Nationwide, Almost All Medicaid Managed Care Plans Achieved Their Medical Loss Ratio Targets

WHY WE DID THIS STUDY

Managed care has replaced fee-for-service as the predominant payment model in Medicaid. State and Federal spending on Medicaid managed care is growing and totaled $360 billion in 2020, accounting for more than half of total Medicaid spending that year. Federal requirements for medical loss ratios (MLRs) were established to ensure that Medicaid managed care plans spend most of their revenue on health care services and quality improvements, thereby limiting the amount that plans can spend on administration and keep as profit. An MLR is the percentage of revenue that a managed care plan spends on services related to the health of its enrollees. MLR requirements also enhance fiscal stewardship of Medicaid expenditures by helping to ensure that States have sufficient information to oversee spending by their Medicaid managed care plans.

Federal regulations give States the option to choose to establish a minimum MLR of at least 85 percent for their Medicaid managed care plans. Regardless of whether a State establishes a minimum MLR, it must use plan reported MLR data to set future payment rates for managed care so that its plans will "reasonably achieve" an MLR of at least 85 percent.

This data brief provides stakeholders with national data on (1) the MLRs of Medicaid managed care plans and (2) the extent to which plans met State-set minimum MLRs and the Federal MLR standard of 85 percent.

HOW WE DID THIS STUDY

We requested that Medicaid agencies from th 50 States and the District of Columbia (which we refer to collectively as States) complete an online survey and submit information about their managed care plans that are subject to Federal MLR requirements. We also requested that States provide the annual MLR reports that they received from their Medicaid managed care plans. All 51 States responded to our information request, and 43 States had plans that were subject to Federal MLR requirements as of September 1, 2020. States submitted annual MLR reports for reporting periods ending in 2017, 2018, or 2019. We analyzed States' survey responses and annual MLR reports for 513 plans to identify States' MLR requirements and the extent to which plans had met State-set minimum MLRs and the Federal 85 percent standard.

WHAT WE FOUND

Although Federal MLR regulations do not require States to set minimum MLRs, 34 States had established minimum MLRs for 434 Medicaid managed care plans for annual reporting periods ending in 2017, 2018, or 2019. Ninety-one percent of plans met these State-set minimum MLRs. However, 39 plans failed to meet their State-set minimum MLRs for the period reviewed. Nineteen of these plans reported owing a total of $198 million to States that had opted to require their plans to return money to the State when minimum MLRs were not met. For all but one plan, the owed amount covered a 12 month MLR reporting period. Finally, 92 percent of Medicaid managed care plans (471 of 513) achieved MLRs that met or exceeded the Federal 85 percent MLR standard regardless of whether their States had established minimum MLR requirements.

WHAT WE CONCLUDE

This data brief shows that nationwide, almost all managed care plans met or exceeded MLR requirements to direct funds toward patient care and quality improvements. Further, it demonstrates that States that choose to establish minimum MLRs with requirements to return monies may recoup millions of Medicaid dollars from plans that fail to meet the State-set minimum MLRs. In a separate forthcoming report, OIG will (1) evaluate States' oversight of their Medicaid managed care plans' compliance with MLR reporting requirements and (2) assess the completeness of MLR data that plans have reported to the States.