AIS Health Daily – August 3, 2020

Catalyst’s Jeff Myers discusses how states are cutting Medicaid rates during the COVID-19 pandemic, how this will affect MCOs, and whether the federal government will get involved. Read the full article reprinted with permission from below:

Despite growing, bipartisan calls for more federal Medicaid funding to stem states’ budget shortfalls, such a provision is absent from Senate Republicans’ latest COVID-19 relief bill. And while that omission hints at the next big health care battle in Congress, experts tell AIS Health that another, quieter Medicaid funding conflict is bubbling up at the state level — over how much to pay managed care plans.

Already, there are troubling signs for Medicaid managed care organizations, which cover more than three-quarters of Medicaid beneficiaries. Nevada’s legislature recently passed a fiscal year (FY) 2021 budget — effective starting July 1, 2020 — that cuts Medicaid provider rates by 6%, a move expected to save the state $52.9 million. The cuts will have a small impact on the earnings of Nevada’s three managed care plans, which are owned by Anthem Inc., UnitedHealth Group and Centene Corp., Credit Suisse analyst A.J. Rice pointed out in a July 27 research note.

The news of Nevada’s Medicaid cuts comes on the heels of Michigan’s decision earlier this summer to cut the rates it pays to 13 MCOs by nearly 3.3%, Rice added. That move was part of several actions that Michigan officials took to address a $2.2 billion budget deficit for FY 2020, which ends Sept. 30, according to Crain’s Detroit Business.

“Nevada, I think, is on the cusp of what lots of states are going to do, which is to try and cram down statistically significant percentage rate cuts in their Medicaid program,” Jeff Myers, senior vice president of reimbursement strategy and market access at Catalyst Health Care Consulting, tells AIS Health. “I know from working with other companies that there are several states, particularly in the South and Midwest, that have really started their contract negotiations very aggressively with where they want rates to be,” he adds.

According to experts on a recent call hosted by the Center for Budget and Policy Priorities (CBPP), the forces driving states to tighten their belts are clear.

State revenue collections rise and fall with economic conditions, and with unemployment projected to remain high due to the pandemic-sparked recession, “states are expected to face budget shortfalls that total $555 billion over three years,” said Aviva Aron-Dine, vice president for health policy at CBPP. “And unlike the federal government, states have to balance their budgets each year.”

In addition to Nevada’s move, Colorado has already cut payment rates for community providers, slashed dental benefits, raised copayments and delayed customer service improvements in its Medicaid program, she said, while Utah cut payment rates and canceled planned coverage improvements for young children, and Tennessee canceled its plans to extend Medicaid post-partum coverage.

On the one hand, MCOs’ medical loss ratios (MLRs) dropped significantly over the last few months because of the massive amount of health care services that were deferred due to the COVID-19 pandemic, observes Myers, the former president and CEO of Medicaid Health Plans of America. That has swelled MCO profits while providers are struggling financially.

Citing that dynamic, a blog post published by Health Affairs on July 22 argues that “CMS should give states expanded authority to require Medicaid managed care plans to provide temporary rate increases to safety-net providers, using a mechanism known as state-directed payments.”

While CMS recently relaxed some of the constraints on such arrangements, it should go even further and “allow states to flexibly implement state-directed payments without prior approval,” wrote Jacob Wallace, Ph.D., an assistant health policy professor at the Yale School of Public Health; Julia E. Smith, associate director of Medicaid transformation and financing at Aurrera Health Group; and Timothy J. Layton, Ph.D., an associate professor of health care policy at Harvard Medical School.

But health plans that Myers has talked to are “making the case that while their MLR is low now, you’re actually getting a rebound in use because of COVID,” he explains. “That low spend is not sustainable and they do not expect it to be; at the same time, they haven’t seen the influx of Medicaid enrollees at the top line the way they had expected.”

Asked why Medicaid enrollment isn’t rising as much as expected, Jerry Vitti, CEO of Healthcare Financial Inc., tells AIS Health that during the pandemic and economic recession, “addressing the underlying and immediate social determinants of health like food insecurity and housing takes priority, so getting health coverage gets pushed down the to-do list.”

“Another factor is that people are kind of expecting to go back to work when things ‘go back to normal,’” he says. “They’re viewing these furloughs as temporary, so they’re thinking they’ll just go back to their old employer coverage. But we may not ever get back to the way things were, not anytime soon anyway. If things stay on the current trajectory and things get worse before they get better, we should eventually see the uptick in enrollment they [MCOs] were expecting.”

Ultimately, Myers says he wouldn’t be surprised if during the second half of 2020, MCOs “were put in the position of having to use actuarial soundness requirements in Medicaid” to force cash-strapped states to pay them adequate rates. “It is possible to me that you could see litigation around that,” he adds.

During Anthem, Inc.’s second-quarter earnings call on July 29, executives faced multiple questions about how the insurer is handling Medicaid rate negotiations with states. “In light of everything that’s going on right now, you can imagine there’s quite a lot of fluidity in the conversations we’re having with our state partners,” Felicia Norwood, executive vice president and president of Anthem’s government business division, said in response to one analyst query.

She also pointed out that “roughly 15 of our states today have risk corridors…in place that effectively already limit managed care profitability within certain defined ranges, and we are in discussions with other states that are also considering these kinds of mechanisms.”

Anthem executives also emphasized — as UnitedHealth Group did during its recent quarterly earnings call — that the profit margins insurers have seen in the first half of 2020 are not going to last.

“We certainly would expect that utilization will pick up in the back half of the year,” Norwood said, speaking specifically about Anthem’s Medicaid business. “When it’s all said and done, this is a long game, and certainly performance in any one quarter won’t reflect what we would expect to see in our population over the course of the year.”

Calls Grow for Greater FMAP Hike

Meanwhile, a separate battle is brewing over the Federal Medical Assistance Percentage (FMAP), which is used to calculate the federal government’s share of Medicaid expenses. The Families First Coronavirus Response Act boosted the FMAP by 6.2 percentage points from Jan. 1, 2020, through the end of the public health emergency, but a variety of organizations and interest groups have been urging Congress to provide an additional 5.8 percentage-point increase through Sept. 30, 2021. After that point, the total 12% FMAP increase “should not be reduced until the national unemployment rate falls below 5 percent,” stated a July 10 letter from the National Governors Association, The United Conference of Mayors and five other organizations representing state and local governments.

A slew of health care trade groups and advocacy organizations — including America’s Health Insurance Plans, Medicaid Health Plans of America and the Blue Cross Blue Shield Association — made a similar request to raise the FMAP in a letter sent to congressional leaders in June. “Given the reliance both Republican and Democratic-led states have on this critical program [Medicaid], particularly during an economic downturn and public health crisis, this should not be a partisan issue,” the letter argued.

However, the COVID-19 relief bill that Senate Republicans introduced on July 27 does not include an FMAP boost. In contrast, House Democrats’ bill — which passed that chamber on May 15 but met a wall of GOP resistance in the Senate — would increase the FMAP by a total 14 percentage-point boost for one year starting July 1, 2020. Myers says that with the budget shortfalls states are facing, Congress may find it has little choice but to funnel more Medicaid funding to states.

“The states that have expanded [Medicaid] — if they have the revenue collapse that they’re expecting — I don’t see how they continue to insure those individuals,” he says. A new Kaiser Family Foundation analysis of CMS data indicates that adults have accounted for the vast majority of the Medicaid enrollment increase observed since the onset of the pandemic.

Sara Rosenbaum, a health law and policy professor at George Washington University, tells AIS Health that if Congress doesn’t give the FMAP an additional boost, some states may end up voluntarily forfeiting the enhanced Medicaid funding they’re already getting. Though that seems counterintuitive, she explains that to get the current boosted FMAP, states had to promise not to impose new Medicaid eligibility restrictions during the public health emergency — rules known as “maintenance of effort” protections.

But states might end up saying, “we love enhanced FMAP, but the requirements are onerous enough, and we have to cut down so far in our Medicaid programs, that you give us no choice but to give up the enhancement just so we get the flexibility back to start reducing our rolls,” Rosenbaum says.

Contact Myers and Vitti via Joe Reblando at and Rosenbaum at View the FMAP letters at and, and the Health Affairs post at

by Leslie Small