Actuarial Soundness and Payment Issues
Actuarial soundness is a quality ascribed to Medicaid payment rates for managed care organizations (MCOs) that are fair and adequate based on several defined criteria. It is an important tool for retaining the viability of Medicaid managed care as a legitimate alternative to Medicaid fee-for-service delivery systems. Actuarial soundness ensures that health plans serving state Medicaid programs are adequately reimbursed based on the cost of health care expenditures and the populations served.
Unfortunately, state budget pressures sometimes influence Medicaid agencies to develop capitation rates based on factors beyond the scope of the Medicaid program, such as the overall budget. However, to be actuarially sound, rates must be determined independent of budget considerations.
When states develop rates that are sound, plans are encouraged to participate in Medicaid, and maintaining adequate provider networks becomes easier. Payment of actuarially sound rates also protects plan enrollees by ensuring that plans have adequate funding to deliver health care services and by reducing the likelihood plans will become insolvent, leave Medicaid, and disrupt enrollees’ continuity of care.
ACAP and the Medicaid Health Plans of America released a year-long study by the Lewin Group of the ways that states have implemented rules from the Balanced Budget Act of 1997 (BBA) regarding actuarial soundness. Those who participated in the survey represent managed care programs covering 12 million enrollees (68% of the national total).
Key findings revealed that plans’ actual costs are often not fully taken into consideration by the states, especially during tough fiscal times, even though both the American Academy of Actuaries and the Center for Medicare and Medicaid Services require that the rates not take into consideration budget difficulties that the states might have. Margaret A. Murray, Executive Director of ACAP said “We are pleased with the findings of The Lewin Group report as it supports our goal to provide optimum care while maintaining fiscal responsibility. The future of Medicaid managed care relies on the actuarial soundness of the rates paid to Medicaid health plans. Actuarially sound rates protect the plans that accept them, but more importantly protect the Medicaid beneficiaries that the plans serve by allowing them to pay adequate provider rates and support an infrastructure to monitor the quality of services provided.