Proposals to change federal funding for state Medicaid programs using block grants or per capita caps could affect federal actuarial soundness requirements for Medicaid managed care capitation rates. In this article, Milliman’s Michael Cook discusses the following three scenarios that could play out if changes to Medicaid funding happen.
• The continuation of federal actuarial soundness requirements under revised federal funding is a plausible scenario.
• The establishing of individual state requirements if federal requirements are eliminated.
• The continued development of actuarially sound capitation rates by individual states even in the absence of any soundness requirements.
As the number of Medicaid Managed Long Term Services and Supports (MLTSS) programs increases, significant momentum is also building around the development of tools to adjust managed care organization (MCO) payments using the functional, medical, and behavioral needs of their members. These tools match payment to risk and align MCO and MLTSS program incentives more effectively. While the planning, development, and implementation needs of a functional-based risk adjustment (FBRA) mechanism are significant, the improvements realized in MLTSS programs are worth the effort.
Milliman actuary Michael Cook provides perspective in his article “Functional-based risk adjustment for Medicaid Managed Long Term Services and Supports: Part 2.” This article is the second in a two-part series on functional-based risk adjustment (FBRA). To read part one, click here.
Functional-based risk adjustment (FBRA) may help Medicaid Managed Long-Term Services and Supports (MLTSS) programs improve their members’ quality of life and reduce program costs. This can be realized by adjusting capitation rates paid to managed care organizations (MCOs) based on member risk characteristics and not location of care.
In this article, Milliman consultant Michael Cook explains how a FBRA approach can address three examples of MCO payment results using location of care risk adjustment that typically conflict with a program’s goals.
While there are significant data and process hurdles to clear before implementing FBRA, there are also significant program improvements. Following are the ways FBRA addresses the concerns from the previous section:
Example #1: No variation in payments for differing levels of member risk
Unlike rate structure based on location of care, FBRA recognizes differences in member service needs through different MCO capitation levels beyond simply recognizing nursing home placement. The FBRA model in Wisconsin is realizing predictive “R-squared” metrics of 35% to 50%, which are significantly higher than metrics typically seen for acute care risk adjustment models.
Example #2: Member transitions into the community late in a contract period
Because MCO capitation is calculated using member characteristics rather than location of care, it is in the MCO’s financial interest to improve the efficiency and quality of LTSS delivery regardless of the current location of care. Transitioning a member from a nursing home to the community will not directly influence the capitation associated with that member, so MCOs retain the incentive to transition members from nursing homes to the community as quickly as is appropriate.
Example #3: Transitions into the community for high-need members
Because changing the location of care for members does not directly influence capitation rates, there is a financial incentive for MCOs to encourage delivery of care in the most efficient manner for each member regardless of the member’s service needs or current location of care. MCO capitation under FBRA will be higher for members with high levels of service needs, and MCOs that achieve any gain in overall service efficiency will realize improved financial results….