Medicaid Managed Care - U.S. Senate Special Committee on Aging

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Risk Corridors Risk Have Five states-the Corridors
District of Columbia, Massachusetts, Ohio, Utah, and
Greatest Impact on the potentially negative incentives affecting health plans'treatment of
Negative Financial disabled enrollees.4 Unlike reinsurance, risk corridors work in two
Incentives directions, sharing both losses and profits with health plans below and
Incentives above preestablished ratios.
Have Wisconsin-are building risk corridors into their contracts to help mitigate
As the only mechanism that specifically imits health plan profits, risk
corridors have the greatest impact on incentives facing health plans to
either reach for the lowest-cost recipients in any given rate cell or to
underserve the high-cost enrollees they cannot avoid. The point at which
profit and loss sharing begins-the width of the risk corridor-varies from
state to state, as does the degree to which profits and losses are shared.
Table 4.3 shows the risk corridor arrangement Massachusetts has in is
current contract with a plan that provides prepaid care for the severely
disabled
Table 4.3: Massachusetts Risk
Corridor for Plan Providing Prepaid
Cam to th SHr"Y Disabled
Sttuaton at end of contract period
Plan has medical expenditures totaling
more than 10% below capitation payments
Outcome
The difference above 10% revets to the
state
Plan has medicalr.enditwres between
o and 10% below capitaton payments
Plan keeps 40% of the ditlerence: 60%
reverts to the state
Plan has medical expenditures between
o and 10% abme capitation payments
State pays 50% of the difference
Plan has medical expenditures totaling
mere than 10% above capitation payments
Slate pays 75% of the difference
Source: Masaacivevts Executive Ofice of Health da H-uran tarv ces
By reducing the potential for profits, the state is affecting implicit health
plan calculations regarding the costs and benefits of restricting services.
When $1 saved from restricting service translates to SS of profit, a health
plan may be willing to risk losing enrollees who are dissatisfied with
health plan service. With risk corridors, however, $1 saved may only
translate to 30 or 40 cents in profit, reducing the benefit side of the
equation Because health plans understand how risk corridor
arrangements operate before entering into <strong>Medicaid</strong> prepaid care
agreements, corridors also have the unique feature of being a retrospective
adjustment with a prospective impact. Risk corridors and their profit
limits may affect health plan risk arrangements established with individual
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