Indiana awarded new managed Medicaid contracts to four out of five bidding private health insurers. UnitedHealthcare was the lone company to miss the cut because its proposed costs and profits were too high.

For-profit insurers Anthem and Centene Corp. and not-for-profits CareSource and MDwise won Indiana’s Medicaid contracts, which cumulatively cost the state $3.3 billion a year and cover 1 million poor adults and children. The annual contracts for Anthem, Centene and CareSource, which start Jan. 1, 2017, are valued at $822 million. MDwise has a slightly larger share of Medicaid enrollees, and its annual contract is worth $831 million.

Anthem, Centene and MDwise are the incumbent Medicaid contractors and will share the business with CareSource. Anthem and MDwise are based in Indiana.

Like other managed-care Medicaid programs across the country, Indiana pays monthly fixed amounts to insurers for every member they cover. These capitated programs serve as an alternative to traditional fee-for-service Medicaid, and more states have moved to managed Medicaid because they believe it provides budget predictability. However, there’s limited evidence that managed Medicaid saves money and results in better care for patients.

Indiana, led by Republican Gov. Mike Pence, has implemented a conservative-based Medicaid expansion under the Affordable Care Act that imposes cost-sharing on low-income beneficiaries. If they don’t pay a sliding-scale amount, they could be locked out of coverage.

UnitedHealthcare, the insurance division of healthcare giant UnitedHealth Group that serves as a Medicaid contractor in numerous states, had the highest overall scores for its “technical and business” proposal. Those elements included an insurer’s experience, provider networks and customer service. However, UnitedHealthcare flunked with its cost proposal, scoring zero points. By comparison, MDwise received 15 points for its cost estimates, and the other three bidders scored the maximum 20 points.

UnitedHealthcare is one of several publicly traded insurance companies that provides little to no transparency on its Medicaid spending. New Obama administration rules encourage states to audit Medicaid insurers and put rules in place to limit profits.

Indiana Medicaid officials did not immediately respond to questions asking why UnitedHealthcare’s cost proposal was worse than the other bidders’ plans.

In a statement, UnitedHealthcare said it was “disappointed” by Indiana’s decision but “proud of the services” provided throughout the state. The insurer did not say if it will appeal Indiana’s decision.

Sarah James, an analyst at investment firm Wedbush Securities, wrote in a research note that Indiana’s decision to expand from three insurers to four will cost the incumbent companies a lot of money. She estimated Anthem may lose up to $593 million per year, and Centene could be out $175 million annually.

Indiana’s Medicaid contracts last a maximum of six years, including a four-year baseline period and two optional one-year extensions.

Other states with upcoming Medicaid contract awards this year include Missouri’s entire program and Virginia’s long-term services and supports. North Carolina, which recently agreed to shift its Medicaid population to managed care, will release a request for proposals in 2018.

New Indiana Medicaid contracts snub UnitedHealthcare
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