Form CMS-10398 (#38) (f CMS-10398 (#38) (f Section 1115 Demonstration, Long Term Services and Suppo

2015 Consultation Guide on Medicaid Managed Care Rate
Development
Introduction
In September 2013, the Centers for Medicare & Medicaid Services (CMS) released the
2014 Managed Care Rate Setting Consultation Guide (2014 Consultation Guide) to states that
contained questions about critical elements for setting actuarially sound rates with respect to
coverage of the newly eligible population in Medicaid managed care plans. The actuarial review
of the rates and the use of the 2014 Consultation Guide have increased the transparency of the
rate development process and has led to a better understanding of expectations between states
and CMS with respect to Medicaid managed care rate setting and CMS’ oversight of the process.
In order to be transparent with respect to expectations for 2015 rate setting and to prepare the
way for an efficient and effective review process, CMS is releasing this consultation guide to all
states to use when setting rates for rating periods starting in calendar year 2015 with any
managed care program subject to actuarial soundness requirements in 42 CFR §438.6. This
guide, which is based on the experience from 2014, describes information that CMS expects
states to provide when developing the actuarial rate certifications. This information will be the
focus of CMS’ review of capitation rates in 2015, and may also be helpful to states in their
conversations with actuaries and plans.
This information will help CMS and states ensure that Medicaid managed care rates meet three
sets of standards:
•
•

•

The capitation rates and rate development processes must comply with all applicable
laws, regulation, and other guidance for Medicaid managed care.
The rate development reflects, as appropriate, program compliance with all applicable
laws, regulation, and other guidance for the Medicaid program, including but not limited
to eligibility, benefits, financing, any applicable waiver or demonstration requirements,
and program integrity.
The rate development process must follow all applicable actuarial practices and
principles, the final rates must be reasonable, and the documentation must be sufficient to
meet applicable actuarial practices and principles.

CMS has developed two sections for this consultation guide. The first section applies to all
Medicaid managed care capitation rates, while the second section focuses on issues specific to
newly eligible adult capitation rates in light of the more limited experience covering this
population and builds upon the 2014 Consultation Guide.
CMS anticipates that the information discussed in this guide is already part of the actuarial work
and program management work ongoing in states. However, delineating the specific elements
below provides a way to ensure that states are fully informed in advance of the information
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needed for federal review and state consultation and that such information is consistently
addressed. CMS does not prescribe a specific format for supplying this information. Instead,
CMS expects to see a discussion of the below elements in the actuarial certification, and, to
expedite the review, we ask the state to supply page numbers where we can find relevant
information,

Section I. 2015 Medicaid managed care rates
This section of the guidance is directed to all states setting Medicaid managed care rates that are
subject to the actuarial soundness requirements in 42 CFR §438.6. CMS expects states and their
actuaries to document all the elements described below within their actuarial certification with
enough detail so that CMS is able to determine the reasonableness of the information contained
in the certification for the purposes of rate development. CMS believes the documentation
standards outlined below are consistent with requirements in 42 CFR §438.6 and relevant
Actuarial Standards of Practice.
1. General information
States should provide the following items and information in the rate certification
submission:
•

•
•

A letter from the certifying actuary, who meets the requirements in 42 CFR
§438.6, that certifies that the final capitation rates or rate ranges meet the
standards in 42 CFR §438.6.
The final and certified capitation rates or the final and certified rate ranges for all
rate cells and regions, as applicable.
Brief descriptions of:
o The specific state Medicaid managed care programs covered by the
certification.
o The rating periods covered by the certification.
o The Medicaid populations covered through the managed care programs for
which the certification applies.
o The services that are required to be provided by the managed care plans.

2. Data
The actuarial certification should adequately describe the data used to develop the
capitation rates. States should provide the following information and identify where it is
located in the rate certification submission:
•

A description of the data used to develop capitation rates. This description should
include:
o The types of data used, which may include (but is not limited to) claims data,
encounter data, plan financial data, or other Medicaid program data.
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•

•

•

•

o The age of all data used.
o The sources of all data used.
o To the extent that a significant portion of benefits are provided through
subcapitated arrangements, a description of the data received from the
subcapitated plans or providers.
o To the extent that claims or encounter data are not used or are not available,
an explanation of why that data was not used or was not available.
Information related to the availability and the quality of the data used:
o The steps taken by the actuary or by others (which may include but is not
limited to the state Medicaid program or the managed care organizations) to
validate or improve the quality and accuracy of the data.
o Any concerns that the actuary has over the availability or quality of the data.
Any information related to changes in data used when compared to the most recent
rating period:
o Any new data sources used by the actuary since the last certification and any
data sources that the actuary has not continued to use since the last
certification.
o How the data sources used have changed since the last certification.
Any plans or efforts to improve the data sources used for future certifications and any
new data sources that are expected to be available and potentially used for future
certifications.
Any adjustments that are made to the data.

3. Projected benefit costs
The actuarial certification should describe the development of the projected benefit costs
of the capitation rates, which should include a description of the data, assumptions, and
methodologies used to develop the projected benefit costs. In general, the detail in the
description for each applicable item or step should be commensurate with the importance,
the magnitude, and the complexity of that item or step in the rate development process
(that is, the items or steps that are most critical, have the largest impact, or are the most
complex should be described in greater detail than the items or steps that are less critical,
have smaller impacts, or are more simple). In addition, any material changes to the data,
assumptions, and methodologies used to develop projected benefit costs since the last
certification should be described.
States should describe and identify the location of the following information in the rate
certification submission:
a. Covered services and benefits

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•

•

Any changes related to the benefits covered by the Medicaid managed care
organizations since the last certification, including but not limited to:
o More or fewer state plan benefits covered by the Medicaid managed care.
o Requirements for payments from managed care organizations to any
providers or class of providers.
o Requirements or conditions of any applicable waivers.
For each change related to benefits covered, the estimated impact of the change
on the amount of projected benefit costs and a description of the data,
assumptions, and methodologies used to develop the adjustment.

b. Projected benefit cost trends
•

The projected change in benefit costs from the historical period to the rating
period, or trend, including but not limited to:
o The methodologies used to develop projected benefit trends.
o Any data used or assumptions made in developing projected benefit
trends.
o Any applicable comparisons to historical benefit trends or other program
benefit trends.
o The different components of projected benefit trends, including but not
limited to changes in price (such as provider reimbursement rates) and
changes in utilization (such as the volume of services provided).
o Any other material adjustments to projected benefit trends, and a
description of the data, assumptions, and methodologies used to determine
those adjustments.
o To the extent there are any differences, projected benefit trends by:
 Service or category of service.
 Rate cell or Medicaid population.

c. Other adjustments to projected benefit costs
•

Any other adjustments made to projected benefit costs excluding those described
above, including but not limited to:
o The impact of managed care on the utilization and the unit costs of health
care services.
o Changes to projected benefit costs in the rating period outside of regular
changes in utilization or unit cost of services.

d. Final projected benefit costs by relevant level of detail (for example, by Medicaid
population or by rate cell).
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4. Projected non-benefit costs
The actuarial certification should describe the development of the projected non-benefit
costs of the capitation rates, including a description of the data, assumptions, and
methodologies used to develop the projected non-benefit costs. The detail in the
description for each applicable item or step should be commensurate with the importance,
the magnitude, and the complexity of that item or step in the rate development process
(that is, the items or steps that are most critical, have the largest impact, or are the most
complex should be described in greater detail than the items or steps that are less critical,
have smaller impacts, or are more simple). In addition, any material changes to the data,
assumptions, and methodologies used to develop projected non-benefit costs since the
last certification should be described.
States should provide a description and identify the location of the following information
in its rate certification submission:
•

Non-benefit costs including but not limited to:
o Administrative costs.
o Care management or coordination costs.
o Provisions for:
 Cost of capital.
 Risk margin.
 Contingency margin.
 Underwriting gain.
 Profit margin.
o Taxes, fees, and assessments.
o Any other material non-benefit costs.

5. Rate range development
In cases when the actuary develops and certifies rate ranges on behalf of a state, the rate
certification should describe how the rate ranges were developed. States should provide a
description of and identify the location of the following information in its rate
certification submission:
•
•
•

Any assumptions for which values vary in order to develop rate ranges.
The values of each of the assumptions used to develop the minimum, the midpoint (as applicable), and the maximum of the rate ranges.
A description of the data, assumptions, and methodologies that were used to
develop the values of the assumptions for the minimum, the mid-point (as
applicable), and maximum of the rate ranges.
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This information may be included in the relevant sections of the rate certification or in a
separate section related to rate range development. For example, a description of how
certain assumptions related to projected benefits vary to develop the rate ranges may be
included with the description of other information related to projected benefits, or may be
included in a section that describes all of the assumptions that were varied to develop the
rates.
6. Risk and contractual provisions
States should describe and identify the location in the actuarial certification submission
any risk or contractual provisions that may affect the rate or rate ranges or the final net
payments to the managed care organizations. These provisions would include:
•
•
•
•
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Risk adjustment processes.
Risk sharing arrangements, such as a risk corridor or a large claims pool.
Medical loss ratio requirements, such as a minimum medical loss ratio
requirement.
Reinsurance requirements.
Incentives or withhold amounts.

7. Other rate development considerations
States should address in their rate certification submission, as appropriate, several other
considerations:
•

•

All adjustments to the capitation rates, or to any portion of the capitation rates,
should reflect reasonable, appropriate, and attainable costs in the actuary’s
opinion and must be included in the rate certification. CMS notes that adjustments
that are performed at the end of the rate setting process without adequate
justification might not be considered actuarially sound.
The final contracted rates should either match the capitation rates or be within the
rate ranges in the actuarial certification. This is required in total and by each rate
cell.

Section II. Newly Eligible Adult Capitation Rates
This section of the guidance is focused on rate setting for newly eligible adults and builds upon
the 2014 Consultation Guide. For states that have previously covered newly eligible adults in
2014, this consultation guide describes the information expected from states related to how the
capitation rates or the rate development process has changed since the most recent certification.
1. Data

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In addition to the expectations for all Medicaid managed care rate certifications, the rate
certification should describe any data used to develop newly eligible adult rates. For
states that have already covered newly eligible adults in Medicaid managed care plans,
CMS expects the rate certification submission to describe any new data that was available
and how the state and the actuary followed through on any plans to monitor costs and
experience for newly eligible adults as described in the 2014 Consultation Guide.
2. Projected Benefit Costs
In addition to the expectations for all Medicaid managed care rate certifications described
in Section I, states should include in the rate certification submission a description of the
following issues related to newly eligible adult capitation rates:
•

•

•
•

For states that covered newly eligible adults in 2014:
o Any data and experience specific to newly eligible adults covered in 2014
that was used to develop projected benefits costs for capitation rates.
o Any changes in data sources, assumptions, or methodologies used to
develop projected benefits costs for capitation rates since the last
certification.
Information on key assumptions related to the newly eligible adult population
(and for states that covered newly eligible adults in Medicaid managed care plans
in 2014, how those assumptions changed from the last certification), including but
not limited to:
o Acuity or health status adjustments (in most cases comparing newly
eligible adults to other Medicaid adult enrollees).
o Adjustments for pent-up demand.
o Adjustments for adverse selection.
o Adjustments for the demographics of newly eligible adults.
o Differences in provider reimbursement rates or provider networks,
including any differences between provider reimbursement rates or
provider networks for newly eligible adult rates and other Medicaid
population rates.
o Other material adjustments to newly eligible adults projected benefit costs.
Any changes to the benefit plan offered to newly eligible adults.
Any other material changes or adjustments to projected benefit costs.

3. Projected Non-Benefit Costs
In addition to the expectations for all Medicaid managed care rate certifications described
in Section I, states should describe in their rate certification submission the following
information related to the newly eligible adult capitation rates:
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•

•

For states that covered newly eligible adults in Medicaid managed care plans in
2014, any changes in data sources, assumptions, or methodologies used to
develop projected non-benefit costs capitation rates since the last certification.
Information on key assumptions related to the newly eligible adult population
(and for states that covered newly eligible adults in Medicaid managed care plans
in 2014, how those assumptions changed from the last certification) and any
differences between these assumptions and those used to develop other Medicaid
population rates, including but not limited to:
o Administrative costs.
o Provisions for:
 Cost of capital.
 Risk margin.
 Contingency margin.
 Underwriting gain.
 Profit margin.
o Any other material non-benefit costs.

4. Final Certified Rates or Rate Ranges
In addition to the expectations for all Medicaid managed care rate certifications described
in Section I, states that covered newly eligible adults in Medicaid managed care plans in
2014 should provide a comparison to the final certified rates or rate ranges in the
previous certification and descriptions of any other material changes to the capitation
rates or the rate development process not otherwise addressed in the other sections of this
guidance.
5. Risk Mitigation Strategies
States should describe the risk mitigation strategy for newly eligible adult rates, including
but not limited to:
•
•

The risk mitigation strategy that will be used during the rating period.
For states that covered newly eligible adults in Medicaid managed care plans in
2014:
o Any changes in the risk mitigation strategy from those used during 2014.
o Any relevant experience, results, or preliminary information available
related to the risk mitigation strategy used during 2014.

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