Michigan plans to cut Medicaid rates paid to 13 health plans by nearly $176.6 million this year to help the state address a $2.2 billion budget deficit for fiscal 2020 ending Sept. 30, said Robert Gordon, director of the state Department of Health and Human Services, on Thursday.
The budget cuts, which will not impact services to Medicaid recipients, would be taken out of monthly fees paid to the health plans in August and September, Gordon said. The health plans already have been paid for July.
“When the capitation rate was set this year, we expected a normal year, but because of COVID and limits on elective procedures, utilization fell through the floor,” Gordon said in an interview with Crain’s.
“Our risk corridor (approach) caps the amount they can earn in profits. With the 1.5 percent they can earn, they still can earn $160 million this year,” Gordon said.
But Dom Pallone, executive director with the Michigan Association of Health Plans, said the budget deal that health plans agreed to with the state Legislature was for a $100 million cut, which would return $35 million to state general fund coffers. The remaining amount is federal matching funds, which the state must return.
If the health plans pay back $176.6 million to the state, state savings to the general fund will amount to $45 million.
Crain’s reported July 2 that the health plans agreed to a budget deal with state legislators, but state officials declined to confirm the numbers and suggested the amount was still under review.
“The $45 million was not part of the budget deal. It was $35 million,” Pallone said. “We do intend to give money back and we are trying to find a solid estimate. We want to give back a fair amount and still give health plans an incentive to do managed care.”
Based on annual Medicaid payments to health plans of about $5.2 million, the $176.6 million cut amounts to about a 3 percent annual reduction. For August and September, however, the fee cut amounts to 21 percent.
Pallone also said it is too soon to estimate health plan’s profitability this year and disputed the state’s $160 million profitability number. He said overall Medicaid profit margins have been averaging 2-3 percent the past several years.
“We don’t know the impact of COVID-19 and other costs for the end of the year,” Pallone said.
Over the past three years, Medicaid health plans have earned net income of $218 million in 2019, $144 million in 2018 and $118 million 2017, said Gordon, citing Milliman, the state’s actuary. However, Pallone said data from the NAIC filings shows Medicaid HMO net income amounted to $112 million for 2018, $105 million for 2017 and $132 million for 2016.
Pallone said he has discussed the MDHHS’s proposed Medicaid budget cuts with state legislators because the original budget deal was a $100 million cut.
“I don’t know any other industry where profits are capped,” Pallone said. “The state is not doing it to the prepaid inpatient health plans (Medicaid mental health providers). They are not doing it to other vendors or contractors (that do business with the state), not information technology or actuarial.”
Gordon said the state is seeking cost savings with other vendors and contractors, but the amount paid to Medicaid health plans dwarfs those others.
“The cuts we are seeking will help avert substantial cuts in other programs,” Gordon said.
In May, Ohio cut Medicaid capitated — or per-member-per month payment — rates to health plans by 1.5 percent. Other states planning to cut Medicaid provider rates are New York, California, Colorado, Ohio, Alaska and Georgia, according to Modern Healthcare, Crain’s sister publication.
Michigan and many other states are asking the federal government for additional assistance to help address shortfalls in 2020 and also fiscal 2021 that begins Oct. 1.
So far, Michigan has received $3.1 billion through the Coronavirus Relief Fund money under the CARES Act.
In 2016, Michigan cut Medicaid capitated rates nearly 5 percent after Healthy Michigan Medicaid expansion added hundreds of thousands of new enrollees and health plans recorded higher than usual profit margins.
Made possible by the Affordable Care Act of 2010, Healthy Michigan now has about 750,000 members in addition to 1 million traditional Medicaid enrollees.