ASOP 49: Medicaid Managed Care Capitation Rate Development and Certification

Question 1

Section 1 - Purpose, Scope, Cross References and Effective Date

Answer 1

Purpose - Guidance for actuaries performing Medicaid and CHIP managed care capitation rates, including certifications

Scope - Certification on behalf of state to meet requirements of 42 CFR 438.6(c), capitation rate bid or rate acceptance, and department of insurance capitation rate filing

Question 2

Section 3 - Analysis of Issues and Recommended Practices

Capitation Rate Development Process and Considerations
1. Form of Rate
2. Structure of Rates
3. Rebasing and Updating of Rates
4. Base Data
5. Covered Services
6. Special Payments
7. Base Data Period Adjustment
8. Other Base Data Adjustment
9. Claim Cost Trend
10. Managed Care Adjustments
11. Non-claim Based Medical Expenditures
12. Non Medical Expenditures
13. Risk Adjustment
14. Reinsurance, Risk Corridors and Other Risk Sharing
15. Performance withholds and Incentives
16. Minimum Medical LR
17. States Initiatives
18. Inaccurate or Incompete Information

Answer 2

1. Overview
a. Develop, certify or review Medicaid managed care capitation rates on behalf of a state Medicaid agency or an MCO
b. Title CFR 438.6 (c) requires capitation rates paid by state to MCOs be actuarially sound
c. Actuary providing services for contracting MCO may be required to develop and submit capitation rates to state Medicaid agency

2. Capitation Rate Development Process and Considerations
a. Form of Rate
- Single rate or capitation rate ranges

b. Structure of Rates
- Separately developed and paid in individual rate cells
- Based on age, gender, qualifying event, region, Medicaid eligibility group, Medicare eligibility, diagnosis and MCO differences

c. Rebasing and Updating of Rates
- Use new base data or update to reflect changes from rating period to new period

d. Base Data
- Relevant to population and use
- Sources of MCO Data to be Used as Based Medicaid Rate Data
(1) Financial Reports
(2) Summary encounter data reports
(3) Encounted data with or without payment information
(4) Subcapitation payment information
(5) Provider settlement payment reports
- Sources of Alternative Data to be Used as base Medicaid Rate Data
(1) Financial Reports
(2) Summary of calims data reports
(3) Raw claims data reports
(4) State-specific provider settlement payment reports

e. Covered Services
- Reflect services in rates

f. Special Payments
- Payments in addition to Medicaid fees to providers, usually made to hospitals
- Payments are sometimes reciprocation for provider paying a special tax or assessment fee

g. Base Data Period Adjustments
- Retroactive Period Adjustment - reflect changes that occurred during base data period to standardize data over base period
- Interim Period Adjustment - reflect changes that occurred between base period and rating period
- Prospective Period Adjustment - reflect changes that will occur in the rating period

h. Other Base Data Adjustment
- Missing Data
(1) Claims not processed through same system
(2) FFS data may not incude all services or expenses to be covered
(3) Encounter data may not reflect setvices that are sub-capitated

• Incomplete Data
  (1) Claims in course of settlement, incurred but not reported or due for reinsurance
• Population Adjustment
  (1) Reflect differences between underlying base data population and population during rating period
• Funding or Service Carve-out
  (1) Not the financial responsibility of the MCO and not covered by the capitation rate. Items such as graduate medical education payments, DSH payment or provider taxes
• Retroactive Eligibility
  (1) Beneficiaries often provided retroactive coverage to time period prior to date of application. Exclusion applies to retro periods, if any, that are not the responsibility of the MCO
• Program, Benefit or Policy Adjustments
  (1) Differences in benefit or service delivery requirements between base period and rating period
• Data Smoothing Adjustments
  (1) Addresses anomalies or distortions in base data (large claims or limited enrollment)

i. Claim Cost Trends
- Utilization Trend - may be affected by demographics and benefit levels and by policy or program changes
- Unit cost trend - affected by changes in state-mandated reimursement schedules and provider contracting

j. Managed Care Adjustments
- If program is expected to move to a different level of managed care from base period to rating period (adjust utilization and/or unit cost)
- Considerations for actuary
(1) State contractual and operational requirements and relevant law
(2) Current characteristics of provider market
(3) Maturity level of managed Medicaid program

k. Non-claim Based Medical Expenditures
- Payments included or not included in base data that do no represent future costs
- Example of Non-claim based Medical Expenditures for Medicaid Rates
(1) DSH
(2) Federally qualified health centers or rural health clinical supplemental settlement payments
(3) Medical education payments
(4) Intergovernmental transfers
(5) Pharmacy rebates anticipated to be collected

l. Non-medical Expenses
- Administration
(1) Determination of Expenses
i. Overall size of MCo
ii. Age and length of time participating in Medicaid
iii. Organizational structure
iv. Demographic mix
(2) Type of Expenses
i. marketing
ii. Claims processing
iii. Medical management costs
iv. General corporate overhead

• Underwriting Gain
  (1) margin included as percentage of premium rate to cover risk assumed by the MCO
  (2) Methods to develop underwriting gain should be appropriate to level of capital required and type of risk borne by MCO - May reflect investment income in underwriting gain
• Income Taxes
• Taxes, Assessments, and Fees
  (1) Adjustments for those required by MCOs to pay out of capitation rates

j. Risk Adjustment
- Considerations include program enrollment procedures and must be actuarially sound

k. Reinsurance, Risk Corridors, and Other Risk Sharing
- Consider how any of these payments or risk sharing may affect future payments

l. Performance withholds and Incentives
- Rates should reflect value of portion of withholds for targets that MCO can reasonably achieve
- Should not reflect value of incentives

m. Minimum Medical Loss Ratios
- Consider governmental and contractual minimum medical loss ratios, as well as sharing of gains or losses

n. State Initiatives
- Including program changes or reimbursement changes

o. Inaccurate or Incomplete information
- Discovered after actuarial opinon or rate certification. If material, should notify the principal

3. Qualified Opinion on Actuarial Soundness
a. Should provide qualified opinion if rates are not actuarially sound
b. Should be qualified if a negative underwriting gain is determined to be appropriate for plan’s circumstances

4. Documentation
a. Document methods, assumptions, procedures and sources of data
b. Sufficient such that another actuary should be able to address the reasonableness of the work

Question 3

Section 4 - Communications and Disclosures

Answer 3

1. Communications - refer to ASOP 41
2. Items to include in Medicaid Rate Disclosures
   a. Actuarial Soundness - Under 42 CFR 438.6 (c), capitation rates;
   - “Developed in accordance with generally accepted actuarial principles and practices”
   - “Appropriate for populations to be covered and services to be furnished under the contract”
   - “Certified, meeting requirements of this paragraph, by actuaries who meet Qualification Standards”

b. Definition of actuarial soundness

c. Disclosures of items resulting in qualified opinion

d. If any material assumption or method was prescribed by law

e. Reliance on other sources and disclaimer of responsibility

f. Any material deviation from this ASOP