Public Comment: AHIP

May 26, 2021
Ms. Amy Gentile
Mr. William N. Parham, III
Office of Strategic Operations and Regulatory Affairs
Division of Regulations Development
Centers for Medicare and Medicaid Services
7500 Security Boulevard, Room C4-26-05
Baltimore, MD 21244-1850
Via electronic mail to www.regulations.gov
Re: CMS-10398 (#37) / OMB control number: 0938-1148
Dear Ms. Gentile and Mr. Parham:
Medicaid is an essential part of American health care, and health insurance providers are
committed to ensuring Medicaid is effective, affordable, and accountable. With that commitment
in mind, America’s Health Insurance Plans (AHIP) and its member Medicaid health plans
appreciate the opportunity to provide comments on the 2021-2022 Medicaid Managed Care Rate
Development Guide (the “Guide”).
In 39 states, Washington DC, and Puerto Rico, Medicaid programs contract with Medicaid
managed care organizations (MCOs) to serve their enrollees. Nationwide, Medicaid MCOs
enroll and serve more than 55 million people, about two-thirds of all Medicaid enrollees.
Although states manage Medicaid eligibility and enrollment, Medicaid MCOs manage a full
range of other functions for states and provide a variety of services to meet the unique needs of
Medicaid enrollees. MCOs implement programs that coordinate and improve care and health
outcomes; offer services that promote prevention and healthy living and connect enrollees with
non-medical supports, such as social services or transportation; and carry out functions that
include customer service, claims processing, reporting, and program integrity. Medicaid MCOs
improve quality for enrollees and achieve cost savings for states and the federal government.
Medicaid MCO enrollees are more likely to receive preventive services, have fewer hospital
admissions, and better access to primary care than enrollees in fee-for-service programs.
The Social Security Act requires that states contracting with MCOs establish actuarially sound
rates, and that CMS review and approves such rates. This process is critically important. It
ensures that federal funds are used efficiently, and that Medicaid MCOs have adequate resources
to ensure providers are accessible and can deliver all contracted services to the low income and
vulnerable populations they serve.

Letter to CMS May 26, 2021 – page 2

We appreciate that the draft 2021-2022 Guide includes additional references that reinforce the
requirement for actuarial soundness in multiple areas of discussion, such as rate development
standards, rate ranges, and withholds. Updated each year, the Guide is a key resource for state
Medicaid programs and Medicaid MCOs in ensuring the actuarial soundness of rates. The 20212022 version of the Guide takes on added importance, given the impacts of the COVID-19 public
health emergency (PHE) on Medicaid programs, state governments and providers, as well as the
federal and state responses to those impacts. Those impacts have included a variety of statutory
and regulatory changes, plus new rate setting flexibilities and other guidance for states that
directly impact actuarial soundness.
We believe the 2021-2022 Guide requires further modification to incorporate all the disparate
pieces of guidance documents into a coordinated package that provides necessary clarity on
federal rate-setting standards in Medicaid. We also urge CMS to update the Guide to implement
certain other changes in its rate review process to reflect the ongoing actuarial uncertainties
caused by the pandemic and improve the overall process of developing rates. The remainder of
this letter presents our comments and recommendations on these key issues; a separate Appendix
presents suggestions on certain technical issues for consideration.
1. Withdraw or Delay Accelerated Rate Review. The 2021-2022 Guide includes the
Accelerated Rate Review process introduced in 2020. The accelerated review process allows
states to submit a Rate Development Summary to CMS with significantly less detail than the
full rate certification package. CMS can determine whether rates are actuarially sound based
primarily on information in the Rate Development Summary.
We had serious concerns with the Accelerated Rate Review process when it was announced
in the 2020-2021 Guide, without the benefit to stakeholders of a formal notice and comment
rulemaking process. We believe the Accelerated Rate Review process does not meet CMS’
statutory obligation to oversee and ensure state rates are actuarially sound. Our concerns are
now magnified given the significant impacts of the ongoing PHE on patterns of care and
costs. Traditional comprehensive reviews of full rate certifications and documentation
clearly remain necessary. We urge CMS to withdraw this process in its entirety and exclude
it from the final 2021-2022 Guide.
2. Accounting for Effects of COVID on Base Period Data. As noted above, the PHE has
created an unprecedented degree of actuarial uncertainty with respect to the magnitude and
timing of service utilization and costs. Utilization patterns changed significantly in the
second quarter of 2020 as a result of stay-at-home orders and deferred care. Even as some
patterns of care have returned to normal in 2021, there may be more sustained shifts in
certain patterns of utilization, e.g., in emergency room care, telehealth, and behavioral health
services. Congress has responded with new Medicaid options in the American Recue Plan
Act, including extension of Medicaid coverage for postpartum women, and enhanced FMAP
for crisis intervention services and home and community-based services. States have
responded with directed payments and changes to rates and risk mitigation measures. In

Letter to CMS May 26, 2021 – page 3

addition, the resumption of state eligibility redeterminations following the termination of the
PHE will further alter the overall case mix and risk profile of Medicaid enrollees.
The PHE is a sustained, unprecedented event that has resulted in significant anomalies in
2020 and 2021 cost and utilization data. Any given state’s capitation rates and risk mitigation
programs that are developed using the PHE-impacted data as a base period will require
material changes in assumptions and adjustments, e.g. to normalize for the PHE impacts.
In the draft Guide, CMS states its expectation that actuaries will account for direct and
indirect impacts of the PHE on capitation rates through evaluation of relevant data; and
recommends implementation of 2-sided risk mitigation strategies for rating periods impacted
by the PHE. We believe that CMS should go further and provide more detailed, specific
requirements and expectations as to how actuaries should account for COVID-19 impacts so
as to avoid actuaries reaching different conclusions based on individual judgment and
interpretation.
We strongly recommend that CMS devote a section of the Guide to discussion of the impacts
of the PHE on costs and utilization and guidance regarding CMS expectations for how states
and actuaries should account for those extraordinary impacts on trends and projections. In
addition, CMS should allow flexibility to use a base period that is not in the three most recent
and complete years prior to the rating period if appropriate for a given program, with
appropriate additional documentation (e.g., methodologies and assumptions used to
normalize the data, etc.). And if a state chooses a PHE-impacted period to develop base
experience or for programmatic change adjustments or prospective adjustments, CMS should
require a justification and additional detailed documentation.
3. Connect Rate Development Issues with Related Guidance. Since the onset of the PHE and
release of the 2020-2021 version of the Guide, CMS has issued significant guidance with
implications for Medicaid rate development, including:
a. Implementation of American Rescue Plan Act of 2021 Section 9817: Additional
Support for Medicaid Home and Community-Based Services during the COVID-19
Emergency. State Medicaid Director Letter dated May 13, 2021.
b. Additional Guidance on State Directed Payments in Medicaid Managed Care. State
Medicaid Director Letter dated January 8, 2021.
c. Planning for the Resumption of Normal State Medicaid, Children’s Health Insurance
Program (CHIP), and Basic Health Program (BHP) Operations Upon Conclusion of
the COVID-19 Public Health Emergency. State Health Official Letter dated
December 22, 2020.
d. Medicaid Program; Medicaid and Children’s Health Insurance Program (CHIP)
Managed Care (CMS–2408–F). Final rule dated November 13, 2020.
e. Value-Based Care Opportunities in Medicaid. State Medicaid Director Letter dated
September 15, 2020.

Letter to CMS May 26, 2021 – page 4

f. Medicaid Managed Care Options in Responding to COVID-19. CMCS Informational
Bulletin dated May 14, 2020.
The draft Guide discusses some of the topics raised in these guidance documents, but we
believe states and actuaries would benefit from a more concerted discussion of their
relevance to rates. We recommend that CMS expand the Guide so that it provides a
comprehensive reference for states, actuaries, Medicaid MCOs, and other stakeholders
addressing all the relevant guidance and their impacts on rate setting standards.
4. Clarify the Use of Minimum Medical Loss Ratio (MLR) Requirements in Rate Setting.
The draft Guide lacks clear guidance on two important issues relating to the calculation of
medical loss ratios (MLRs) for purposes of setting rates.
a. Operational costs. Under 42 C.F.R. § 438.4(a), actuarially sound capitation rates are
“projected to provide for all reasonable, appropriate, and attainable costs that are
required under the terms of the contract and for the operation of the MCO, PIHP, or
PAHP for the time period and the population covered under the terms of the
contract.” In § 438.4(b)(9), the regulations further clarify that capitation rates need to
be developed to achieve a minimum MLR that provides for “reasonable, appropriate,
and attainable non-benefit costs.” The 2021-2022 Guide mentions these regulatory
requirements, but we believe it needs to further emphasize and clarify for states that
actuarial soundness requires adequate coverage of non-benefit costs (e.g.,
administrative costs, quality improvement activities, and underwriting gain) many
aspects of which are required by state contracts and federal regulations.
b. SDOH. CMS, states, and Medicaid MCOs have increasingly taken steps to address
impacts of social barriers and social determinants of health (SDOH) on the health
status and outcomes of Medicaid enrollees. States like North Carolina are building
SDOH identification and mitigation strategies into their Medicaid managed care
programs. MCOs have been working with community organizations and offering
value-added benefits to meet the social needs of their enrollees, focusing on issues
such as food insecurity, physical activity, transportation, and housing. We urge CMS
to update the Guide to address requirements and conditions for including these
expenditures as quality improvement activities in capitation rates and minimum MLR
remittance calculations. Recognition of such expenditures in MLR calculations will
encourage greater investments in services that reduce health disparities and promote
health equity, improve the overall health of Medicaid enrollees, and reduce long-term
program costs for federal and state payers.
5. Provide Detailed Guidance on Quality Withhold Arrangements. The Guide, 42 CFR
438.6, and Actuarial Standard of Practice (ASOP) 49 all address the use of quality withhold
adjustments in Medicaid managed care. However, we have concerns about the transparency
and timeliness of processes in some states incorporating quality withholds into Medicaid rate
development. AHIP members have identified a number of areas where CMS standards are

Letter to CMS May 26, 2021 – page 5

needed to ensure that states meet federal regulatory requirements concerning withhold
arrangements, including that withholds must be reasonable and capitation payments minus
withholds that are not reasonably achievable cannot be considered actuarially sound.
Specifically, we recommend the Guide address the following topics:
a. Clearly defined criteria. Quality withholds can be a material portion of MCO
payments, especially with respect to the level of underwriting gain assumed in
capitation rates. Assumptions regarding the achievability of the related quality
performance metrics are a critical component of rate setting. The Guide requires that
the rate certification include a description of the withhold arrangement, and that the
capitation payment minus any withheld portion that may not be reasonably achievable
must be actuarially sound. However, we believe the Guide needs to more directly
specify that criteria for earning the entire withhold must be clearly defined in the
state’s rate certification. In addition, the Guide should also address the level of detail
needed to establish that withholds or percentages thereof are reasonably achievable.
We are concerned that state assumptions may overestimate achievability or be
inaccurate or unreasonable and therefore jeopardize overall actuarial soundness.
b. Advance notice. MCOs require time to prepare and implement strategies to meet state
performance expectations as defined in the quality criteria. For example, in some
states, MCOs are not informed of the quality withhold parameters until well into the
rating year, which limits their ability to address the state’s priority performance
expectations. In addition, depending on the metric, there can be significant lag times
between the measurement year and the reporting year. The Guide should specify that
criteria for performance and earning the amounts withheld should be communicated
to MCOs prior to the beginning of the performance evaluation period.
c. Mid-year changes. We are aware of instances in which the quality withhold criteria
are adjusted during the rating period. Such adjustments impact the achievability of
meeting quality metrics and earning withheld funds. Ideally, changes in performance
metrics relating to quality withholds should be applied only on a prospective basis.
But if such changes are deemed appropriate on review, the Guide should require the
certifying actuary to clearly describe how such adjustments impact the achievability
of earning the withhold and the overall effects on actuarial soundness and rate
adequacy.
6. Add More Clarity in Standards for Risk Sharing Mechanisms. As the PHE unfolded last
year, states responded in part with a range of new risk sharing mechanisms and modifications
of existing arrangements. From that experience, we believe there is a need for CMS to
provide additional guidance and structure for state risk sharing mechanisms to ensure the
appropriate use of risk sharing tools. Specifically, we recommend that CMS expand the
discussion of risk-sharing mechanisms to provide guidance on the criteria or market
conditions to be considered when states deploy risk sharing mechanisms, such as risk
corridors and reinsurance programs.

Letter to CMS May 26, 2021 – page 6

In addition, given the significant activity in Medicaid risk sharing mechanisms over the past
year, we urge CMS to convene a technical expert panel (TEP) to develop consensus
standards for key elements of risk sharing mechanisms, such as: calculation of uncertainty in
prospective rate setting, optimal width and symmetry of risk corridor bands, formulae for
calculating MCO obligations, and use of federal MLR definitions in risk corridors. The TEP
should include representatives from CMS, state Medicaid programs, consulting actuaries,
MCO actuaries, and the American Academy of Actuaries and Society of Actuaries.
7. Encourage Best Practices that Include MCOs in the Rate Development Process. As
noted above, Medicaid MCOs now serve nearly two-thirds of Medicaid enrollees in 40
Medicaid programs. They provide the operational infrastructure and expertise that engages
and connects members with care, coordinates care among providers, administers funding to
providers, and reports on the results of operations to states. MCOs also have significant
insights into how Medicaid programs are functioning at the local level, what’s working, and
what’s not.
Despite these facts, states are quite variable in their levels of engagement and consultation
with MCOs for a variety of reasons, including competing priorities, staffing resources and
levels of experience. This variability in engagement and consultation extends to rate setting
as well. Some states are very transparent in their communications with MCOs on base data,
assumptions, and calculations, and solicit MCO input so that resulting proposed rates have
been generally vetted prior to submission to CMS. Other states have much less transparency
and communication.
We believe that stakeholders involved with the Medicaid program, including CMS actuaries
reviewing state rate submissions, are best served when states and MCOs engage and consult
openly on rate issues. We strongly urge CMS to expand the Guide to highlight best practices
and convey its expectation to states that they engage and consult more directly with MCOs in
developing rates. Such standards would support the long-term interest of states, the federal
government, and Medicaid enrollees, and would ultimately reduce the resources and time
required to complete rate reviews. Consistent with this recommendation, we offer some
specific suggestions for consideration in the Appendix. These are presented as suggested
revisions and addition to the text of the draft Guide.
Similarly going forward, we strongly encourage CMS to circulate the draft Guide each year
for review and comment by stakeholders with at least a 30-day comment period, given the
significance of Medicaid rate setting and the extent of changes. Beyond providing
stakeholders with an opportunity to provide feedback, such a process would be beneficial to
identifying areas for clarification and highlighting guidance applicable to emerging trends or
state-specific circumstances.
8. Reinvigorate CMS Oversight of Federal Investments in Medicaid. The standard federal
medical assistance percentage (FMAP) ranges from 50% to as high as 78% of a state’s

Letter to CMS May 26, 2021 – page 7

Medicaid costs; and in states that expanded Medicaid, FMAP is 90% for expansion enrollees.
On average, the federal government pays over two-thirds of the cost of Medicaid.
Accordingly, CMS has a compelling interest in overseeing and ensuring the effectiveness and
integrity of federal investments in the Medicaid program.
Despite this clear federal interest, we are concerned with the perception that has evolved over
a number of years that CMS increasingly views Medicaid capitation rates as primarily a
contractual matter between states and Medicaid MCOs, and thereby prefers a more hands-off
approach to rate review. The Accelerated Rate Review process discussed above is one of the
latest examples of this approach. We believe this perspective is inconsistent with CMS’
obligations under the Social Security Act to ensure rates are actuarially sound. We are also
concerned, as a practical matter, that limited oversight fails to recognize that many states lack
the national perspective, actuarial expertise, and analytical resources available to CMS.
Accordingly, we urge CMS to ensure that the Guide, other CMS guidance, and the agency’s
internal processes all clearly support CMS’ active role in assessing, validating, and
confirming the components of state rate proposals – data, assumptions, calculations, and
projections. Any other approach fails to safeguard the substantial federal investments in
Medicaid, adversely affects enrollees and providers, and can jeopardize the program’s longterm viability.
Thank you again for the opportunity to comment on the Rate Development Guide and for your
attention to our concerns and consideration of our recommendations. AHIP is committed to
continuing a strong working relationship with CMS to ensure the long-term viability and
effectiveness of the Medicaid program for the people it serves and the state and federal taxpayers
who pay for it. Please let us know if you have any questions. We would welcome the opportunity
to discuss in more detail.
Sincerely,

Rhys W. Jones, MPH
Vice President, Medicaid Policy and Advocacy
Cc: Anne Marie Costello, CMCS

Letter to CMS May 26, 2021 – page 8

Appendix: Specific Recommendations on the Draft Guide
In this appendix, we offer specific technical comments and policy recommendations on the draft
Guide for consideration by CMS.
1-A. General Information – Rate Development Standards
Guide Section

Suggested Revision/Addition

Rationale

Section 1.A.iii. (a)

Add under A-iii (a):

The Guide should clarify at what point
updated capitation rates would require a
revised rate certification, e.g. in the case
of a later rate change; and that any
changes to the original capitation rates
within 1.5% would still result in
actuarially sound rates.

(i) include a statement that the 1.5%
range is centered on the original
capitation rates approved by CMS for
that rating year.
(ii) include a statement that the actuary
certifies the original rates plus any
changes within 1.5% as actuarially
sound.
Section 1.A.iii. (c).(vi)

Add (E) to the list:
(E) demonstrate how the retroactive
adjustment still maintains the projected
(prospective) nature of capitation rate
setting and allows MCOs to maintain
efficiencies already achieved (e.g.,
updating the rates in alignment with
ASOP 49 section 3.2.18, such as
retroactively adjusting rates to correct
specific assumption(s)).

Section 1.A.vii.

Add the following sentence:
The actuary should include a projection
of the estimated pre-tax net income for
the capitation rate year to demonstrate
the capitation rates are adequate for
reasonable, appropriate, and attainable
non-benefit costs.

Section 1.A. xiii.

Add (g) to the list:
(g) Any rate certification and supporting
documentation provided to CMS on the
capitation rate development must be
provided by the state to each MCO,
PIHP or PAHP within 5 federal business
days of submission to CMS.

It is important to maintain flexibility that
allows retroactive rate adjustments when
a specific assumption (or a few specific
assumptions) are materially incorrect.
However, making a retroactive rate
adjustment should not negate the
prospective nature of capitation rate
setting.

The inclusion of an expected pre-tax net
income will allow CMS and MCOs to
review this assumption, in conjunction
with other assumptions, to determine if
capitation rates are adequate for
reasonable, appropriate, and attainable
non-benefit costs.
The level of detail of information states
and their actuaries provide to MCOs can
vary greatly from state to state. MCOs
receiving the same level of information
and detail that CMS receives will
support transparency in the rate
development process and provide the
opportunity for more meaningful
discussions of actuarial soundness
concerns.

Letter to CMS May 26, 2021 – page 9

1-B. General Information – Appropriate Documentation
Guide Section

Suggested Revision/Addition

Rationale

Section 1.B.ii.

Add (d) to the list:

This will allow CMS to see what
information is provided to MCOs
(if different than what CMS
receives).

(d) A summary of information provided to
MCOs and indicating if it is the same
information sent to CMS. If not, exhibits and
rate narratives provided to the MCOs that
were used to communicate the development
and results of the capitation rates, should be
provided to CMS.
Section 1.B.xi (new)

xi. Within 14 federal business days following
receipt by MCOs, PIHPs or PAHPs of the rate
certification and documentation of the
capitation rate development, MCOs, PIHPs, or
PAHPs may submit page limited feedback
regarding top actuarial soundness concerns of
the capitation rates via email to CMS and the
state. Feedback should include contact
information for the MCO, PIHP, or PAHP for
follow-up questions as needed.

Provides MCOs an opportunity to
present their top actuarial
soundness concerns to CMS. This
is an important communication
avenue given that certain actuarial
soundness concerns may come to
light once final capitation rates are
received by the MCOs and can help
CMS identify areas of interest that
may require additional review.

Guide Section

Suggested Revision/Addition

Rationale

Section 2.A.i.(b)

Add to (b) the text in italics:

Given the disruption to the health
care system caused by the COVID19 PHE, there will need to be some
flexibility in selecting appropriate
base period data. If the most
appropriate base data is from a prePHE time period that predates the
rating period by more than three
years, states should be permitted to
propose use of that base data in rate
setting.

2. Data

(b) States and their actuaries must use the
most appropriate base data, from the three
most recent and complete years prior to the
rating period, for developing rates. Due to the
impacts of the COVID-19 Public Health
Emergency (PHE) on service patterns and
utilization, states and their actuaries may
continue to use pre-PHE data as base data,
even if it is not in the three most recent and
complete years prior to the rating period. If
states and their actuaries use data impacted
by the COVID-19 PHE to develop base
experience, the rationale for why this period
was chosen and the assumptions,
methodologies and impacts of the adjustments
made to the base data must be included in the
rate certification.

In such cases, state actuaries should
provide a rationale for selecting
that time period and the
methodology/ assumptions used to
adjust the data, given that COVID19 PHE impacts may not be fully
known.

5. Projected Non-Benefit Costs – Appropriate Documentation
Guide Section

Suggested Revision/Addition

Rationale

Section 5.B.i

Add (d) to the list:

Medicaid managed care differs
from other health programs in that
the entity setting the capitation
rates (price) is not usually the entity

(d) A description of the statistically based
model and assumptions used to develop the

Letter to CMS May 26, 2021 – page 10

Section 5.B. ii

Underwriting Gain assumption; including the
two major components of cost of capital and
risk margin.

that must bear the risk of
mispricing. CMS and Medicaid
MCOs rely on state actuaries to
develop capitation rates at levels
that adequately fund the program,
even in years of adverse deviation,
so explicit inclusion of an adequate
risk margin in the capitation rates is
especially important.

Replace (c) with the following:

Most state Medicaid program
contracts now include limitations
(e.g., risk sharing and withholds)
that make underwriting gain a poor
proxy for MCO percentage of net
income. Therefore, a more precise
analysis is required to determine an
appropriate underwriting gain
assumption.

(c) Underwriting gain assumptions, including
cost of capital, contributions to reserves, and
risk margin including the impact of
contractual requirements such as minimum
MLRs, performance withholds and incentives
that impact the underwriting gain.

Appendix A: CMS Medicaid Managed Care Rate Development Summary for Accelerated Rate Reviews
Guide Section

Suggested Revision/Addition

Rationale

Introduction

Replace (2) with the following:

Including actuarial soundness
concerns raised by MCOs will
increase transparency and provide
CMS with another perspective on
the appropriateness of an
accelerated rate review.

(2) the full rate certification and related
supporting documents, including MCO
actuarial soundness concerns, and

#6

Replace 6 with the following:
6. No material issues have been identified (by
any party, including MCOs) in rate setting for
the prior rating period. Material issues are
generally identified through extensive
questioning or conference calls. CMS retains
discretion to determine whether or not there
were material issues that were identified in
rate setting during the prior rating period, and
therefore states should give CMS and MCOs
prior notice if their intention is to participate
in the accelerated rate review.

Including MCOs in the definition
of “any party” will clarify entities
that can identify material issues and
support CMS in identifying
material issues in rate proposals.