qualified Health Plans (QHPs) under the Health Insurance Exchange marketplace and Medicare Advantage.

The proposed rule would expand the federal role in the development and administration of the Medicaid program, particularly given the increasing role of managed care within Medicaid.  Given the competing interests among states, the different types of managed care and the different types of health plans, providers and advocacy groups who participate in the administration and delivery of services through managed care, only time will tell whether the eventual final rule will support or hinder further growth in Medicaid comprehensive, risk-based managed care for the different eligible population groups—namely, children, adults, people with disabilities, the elderly and dual eligible individuals.

Due to the length and breadth of this proposed rule, we will review the proposed rule in a series of advisories.  This first advisory provides a broad overview of the many parts of the proposed rule.  Subsequent advisories will address specific provisions in greater depth—for example, actuarial soundness, alignment with other insurers, Managed Long-Term Services and Supports (MLTSS), Medical Loss Ratio (MLR) and program integrity—and explore the potential impact those provisions might have.  For example, while the rule requires states to calculate and report MLRs, it does not contain any enforcement, such as the loss of federal matching funds against a state or a rebate against a health plan that fails to meet a minimum MLR.  Thus, CMS states in its economic analysis that it does not expect the MLR provisions to have any direct financial impact.

Growth in Medicaid managed care 

The proposed rule should be viewed in the context of how Medicaid looks today. According to CMS data, the total Medicaid population grew from 36.6 million enrollees in 2001 to 54.6 million in 2010.1  During this same period, the number of Medicaid enrollees receiving benefits through some type of managed care grew from 20.8 million to 39 million enrollees, representing 71.5 percent of the total Medicaid population.  Notably, the non-managed care population actually declined from 15.8 million to 15.6 million individuals during this nine-year period. Therefore, the growth in Medicaid enrollment over this period is almost entirely within the managed care population.  These figures reflect enrollment in any type of managed care.

There is wide variety among the states in the use of managed care among the different populations.  According to the Medicaid and CHIP Payment and Access Commission (MACPAC), 71.8 percent of all Medicaid enrollees were in some type of managed care arrangement including comprehensive risk-based, non-capitated fee-for-service arrangements with payments for care management, and limited benefit plans in FY 2011.  However, only 49.8 percent were enrolled in comprehensive, risked-based managed care.2   Nationally, 63.3 percent of children; 48 percent of adults; 33 percent of people with disabilities; 13.9 percent of seniors, and 13.2 percent of dual eligibles were enrolled in comprehensive, risk-based managed care using managed care organizations (MCOs).

Since the optional expansion of Medicaid eligibility to all adults with income at or below 138 percent of the federal poverty level under the Affordable Care Act (ACA), many of the states that have elected to expand their Medicaid programs are using managed care to provide coverage to their new enrollees.  As a result, there has been significant growth in the managed care population, and the number of individuals enrolled in Medicaid managed care plans is expected to increase over the coming years.

Purposes of the proposed rule

Given the growth in the Medicaid population, the increasing use of managed care, and the enactment of the ACA, as well as other laws that have an impact on the Medicaid program, CMS believes there is a need to update the federal Medicaid managed care regulations. Throughout the proposed rule, CMS identifies multiple purposes, reasons, expectations and aspirations for the proposed overhaul of the existing Medicaid managed care regulations.  Notably, CMS has determined that “[l]aws passed since the Medicaid managed care regulations were promulgated in 2002 have altered the Medicaid program to such a degree that we believe our current regulatory framework for managed care is no longer the most appropriate.”  Accordingly, CMS “proposes to modernize the Medicaid managed care regulatory structure to facilitate and support delivery system reform initiatives to improve health care outcomes and the beneficiary experience while effectively managing costs.”

CMS emphasizes that greater alignment between Medicaid managed care rules and QHPs and/or Medicare Advantage standards, where appropriate and feasible, will support administrative simplicity for states and health plans across product lines, as well as enhance beneficiary protections.  Moreover, by strengthening program integrity safeguards and ensuring accountability, CMS intends to improve quality of care and plan performance and enhance overall beneficiary experience.

Provisions of the proposed rule

The major subjects and subcategories of the proposed rules are:

  1. Alignment with other health coverage programs (marketing, appeals and grievances, and Medical Loss Ratio)
  2. Standard contract provisions
  3. Setting actuarially sound capitation rates for Medicaid managed care programs (definitions, actuarial soundness standards, rate development standards, special contract provisions related to payment, and rate certification submission)
  4. Other payment and accountability improvements (prohibition of additional payments for services covered under MCO, Prepaid Inpatient Health Plan (PIHP), or Prepaid Ambulatory Health Plan (PAHP) contracts, sub-contractual relationships and delegation, program integrity, sanctions, deferral and/or disallowance of federal financial participation (FFP) for non-compliance with federal standards, and exclusion of entities)
  5. Beneficiary protections (enrollment, disenrollment standards and limitations, beneficiary support system, coverage and authorization of services and continuation of benefits while the MCO, PIHP, or PAHP appeal and the State Fair Hearing are pending, continued services to beneficiaries and coordination and continuity of care, advancing health information exchange, MLTSS and stakeholder engagement for MLTSS
  6. Modernize regulatory requirements (availability of services, assurances of adequate capacity and services, and network adequacy standards, quality of care, state monitoring standards, information standards, primary care case management, choice of MCOs, PIHPs, PAHPs, Primary Care Case Management (PCCMs), and PCCM entities, Non-Emergency Medicaid Transportation PAHPs and state plan standards)
  7. Implementing statutory provisions (encounter data and health information systems, standards for contracts involving Indians, Indian Health Care Providers and Indian Managed Care entities and emergency and post-stabilization services)
  8. Definitions and technical corrections
  9. Third party liability

The proposed rule also contains provisions, generally similar to the Medicaid provisions, that will apply to CHIP.

Information collection requirements

Federal agencies are required by law to estimate the cost of collecting information.  This rule would impose 61 separate Information Collection Requirements (ICRs) on the states and other entities.  Even though CMS estimates many of the states already conduct many of the activities under the proposed rule, it will cost over $111 million to comply with the ICRs.

Economic impact and reaction

CMS acknowledges this is a major rule. Two provisions in particular—calculating and reporting the health plan MLRs and setting actuarially sound capitation rates—are likely to generate significant public comments.  The CMS economic impact analysis, a required element of proposed and final rules, demonstrates a great deal of uncertainty as to the impact the proposed rule could have with regard to additional costs or savings.  For example, CMS estimates that from 2016-2020, the actuarial soundness requirements could result in $11 billion in savings or $3 billion in additional costs.


Medicaid now accounts for about 16 percent of total personal health care spending in the United States and will soon exceed $500 billion in annual expenditures.  Payments for managed care account for 25-30 percent of all Medicaid benefit spending.

In general, the proposed changes could have far reaching impacts on health plans, providers, service vendors and state budgets.  The many and various state partners need to know how these new rules will change the regulatory environment that has been relatively stable for more than a decade.  The proposed rule, intended to improve the quality and efficiency of care delivered to Medicaid enrollees, also adds new complexities to the operational side of Medicaid, including more reporting, more quality measurements and greater transparency.

Health plans, providers, service vendors, the states, and other interested parties will have the opportunity to comment on CMS’ comprehensive proposal.  To be assured consideration, comments are due to CMS no later than 5 p.m. on July 27, 2015.