States propose Medicaid insurer rate hikes, eye benefit cuts

By Nona Tepper / March 15, 2024

States are boosting pay to health insurance companies that administer Medicaid benefits to address rising medical spending even as some eye benefit cuts to close budget shortfalls.

States such as Arizona, California, Missouri and Washington plan to increase Medicaid managed care capitation rates for fiscal 2025 to companies such as Centene and Molina Healthcare. Insurers have cited negative effects on risk pools resulting from the ongoing eligibility redeterminations process to unwind the continuous coverage provisions enacted as part of federal COVID-19 relief efforts.

States dispense monthly per member fees to health insurance companies that manage Medicaid beneficiaries' care based on factors such as benefits, health status and utilization trends.

At least seven states aim to raise capitation rates for Medicaid insurers in the next fiscal year, according to a review of state budget documents and statements from officials. Thirty-three states must draft new budgets during their legislative sessions and 22 have published proposals to date, not all of which specify plans for Medicaid.

"Those are going up because utilization is increasing post-pandemic. That seems obvious to me,” said Craig Kennedy, president and CEO of the trade association Medicaid Health Plans of America. Acuity among Medicaid enrollees is projected to rise 0.9% in fiscal 2025, according to a report the Society of Actuaries published in October.

Arizona proposed a 3% increase, California's draft budget includes a 3.8% hike and Missouri is considering a 2.5% raise. Washington will increase per member, per month rates next year but the final figure is still in development. Missouri and Washington expect Medicaid spending to decrease overall, however, because of lower enrollment due to redeterminations.

“What are those rates and where are those rates going? Are they going to something that would be mostly for the profit of the plans? That would be particularly problematic if provider rates are falling or optional benefits are being cut elsewhere,” said Edwin Park, a research professor at the Georgetown University Center for Children and Families.

New York is going the other direction and plans to reduce Medicaid insurer compensation by eliminating a quality bonus program and a 1% pay increase that expires this fiscal year. New York has not finalized the per member rate for fiscal 2025, a spokesperson wrote in an email.

At the same time, legislators in Indiana, Kentucky, New York and elsewhere have proposed reducing benefits such as long-term services and supports, in-home care and mobile crisis units for fiscal 2025. Medicaid budgets were projected to rise 3.4% in 2024, the slowest rate since 2012, KFF reported in November.

Leading Medicaid insurers Centene and Molina Healthcare have told investors they are confident that rate increases will position them to profit from the program next year. Across the 30 states where Centene participates in Medicaid, it received a larger-than-average pay bump for this year to account for worsening population health, according to the company. Molina Healthcare reported an average 4% increase across its 18 states.

“As we move into the roll-off of redeterminations in ‘25 and beyond, [rates] become a tailwind for the book overall,” Centene CEO Sarah London said during the company’s fourth-quarter earnings call on Feb. 6.

Centene and Molina Healthcare did not respond to interview requests.

The Centers for Medicare and Medicaid Services mandates that Medicaid insurers’ rates be actuarially sound and cover all medical and administrative costs, taxes, and fees for which the health insurer is responsible. Federal and state actuaries must approve the rates.

“Rates are actuarially sound and are based on the state package of services and utilization," Kennedy said. “It's not haphazard or a ‘fly by the seat of your pants’ sort of thing. Everybody brings actuaries to the table.”

Forty-one states contract with health insurance companies to administer Medicaid. States adopted this policy with an eye toward predictable spending and budgetary savings on a program the represents one of their largest expenses.

Insurers, however, have faced criticism for offering inadequate provider networks and denying care. CMS has taken steps to ramp up oversight to ensure that Medicaid carriers are living up to their end of the deal, and President Joe Biden has proposed additional policies.

For example, CMS published a final rule in January that instructs Medicaid insurers to speed up prior authorization responses and publicly report their decisions. Last year, the agency proposed requiring Medicaid managed care plans to document how they spend state funding, improve provider networks and disclose how their reimbursements compare to fee-for-service Medicare payments.

The White House's fiscal 2025 budget request proposes expanding CMS' oversight authority and requiring Medicaid and Children's Health Insurance Program carriers to report medical loss ratios in order to "limit the portion of Medicaid and CHIP managed care dollars spent on administration and incentivize more investments in quality healthcare services," according to the HHS section of the budget.

“New provisions associated with accountability and transparency around the rates and what's embedded in them are welcomed by states,” said Kate McEvoy, director of the National Association of Medicaid Directors.