Review of Pennsylvania Medicaid Managed Care Program Potential Savings With Minimum Medical Loss Ratio

Private health insurers, Medicare Advantage plans, and Medicare Part D sponsors are required to spend a fixed percentage of premium dollars to provide medical services and health quality improvement activities. This percentage is known as a medical loss ratio (MLR).

We determined that Pennsylvania's Medicaid managed care program, known as HealthChoices, could have saved between $8 million ($4.3 million Federal share) on a contract and grant basis and $81.4 million ($42.3 million Federal share) on a rating category basis in 2014 if Pennsylvania (1) required its managed care organizations (MCOs) to meet a minimum MLR standard similar to the Federal standards for certain private insurers and Medicare Advantage plans and (2) required remittances when MCOs did not meet the MLR standard. Because States have the flexibility to choose to calculate MLRs and remittances either on contract basis or a rating category basis, we calculated MLRs and remittances using both methods.

We recommended that Pennsylvania (1) incorporate into its contracts and grants with Medicaid MCOs the MLR standards adopted in the CMS final rule and (2) consider implementing into its Medicaid MCO contracts and grants a remittance requirement if appropriate.

In written comments on our draft report, Pennsylvania concurred with our recommendations. Pennsylvania stated that it incorporated the CMS MLR reporting requirements beginning with its 2017 grant agreements for its physical health MCOs and behavioral health managed plans effective July 1, 2017. Pennsylvania will incorporate a remittance requirement consistent with the CMS final rule beginning with its 2018 grant agreements for its physical health MCOs but will not incorporate a remittance requirement for its behavioral health managed care plans.