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

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* Striking a balance between steering beneficiaries to an appropriate plan
versus inappropriate steering can be difficult. Plans with experience
with populations who are high utilizers may experience adverse
selection. An effective risk adjustment mechanism may neutralize
adverse selection.
* The different managed care options that Medicare beneficiaries have
can complicate the <strong>Medicaid</strong> enrollment process for dual eligibles.
Financing <strong>Managed</strong> <strong>Care</strong> for Vulnerable Populations
There are several aspects of finance that states should consider re-examining when
developing programs that serve the elderly or persons with disabilities.
* States considering contracting with community based organizations may wish
to re-examine their solvency requirements, since these providers may be
unable to establish the same level of risk-reserves as a commercial HMO.
* States generally vary their capitation payments based on demographics such
as geography, sex, and age. These states may wish to re-examine these policies
as some studies have shown that these are not the factors that account for the
greatest amount of variation in cost among members of special populations.
* States may wish to re-examine their risk-sharing arrangements with plans,
since the potential for selection bias and rapid changes in the means of
treating some subpopulations may make projecting average costs more of a
'best guess' than an 'accurate projection.'
Solvency Requirements
Solvency requirements are the financial requirements plans must meet in order to
participate in the <strong>Medicaid</strong> managed care program. In those states that contract only
with HMOs that are commercially licensed to operate in the state, the Insurance
agency typically ensures that the plan has sufficient reserves, maintains an
acceptable medical loss ratio, etc. Indeed of the 36 state Insurance agencies that
responded to a 1996 survey, only three did not report regulating the financial aspects
of managed care organizations. 3 1 This allows the <strong>Medicaid</strong> agency to focus its
oversight efforts on other aspects of plan performance.
Some states that operate managed care programs for special populations have
decided to contract with non-commercially licensed organizations, usually
31 Jane Horvath and Kimberly Irvin Snow, Emerging Challenges in State Regulation of
<strong>Managed</strong> <strong>Care</strong>: Report on a Survey of Agency Regulation of Prepaid <strong>Managed</strong> <strong>Care</strong> Entities, (Portland,
ME: The National Academy for State Health Policy, 1996), pp. 11-14.
The National Academy for State Health Policy * 0 8/97 IV-62