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

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As shown in Chart G stop loss/reinsurance is the most popular form of risk-sharing
among states with managed care programs. Under this form of risk-sharing the
plan is usually responsible for an individual enrollee's care until total costs for that
individual exceed a pre-determined threshold ($50,000 for example) after that point
the entity sponsoring the stop loss becomes responsible for the cost of caring for the
individual. This form of risk-sharing protects the contractor from excessive loss, but
does not provide the State any means of recouping excessive profit (if the state
wishes to do so).
The next most popular strategies are risk corridors and risk pools. These methods of
sharing risk depend more on aggregate experience than individual experience. In
other words, they share overall program financial risk between the state and the
plan or among plans. Specifically, risk corridors are a means of protecting both the
plan and the state from financial risk on an aggregate basis. At is simplest, this
approach could consist of the plan and the state agreeing to split any loss or profit
that exceeds 25% of revenue from capitation payments for <strong>Medicaid</strong> beneficiaries on
a fifty/fifty basis. In order to create appropriate incentives most states that use this
approach have multiple corridors that entail sharing profit and loss in different
proportions depending on the amount of profit or loss. Several states such as
Wisconsin and Ohio use this approach in their programs designed to serve persons
with disability.
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