Little piece of news slipped in at the end of today’s meeting of the Health Reform Legislative Task Force: Centene, one of three carriers that sells private option plans in Arkansas, is paying a rebate to the Medicaid program because their 2014 premiums were too high. That will reduce the per-person costs of the private option for 2014, which will help the state stay under budget targets set by the federal government.
John Ryan, CEO of Arkansas Health and Wellness (that’s the Arkansas branch of Centene, which sells insurance plans in the state under the name Ambetter), testified that its Medical Loss Ratio (MLR, the percentage of premium dollars spent on medical care) was 75 percent for 2014. That means that Centene will reimburse the Medicaid program $6.7 million for private option plans sold in 2014, Ryan told me after the meeting. Because the federal government covered all of the costs of the private option, the feds will get that rebate.
How does MLR work and what does this have to do with the private option? MLR is a provision of Obamacare which demands that at least 80 percent of the money that insurance companies charge for premiums is spent on actual medical care (leaving the rest for administration, marketing, and profit). The idea is to keep the insurance companies honest. If premiums are too high, insurance companies have to rebate the difference to the customers. In this case, the customer is the government — under the private option, the Medicaid program purchases private plans for low-income Arkansans.
So Centene’s premiums for 2014 ended up being too high under the MLR rules, as the real medical costs of covering its beneficiaries amounted to just 75 percent of the premium dollars charged. The result: Medicaid gets a rebate, and the true 2014 cost of the private option goes down.
The other two carriers that sold private option plans — Blue Cross Blue Shield and QualChoice — both had MLRs of 81 percent, so they will not owe rebates for 2014. MLR only works in one direction – if the premiums are too high, the insurance companies have to pay back Medicaid, but Medicaid doesn’t owe any money back if the premiums were on the low end.
A $6.7 million rebate is good news for the private option. That’s small potatoes in the context of a multi-billion-dollar program, but it could knock down the per-person, per-month cost of the policy in 2014 by more than 4 bucks. That would give the state even more wiggle room in staying below the “budget neutrality” caps set by the federal government — the per capita cost targets the state must stay below as part of its agreement to pursue the private option. This is a point we’ve been making for some time: those raising a stink about the 2014 costs being over the caps neglected to mention that those were merely estimates. Because of Centene’s MLR rebate, those estimates now must be revised downward.
And we still don’t know the true 2014 costs. There’s another round of reconciliation to come for all three carriers this spring: cost-sharing reductions (CSR), a situation unique to the private option. See here for details.