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Review of Massachusetts Medicaid Managed Care Program Potential Savings with Minimum Medical Loss Ratio

A medical loss ratio (MLR) is the percentage of premium dollars an insurer spends to provide medical services and healthcare quality improvement activities for its members compared to the premium dollars it uses to pay for administrative expenses. This report is part of a series of Office of Inspector General reviews conducted to determine whether the Medicaid program could achieve savings if States required Medicaid managed care organizations (MCOs) to meet a minimum MLR standard and pay remittances if the MLR standard was not met.

Medicare Advantage plans and Medicare Part D sponsors are required to pay remittances to the Centers for Medicare & Medicaid Services (CMS) if their MLR falls below 85 percent. Private health insurers, subject to the Patient Protection and Affordable Care Act's MLR standard, must provide rebates to their enrollees if their MLR falls below 85 percent or 80 percent. At the time of our review, CMS did not require States to have a minimum MLR standard for Medicaid MCOs. Subsequent to our review, but prior to the issuance of our report, CMS published a final rule requiring a minimum MLR for Medicaid MCOs for rate-setting purposes.

The Federal Government is entitled to the Federal share of the net amount recovered by a State with respect to its Medicaid program.

The Massachusetts Medicaid program could have saved $4.7 million (approximately $3.5 million Federal share) in calendar year (CY) 2014 if the Massachusetts Executive Office of Health and Human Services (State agency) (1) required its Medicaid managed care plans to meet the minimum MLR standard similar to the Federal standards for certain private health insurers and Medicare Advantage plans and (2) required remittances when Medicaid managed care plans did not meet the MLR standard. Specifically, of the 10 managed care plans that we reviewed, we calculated MLRs for 2 plans that were less than 85 percent (the minimum MLR standard for large private insurers) during CY 2014.

We recommended that the State agency (1) incorporate into its contracts with Medicaid MCOs the MLR standards adopted in the CMS final rule and (2) consider implementing into its Medicaid MCO contracts a remittance requirement if appropriate. In written comments on our draft report, the State agency described the actions that it planned to take to address our recommendations.