The Medicaid Program Could Have Achieved Savings if New York Applied Medical Loss Ratio Standards Similar to Those Established by the Affordable Care Act

The Patient Protection and Affordable Care Act (ACA) established standards for the amount of premium revenue that certain commercial health insurers and Medicare Advantage plans can spend on costs other than healthcare-related expenses. These standards are known as the medical loss ratio (MLR). Insurers that do not meet these standards must pay rebates to their enrollees or the Department of Health and Human Services. Although the MLR standards do not apply to Medicaid spending, some States have applied similar standards to their contracts with Medicaid managed care organizations. The Federal Government is entitled to the Federal share of the net amount recovered by a State with respect to its Medicaid program.

While the New York State Department of Health (State agency) had policies in place limiting the amount plans could charge for administrative costs as a component of their capitated rate, the Federal Medicaid program could have achieved further savings during calendar year (CY) 2012 if the State agency had required its Medicaid managed care plans to meet MLR standards similar to those established by the ACA and issue rebates to the State agency if these standards were not met. Specifically, of the 20 managed care plans that we reviewed, the MLRs for 7 plans were less than 85 percent (the ACA's minimum MLR standard) during CY 2012. We determined that the Medicaid program could have saved $76.9 million (approximately $38.5 million Federal share) in CY 2012 if the State agency had required its Medicaid managed care plans to meet MLR standards similar to those established by the ACA.

We recommended that the State agency incorporate MLR standards into its contracts with Medicaid managed care organizations. If the State agency had incorporated standards similar to those established by the ACA in its contracts for the 20 plans we reviewed, the Medicaid program could have saved $76.9 million (approximately $38.5 million Federal share) in CY 2012. The State agency did not indicate concurrence or nonconcurrence with our recommendation.