New standards for the private insurance plans that cover most Medicaid beneficiaries include an 85 percent medical-loss ratio (MLR) and authorizes a new quality rating system.

The final rule issued by CMS is the first update to regulations on managed Medicaid in 10 years, following the Affordable Care Act’s expansion of Medicaid which has resulted in more people being covered through managed care plans, which HHS has said cover nearly two-thirds of the 72 million total Medicaid recipients.   

“These improvements modernize the way these managed care health plans operate so that Medicaid and CHIP continue to provide cost-effective, high quality care to consumers,” said Andy Slavitt, CMS acting administrator and Vikki Wachino, CMS deputy administrator and director for the Center for Medicaid and Children’s Health Insurance Program (CHIP) Services, in a CMS blog post after the final rule was released.

The MLR portion of the rule will require insurers spend at least 85 percent of their Medicaid revenue on medical costs, leaving 15 percent for expenses like employee salaries, as well as the insurer’s profits.

Plans that don’t meet the MLR standards will have their rates lowered in the future.

While Slavitt and Wachino alluded to this portion of the rule as part of an effort to “ensure managed care plans focus on delivering care, not profits,” industry groups like the Medicaid Health Plans of America (MHPA) labeled it “an answer in search of a problem,” arguing this decision should have been left up to states.

“Every single state contract has a medical-loss ratio in it. That is a substantive part of the contract and the states take very seriously money used by the plans to spend on the medical portion of the benefit,” MHPA president and CEO Jeff Myers said. “So our view was that having the feds set an arbitrary number is unnecessary and possibly disruptive.”

Many of the 39 states utilizing managed Medicaid already require a MLR of 85 percent or more.

Beyond the MLR standard, several of the other changes include new requirements on access, such as mandating that plans create and update online directories of doctors and hospitals.

The details of several new requirements will be left up to the states, such as ensuring plans have enough physicians within a reasonable distance for beneficiaries.

“States would have to establish time and distance standards for specified provider types that reflect the geographic scope of the Medicaid managed care program,” the rule said.

A larger change may affect access to behavioral health services for Medicaid beneficiaries. Under the rule, states will be able to pay for care for substance abuse or psychiatric disorder in an institution for mental disease, provided the stay is no longer than 15 days.

“That is tremendously important for integration of behavioral health services that the plans provide, so we were very supportive of CMS’ move in that direction,” Myers said.

Only a few items from the proposed rule were removed, such as a requirement for states to provide potential Medicaid recipients at least 14 days of fee-for-service coverage, something Myers said several states no longer offer.

The rule will be officially published May 6, and will go into effect in several phases beginning in July 2017.