CMS Tells States To Reimburse Plans For Health Insurance Provider Fee

CMS says that states should reimburse Medicaid managed care plans for the Affordable Care Act's health insurance provider fee, and says that the fee itself should be incorporated into plans' capitation rates, however, as the firm JP Morgan notes, the agency leaves some “wiggle room” on whether states should also factor in other potential effects of the fee, such as its non-deductibility status. Medicaid Health Plans of America President Jeff Myers said CMS' recently released frequently asked questions document provides certainty for plans, particularly in states that hadn't yet agreed to cover those fees.

Myers said the plans are gratified CMS decided to move forward with the FAQ, and the release of the FAQ and the 2015 Managed Care Rate Setting Consultation guide suggest that CMS would like to play a more involved role in rate setting for managed care. Since plans have been asking for more transparency around rate setting, CMS' involvement could be a net positive, Myers said. The Government Accountability Office has also said that CMS' oversight of the rate-setting process needs improvement.

A JP Morgan investors note points out that CMS' FAQ, released Tuesday, explicitly states for the first time that the agency believes states should reimburse MCOs for the health insurance provider fee.

“The fee is not unlike other taxes and fees that actuaries regularly reflect in developing capitation rates as part of the non-benefit portion of the rate. CMS believes that the Health Insurance Providers Fee is therefore a reasonable business cost to health plans that is appropriate for consideration as part of the non-benefit component of the rate, just as are other taxes and fees,” the agency says.

The health insurer fee is expected to raise close to $100 billion from all insurers under the ACA, and MHPA said in a September letter to CMS Medicaid chief Cindy Mann that “significant confusion persists among states regarding the treatment of taxes and fees, including the health insurer fee.” The group had been pushing CMS for months to clearly lay out guidance on how states should treat the health insurer fee for managed Medicaid plans.

CMS says the FAQ is the result of a number of questions from states, their actuaries and health plans about the fee and its interaction with managed care rate setting.

Myers said there are states that still haven't contracted with plans to pay for the fee, and the FAQ provides certainty on that front. The JP Morgan note on the FAQ says that CMS' move increases the likelihood that the remaining states that haven't yet committed to paying the fee will do so.

“However, the FAQ appears to still leave some wiggle room for states on grossing up reimbursement for income taxes, so the uncertainty has not been eliminated completely,” the JP Morgan note states.

In response to a question on whether the potential effect of the tax on other fees as well as the non-deductibility of the fee should be considered in the capitated rates, CMS says only that “it may be” factored into rate development. If so, the actuary will include that data in the underlying assumptions, the agency says.

Medicaid plans have argued that all impacts of the fee should be reimbursed under actuarial soundness principles.

The JP Morgan investors note says that Texas is the key hold out on covering the fee, as the CEO of the Texas Health Plan Association sent an email late last month saying it didn't expect the Texas Health and Human Services Commission to do anything about the fee soon. The email also said that HHSC wasn't making changes to indicate that the state should pay the insurer fees, the investors note says.

“We expect the state to address the fee in the 2015 budget process, with the biggest uncertainty at this point being whether or not the state decides to retroactively reimburse the plans for 2014,” the note says.

In the FAQ, CMS says states have flexibility in incorporating the health insurance provider fee into the states' managed care capitation rates, and can account for the fee on a prospective or a retroactive basis. It's tough for an actuary to make a judgment about what the fee will look like a year ahead of time, so CMS did the right thing in granting that flexibility, Myers said.

CMS says it expects that states will move to a prospective calculation as states and the plans get a little more experience with the fee. If a prospective calculation ends up making the capitation rates too high or too low, then the rates may be adjusted after the tax assessment is known, CMS says. States can also account for the fee by withholding some funds until a health plan's actual fee is known, the FAQ adds.

The agency says that the health insurance providers fee cannot be paid to the plans as a separate payment, and “any payment for the fee -- whether on a prospective or retrospective basis -- must be incorporated in the health plan capitation rates and reflected in the payment term under the contract.”

CMS says that it's reasonable to consider the fee in risk-sharing and minimum medical loss ratio calculations, since they may exist in the contract between the state and the plan.

The FAQ also says that if a plan contracted with a state to provide managed care for the Medicaid population in 2013 but not 2014, then the process for reimbursing a health plan for the fee is a matter to be negotiated between the state and health plan. But any retroactive rate adjustments for a plan that left the market must be made under the contract and within the federal two-year period for timely claims, CMS says.

The agency also says that states that choose to reimburse health plans for the health insurance provider fee after the amount is known should have a timeline for payments. Typically, this means the states should reimburse plans between 30 to 90 days after the amount of the fee is known, the FAQ says. Myers said plans are excited about this, as they beleive they should be paid in a timely fashion.

CMS recently released a 2015 Managed Care Rate Setting Consultation Guide, as well, which said that taxes, fees and assessments data should be included as part of the projected non-benefit costs actuaries include when developing the managed care rates for 2015 and showing they are actuarially sound. Both Myers and the JP Morgan investors note say this indicates more rigorous CMS oversight of Medicaid rate setting.

The GAO in 2010 said that CMS' oversight of states' rate setting needed improvement, and MHPA has been pushing for more transparency in the rate setting process.

The agency says that “[t]he actuarial review of the rates and the use of the 2014 Consultation Guide have increase the transparency of the rate development process and have led to a better understanding of expectations between states and CMS on Medicaid managed care rate setting and CMS' oversight of the process.” Most of what CMS lays out is already part of the states' actuarial work and program management, the agency says.

The guide points out that the capitation rates for the new adult population may vary from the rates for the traditional Medicaid population, but “those reasons must be documented and justified in the certification,” and not occur because of a difference in the amount of federal assistance for the different populations. -- Michelle M. Stein (mstein@iwpnews.com)