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Medicaid is rarely associated with getting rich. The patients are poor, the budgets tight and payments to doctors often paltry.
But some insurance companies are reaping spectacular profits off the taxpayer-funded program in California, even when the state finds their patient care is subpar.
Health Net, a unit of Centene Corp., the largest Medicaid insurer nationwide, raked in $1.1 billion in profits from 2014 to 2016, according to state data obtained by Kaiser Health News. Anthem, another industry giant, turned a profit of $549 million from California’s Medicaid program, known as Medi-Cal, in the same period.
Overall, Medicaid insurers in the Golden State made $5.4 billion in profits from 2014 to 2016, in part because the state paid higher rates during the inaugural years of the nation’s Medicaid expansion under the Affordable Care Act. Last year, they made more money than all Medicaid insurers combined in 34 other states with managed care plans.
“Those profits are gigantic — wow,” said Glenn Melnick, a health economist and professor at the University of Southern California.
Jennifer Kent, California’s Medicaid director, said that health plan profits were higher than anticipated during the ACA expansion. But she said the state expects to recoup a significant amount of money within the next year, once audits are complete and retroactive rate adjustments are made.
“We’re going to be taking a lot of money back. We’re talking billions of dollars,” Kent said in an interview this month. No one should think “these plans just made off like bandits, and we’re not going to see them again. … We are very mindful we use taxpayer money.”
Health insurers that profited substantially from Medi-Cal defend their good fortune. They say these surpluses follow losses in earlier years, and they always run the risk of red ink if medical costs spike.
“The expansion may have been a little rich in the beginning,” said Jeff Myers, chief executive of the Medicaid Health Plans of America, an industry trade group. But “you are starting to see margins come back down.”
More than 1 in 3 Californians, or 13.5 million people, is covered by Medi-Cal — more than the entire population of Pennsylvania. About 80 percent of those in California’s program are enrolled in a managed-care plan, in which insurers receive a fixed rate per person to handle their medical care. The goal is to control costs and better coordinate care.
In anticipation of the Affordable Care Act rollout, officials in California and elsewhere boosted their payments to managed care companies because they expected Medicaid costs to increase as newly insured patients rushed to the doctor or emergency room after going years without coverage. But those sharply higher costs didn’t materialize — and insurers pocketed more money as a result.
Moreover, California’s payments keep flowing steadily even when patients fare poorly. Two of the most profitable insurers in California — Centene and Anthem — run some of the worst-performing Medicaid plans, according to medical quality scores and complaints in government records.
California officials acknowledge they need to do a better job of connecting money and quality.
“We are looking at alternative payment methods and those types of things that we can do to help improve and to tie quality to payment,” said Lindy Harrington, a deputy director at the California Department of Health Care Services, which runs Medi-Cal. “But as you can imagine, it’s a difficult ship to turn.”
Before the ACA expansion, Medi-Cal plans collectively were barely in the black, with $226 million of net income for 2012 and 2013 combined. Traditionally, these insurance contracts have yielded slim profit margins of 2 to 3 percent. California said it aims for 2 percent when setting rates, based on prior claims experience and projected costs.
But in the years since the health law took effect, many health insurers have posted margins two or three times that benchmark.
Centene’s Health Net unit in California enjoyed a profit margin of 7.2 percent from 2014 to 2016. Centene acquired Health Net for $6.3 billion in March 2016. Anthem’s profit margin in the Medi-Cal program was 8.1 percent for 2014 to 2016.
Health Net said that its profit margins are comparable to other Medi-Cal health plans and that the company has made major investments to improve Californians’ health and access to care.
Anthem declined to comment on its financial results. The company said that it has worked with the state to meet the needs of Medi-Cal patients by extending clinic hours and helping with transportation to appointments. The company said it’s committed to providing “high quality care to our Medi-Cal members.”
Overall, Centene has 7 million Medicaid enrollees across the country, with about 2 million in California. Anthem is close behind with 6.4 million Medicaid members, about 1.3 million in the state.
The federal government footed the entire bill for Medicaid expansion during the first three years, instead of taking the usual approach of splitting the costs with states. Now, states have more incentive to rein in spending, as their share of the costs grows to 10 percent by 2020.
Sen. Ron Johnson, R-Wis., has demanded that California and seven other states account for how they spent federal Medicaid expansion dollars. Johnson, chairman of the Senate Homeland Security and Governmental Affairs Committee, asked California officials in a letter Sept. 27 whether they have conducted audits and requested information on insurance company payouts.
In her Oct. 11 response, Kent said the state spent $6,181 per expansion enrollee in 2015, below the national average of $6,365. She also said the state’s rates paid to insurers for enrollees in the expanded program have decreased significantly since 2014.
Kent wrote that “California is a cost-efficient Medicaid program.”
Chad Terhune and Anna Gorman are senior correspondents for Kaiser Health News, an editorially independent service of the Kaiser Family Foundation that is not affiliated with Kaiser Permanente. Email: firstname.lastname@example.org, email@example.com Twitter: @chadterhune, @annagorman