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CMS Has Opportunities To Strengthen States' Oversight of Medicaid Managed Care Plans' Reporting of Medical Loss Ratios

WHY WE DID THIS STUDY

State and Federal expenditures on Medicaid managed care are growing and totaled $360 billion in 2020, which was 55 percent of total Medicaid expenditures in that year. With its 2016 Medicaid managed care regulations, the Centers for Medicare & Medicaid Services (CMS) chose medical loss ratios (MLRs) as a policy tool to apply across the program to ensure appropriate stewardship of managed care funds. States' oversight of their plans' annual MLR reporting is critical to improve fiscal transparency, monitor costs, and promote high-quality care in Medicaid managed care.

Managed care has replaced fee for service as the predominant payment model in Medicaid. Federal MLR requirements were established to ensure that Medicaid managed care plans spend most of their revenue on services related to the health of their enrollees, thereby limiting the amount that plans can spend on administration and keep as profit.

The Federal MLR is the percentage of premium revenue that a managed care plan spent on covered health care services and quality-improvement activities in a 12-month period. Plans must submit annual MLR reports to the State with 13 data elements, including the MLR, the data needed to calculate the MLR, and other numeric and descriptive data. In turn, States must take into account plans' calculated MLRs as part of the process for setting plans' future capitation rates. States must set capitation rates so that plans would "reasonably achieve" the Federal MLR standard of at least 85 percent.

HOW WE DID THIS STUDY

We administered an online survey to and requested information from all States with Medicaid managed care plans subject to Federal MLR requirements as of September 1, 2020. Between September 2020 and December 2020, 43 States submitted survey responses and plans' annual MLR reports. We reviewed and summarized States' survey responses and analyzed plans' MLR reports for completeness.

WHAT WE FOUND

States reported that most Medicaid managed care plans submitted MLR reports as required. However, we found that 49 percent of the 495 MLR reports reviewed were incomplete. These incomplete MLR reports were missing at least one of seven numeric data elements that are essential to the MLR calculation. This missing data occurred across four of the seven MLR report data elements-non claims costs; taxes and fees; member months; and quality improvement activity expenses. Two thirds of the incomplete MLR reports did not contain fields for plans to even enter amounts for at least one of these data elements.

The data element for non-claims costs, generally defined as plans' expenses for administrative services, accounted for the majority of incomplete MLR reports. Missing data on non claims costs may reduce transparency on managed care spending and limit States' ability to ensure that plans are appropriately spending Medicaid dollars on the health of enrollees rather than excessive administrative expenses. Even when the data element for non-claims costs appeared in MLR reports, plans did not report this data in a consistent manner.

States indicated that they review MLR reports for completeness, but few States identified incomplete reports. In addition, although 26 States reported that they review MLR data elements for accuracy for all of their plans, 16 States responded that they did not review the accuracy of selected MLR data elements for all or some of their plans.

WHAT WE RECOMMEND

We recommend that-to strengthen States' oversight of MLR reporting and better ensure that plans are using Federal dollars for patient care-CMS (1) design an annual MLR reporting template for States to provide to their Medicaid managed care plans; (2) clarify that States should verify the completeness of their plans' MLR reports; (3) clarify that States should review their plans' MLR reports to verify the accuracy of reported data elements; and (4) provide additional guidance to States regarding plans' reporting of non claims costs in MLR reports. CMS concurred with all recommendations.