Milliman releases analysis of Medicaid managed care administrative costs

Pettit_T_ChristopherMilliman today announced the second iteration of its research into the administrative expenses associated with Medicaid managed care plans. This research complements the analysis of Medicaid managed care financial results report that was released on June 6, 2016. The information has considerable value, given the Centers for Medicare and Medicaid Services (CMS) Medicaid managed care rule (CMS-2390-F), published on April 25, 2016, and historical CMS Medicaid capitation rate-setting guidance. These regulations require greater documentation of administrative costs included in the capitation rates and this information can be useful in providing greater transparency of the rate-setting process.

The additional analysis on administrative expenses is critical in helping understand the true expenses incurred by Medicaid managed care organizations. The recent approval of the Medicaid managed care rule highlights the focus placed on each component of the managed care capitation rates. We believe that this research can become as familiar in the industry as our financial analysis report to help establish benchmarks for use in rate setting.

Key findings from the analysis include:
• The average administrative loss ratio (ALR) for Medicaid-focused plans is 8.8% after removing the impact of taxes and fees
• Calendar year (CY) 2014 and 2015 ALR values, net of taxes and fees, are considerably lower than in previous years
• The administrative per member per month (PMPM) value continues to climb as average premium levels increase

This is the second year the administrative expenses report has been produced, with expectation of providing future annual updates consistent with the Medicaid managed care organization financial results report.

To see the Medicaid administrative expenses report, click here.

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