On May 26, 2015, the Centers for Medicare & Medicaid Services (CMS) proposed the most significant Medicaid regulation since the regulations following Welfare Reform in 1996. The overarching goal of this 653-page regulatory package is to create alignment between Medicaid managed care and managed care rules in other CMS programs (e.g., Medicare Advantage and the Marketplaces). CMS has not regulated on Medicaid managed care since 2002.

Medicaid has grown rapidly since the passage of the Affordable Care Act, now covering more than 70 million people, and managed care has emerged as the dominant delivery system within it. Almost three fourths of Medicaid beneficiaries now receive benefits through managed care, including large majorities in the nation’s four largest states: California, Texas, Florida and New York. 

The regulation proposes to impose a Medical Loss Ratio (MLR) threshold on Medicaid managed care plans, similar to CMS requirements in other markets. While America’s Health Insurance Plans (AHIP) and other industry voices have expressed concern with requiring health plans with high administrative costs to rebate funds, preliminary data from the Kaiser Family Foundation suggests that most Medicaid plans are already in compliance with the proposed threshold.

In addition to MLR, the proposed regulation would require some states to enhance their actuarial oversight of Medicaid managed care, including strengthening the review of state capitation rates and plan bids. And it would put in place new requirements with respect to managed care organization program integrity efforts and the oversight of delegated entities. It would also institute new rules for a host of beneficiary-facing program areas, including:

• Quantitative reviews for provider network adequacy
• Marketing around beneficiary transitions into Medicare and commercial insurance
• Care coordination and quality
• Appeals and grievances 

The Children’s Health Insurance Program (CHIP) is also impacted by the proposed regulation. Many of the proposed regulation’s beneficiary-facing Medicaid provisions are mirrored in corresponding CHIP sections, including provisions for network adequacy, marketing, quality, appeals and grievances, with the overall goal being consistency across programs wherever possible. The proposed regulation also contains several CHIP-specific provisions, including sections on payment liability, enrollee rights and guidance on emergency and post-stabilization services, and non-medical transportation.

States will continue to have discretion with respect to implementation of many of these requirements, but exactly how much discretion is clearer in some areas of the proposed regulation than others. There certainly will be some feeling-out in the coming weeks respecting state flexibilities. The National Association of Medicaid Directors offered a carefully worded statement, supporting the goal of modernizing the Medicaid regulations but “without being overly prescriptive in a number of areas, including program administration, rate setting, network adequacy, quality frameworks and measure sets, consumer interactions, and program integrity.” In addition to states, managed care plans, providers, drug and device makers, and patient advocates, particularly those with large segments of their populations covered by Medicaid and CHIP, should all be expected to comment in hopes of influencing the content of the final regulation.

CMS is accepting public comments until July 27, 2015, and will finalize the regulation shortly thereafter.