The Medicaid Program Could Have Achieved Savings if Oregon Had Applied Medical Loss Ratio Standards Similar to Those Established by the Affordable Care Act

The objective of this review was to determine potential Medicaid program savings if the Oregon Health Authority, Division of Medical Assistance Programs (State agency), had required its Medicaid coordinated-care organization (CCO) plans to meet medical loss ratio (MLR) standards for its non-expansion population similar to those standards established by the Patient Protection and Affordable Care Act (ACA).

The ACA established standards for the amount of premium revenue that certain commercial health insurers and Medicare Advantage plans can spend on costs other than health-care-related expenses. These standards are known as the MLR. Insurers that do not meet these standards must pay rebates to their enrollees or the U.S. Department of Health and Human Services. Although the MLR standards do not apply to Medicaid spending, some States have applied similar standards to their contracts with Medicaid managed-care organizations. The Federal Government is entitled to the Federal share of the net amount recovered by a State with respect to its Medicaid program.

In Oregon, CCO plans serve beneficiaries enrolled in the State's Medicaid managed-care program. Effective January 1, 2014, the ACA gave States the choice to expand their Medicaid coverage for nearly all individuals under the age of 65 with incomes up to 133 percent of the Federal poverty level. Individuals enrolled in CCO plans through Oregon's Medicaid expansion program are known as the expansion population; we refer to the remaining individuals as "the non-expansion population."

Although the State agency applied MLR standards to its contracts with Medicaid CCO plans for its expansion population, the Federal Medicaid program could have achieved further savings during calendar year (CY) 2014 if the State agency had required those plans to (1) meet MLR standards for its non-expansion population similar to those standards established by the ACA and (2) issue rebates to the State agency if those standards were not met. Specifically, the MLRs for 3 of the 11 CCO plans that we reviewed were less than 85 percent (the ACA's minimum MLR standard for large group insurers and Medicare Advantage plans) for the non-expansion population. We determined that the Medicaid program could have saved $10.1 million ($6.4 million Federal share) during CY 2014 if the State agency had required its Medicaid CCO plans to meet MLR standards for its non-expansion population similar to the ACA-established standards.

We recommended that the State agency incorporate MLR standards into its contracts with Medicaid CCO plans for its non-expansion population. The State agency concurred with our recommendation and described actions that it planned to take to address our recommendation.

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