Response to Public Comments

Response to Public Comments (GenIC #37): 2023-2024 Medicaid Managed Care Rate Development Guide

In the April 10, 2023 Federal Register (88 FR 21191-21192), we published the Medicaid and Children’s Health Insurance Program (CHIP) Generic Information Collection Activities: Proposed Collection; Comment Request for the 2023-2024 Medicaid Managed Care Rate Development Guide (please also note a correction was published on April 17, 2023 (88 FR 23431)). States are required to submit rate certifications for all Medicaid managed care capitation rates per 42 CFR § 438.7. Our collection of information request specifies our requirements for the rate certification and details what types of documentation we expect to be included as well as our expectations for states when they submit rate certifications. We received 2 comment letters, which contained comments on multiple topics. Brief summaries of the public comments are included below with responses from CMS. Some comments were outside the scope of this collection of information request; they are not summarized nor responded to in this document.

CMS is proposing to make one change to the 2023-2024 Medicaid Managed Care Rate Development Guide (Guide) as a result of the comments. This change relates to acuity adjustments as explained in the responses included below. See Crosswalk 2 for a summary of the one change proposed in the guide in response to public comment.

Comment: One commenter encourages CMS to consider rate setting and existing risk mitigation arrangements in the context of the “full actuarial environment” unique to each state including infrastructure investment, value-added benefits, in lieu of services and settings (ILOSs), and any other arrangements that may exist in each particular state.

Response: CMS believes the Guide adequately addresses the rate development standards and documentation expectations needed to complete our review for actuarial soundness in accordance with 42 CFR § 438.4 and related compliance with federal requirements in 42 CFR Part 438, including §§ 438.5, 438.6 and 438.7. This includes documentation associated with risk-sharing mechanisms, non-benefit costs and ILOSs as well as incentive arrangements and withhold arrangements associated to meeting performance targets. We believe the current documentation requirements in the Guide, including those described below, appropriately incorporate the associated components consistent with regulatory requirements and provide CMS with sufficient information to evaluate the actuarial soundness of the certified capitation rates.

Section I.4.C.ii of the Guide requires rate certifications to include a description of any risk-sharing arrangements including a rationale, a detailed description of how it is implemented, a description of any effect it may have on the development of the capitation rates, and documentation demonstrating that it has been developed in accordance with generally accepted actuarial principles and practices. There are additional documentation requirements in the Guide for risk-sharing mechanisms with a remittance/payment requirement and reinsurance requirements.

The non-benefit component of the rate must include reasonable, appropriate, and attainable expenses related to health plan administration, taxes, licensing, and regulatory fees, contribution to reserves, risk margin, cost of capital, and other operational costs associated with the provision of services. Section I.5.B of the Guide requires rate certifications to describe the development of the projected non-benefit costs included in the capitation rates in enough detail so CMS or an actuary applying generally accepted actuarial principles and practices can identify each type of non-benefit expense that is included in the rate and evaluate the reasonableness of the cost assumptions underlying each expense in accordance with 42 CFR § 438.7(b)(3).

The rate development standards and documentation expectations for ILOSs are described in Section I.3.A and B of the Guide and incorporate 42 CFR § 438.3(e)(2) as well as guidance from the State Medicaid Director Letter published on January 4, 2023. As part of each rate certification, the state’s actuary must document the impact of ILOSs on rates, and estimate, document, and certify the projected ILOS cost percentage (documentation requirements vary based on materiality). There are also retrospective reporting requirements for the final ILOS cost percentage and a summary of actual managed care plan costs for delivering ILOSs to inform future rate development.

Incentive arrangements and withhold arrangements are special contract provisions related to payment associated with managed care plans meeting performance targets. Section I.1.A and B of the Guide require the rate certification to include a summary of any special contract provisions related to payment, including for incentive arrangements and withhold arrangements. The standards and documentation expectations for these arrangements are further described in Section I.4.A and B respectively, including required documentation in the rate certification for each arrangement and a description of any effect that each arrangement has on the development of the capitation rates. There are also documentation requirements for withhold arrangements, including a description of how the total withhold arrangement, achievable or not, is reasonable and takes into consideration the managed care plan’s financial operating needs accounting for the size and characteristics of the populations covered under the contract, as well as the managed care plan’s capital reserves as measured by the risk-based capital level, months of claims reserve, or other appropriate measure of reserves.

We would also like to note that value-added benefits are typically non-medical services that are provided by the managed care plans outside of those services authorized by Medicaid. In accordance with federal requirements at 42 CFR § 438.3(e)(1)(i), these value-added benefits are not allowed to be incorporated in Medicaid managed care rate development.

We decline to make any changes to the Guide, as we believe it appropriately incorporates all pertinent regulatory requirements and guidance, and CMS has adequate information to complete its review of the actuarial soundness of the certified capitation rates in each state’s rate certification(s).

Comment: One commenter noted that as CMS accepts states’ submissions of draft managed care contract actions that are not officially executed and documentation from a state’s actuary that may not reflect final full rate development or is limited to a description of the risk sharing arrangement(s), they suggest CMS ensure a sufficient level of detail on the risk-sharing arrangement to ensure impact on rates and contracts can be fully understood by all partners.

Response: CMS declines to adopt this recommendation as we believe the documentation requirements in Section I.4.C.ii of the Guide appropriately incorporate 42 CFR § 438.6(b)(1) with regard to risk sharing mechanisms in rate certifications, and provides CMS with sufficient information to evaluate the actuarial soundness of the certified capitation rates. Additionally, footnote #7 of the Guide describes in detail CMS’ expectations around documentation for risk mitigation strategies and we believe this information is adequate.

Comment: One commenter recommends CMS clarify some documentation related to special contract provisions related to payment. Specifically, the commenter seeks documentation in the Guide that quality programs increasing or decreasing an MCO’s capitation rate based on performance align their measurement periods with the applicable rating period. A second commenter urges CMS to specify that all capitation rate adjustments linked to attaining quality metrics and quality incentive arrangements must be established and communicated prospectively, prior to the start of the rating period.

Response: As there is no requirement in 42 CFR Part 438 to prohibit states from factoring plan performance and quality programs into special contract provisions related to payment or require the timing of any quality performance consideration be from the same rating period, CMS declines to adopt this recommendation.

Additionally, we note that incentive arrangements are a payment mechanism under which a managed care plan may receive additional funds over and above the capitation rates it was paid for meeting targets specified in the contract. Incentive arrangements are separate and distinct than considering quality performance as a factor in rate development. The Guide includes language that incorporates 42 CFR § 438.6(b)(2) and (3) and indicates that rate certifications must include a description of any incentive arrangements the state has with managed care plans. For incentive arrangements, the state may not provide for payment in excess of 105% of the approved capitation payments attributable to the enrollees or services covered by the incentive arrangement. Additionally, the certification must indicate the time period of the incentive arrangement, the enrollees, services and providers covered by the incentive arrangement and the purpose of the incentive arrangement (e.g., specified activities, targets, performance measures, or quality-based outcomes, etc.). We decline to include additional documentation requirements about incentive arrangements and believe that requirements in Section I.4.A of the Guide provide adequate information for CMS to conduct its review of Medicaid managed care capitation payments that include incentive arrangements.

Comment: Two commenters sought clarity on the impact to rate ranges when the actuary who initially certified a rate range identifies an increase in population acuity exceeding 1%. They asked if the certifying actuary is authorized to certify a new rate range during the rate year that reflects this change in population acuity, assuming it was unknown or incorrectly reflected in initial rates. Additionally, they questioned if the entire rate range would move up or down to reflect the corrected acuity assumption and/or methodology.

Response: CMS would like to note that Section I.7.A.i.b.ii of the Guide outlines the options available to the state for an acuity adjustment (i.e., de minimis 1 percentage change) and which are not allowable (i.e., a revised rate certification to certify a new rate range). This section of the guide indicates that when a state’s actuary is certifying rate ranges, if a retrospective acuity adjustment results in revisions to the capitation rates, the state must utilize the de minimis flexibility in accordance with 42 CFR § 438.4(c)(2)(ii)-(iii). The state does not have the option to utilize a rate amendment in this instance as it does not meet the criteria required in 42 CFR § 438.4(c)(2)(iii)(A)-(C). Section I.1.A.ix.c of the Guide also outlines the rate range requirements in 42 CFR § 438.4(c) and indicates any modification of the capitation rates within the rate range greater than the permissible 1% range will require a revised rate certification that demonstrates either the criteria in 42 CFR § 438.4(c)(1)(iv) were not applied accurately; there was a material error in the data, assumptions, or methodologies used to develop the initial rate certification; or other adjustments are appropriate and reasonable to account for programmatic changes. We decline to make any changes to the Guide as we believe it reflects all pertinent regulatory requirements.

Comment: One commenter noted appreciation for CMS reiterating that when states choose to certify a rate range the actuary must develop and certify a range of capitation rates per rate cell as actuarially sound.

Response: Thank you. The Guide does not require any changes in response to this comment as Section I.1.A.ix of the Guide includes language that incorporates 42 CFR § 438.4(c) and describes the documentation needed when a state chooses to develop and certify a rate range of capitation rates per rate cell as actuarially sound.

Comment: Two commenters commend CMS for outlining a streamlined exception process for states to leverage base data in their rate assumptions from before the COVID-19 public health emergency.

Response: Thank you. The Guide does not require any changes in response to this comment as Section I.2.A.i.d.iv includes language incorporating a streamlined base data exception process for states due to the unique nature of the COVID-19 public health emergency and its impact on base data.

Comment: Two commenters raise concerns with CMS not providing guidance allowing states to rely on data from pre-pandemic periods to project benefit cost trends in the context of rate certifications. One commenter indicates that the ability for states and their actuaries to leverage pre-pandemic data will result in more accurate rate certifications. Another commenter indicates that we should permit state actuaries a degree of latitude in accounting for the differences in projected versus historically observed trends.

Response: CMS declines to make any changes to the Guide as there is no federal requirement that the data used to project benefit cost trends must be from a specific time period, and it is not uncommon that actuaries look at data for a larger period of time to evaluate assumptions underlying trends. CMS notes that 42 CFR §§ 438.5(b)(2) and 438.5(d) do not have a restriction on the timeline of the data used to develop projected benefit cost trends. The Guide already includes language in section I.3.B.iii describing the documentation required for projected benefit cost trends in rate certifications, including a description of the sources of the data and assumptions, the methodologies used to develop projected benefit trends, any comparison to historical cost trends and documentation supporting the chosen trend rates and explanation of outlier and/or negative trends. We decline to include additional documentation guidance as we believe that requirements in the Guide provide adequate information for CMS to conduct its review of Medicaid managed care capitation rates for actuarial soundness.

Comment: One commenter encourages CMS to require additional transparency and a model-based approach for the development of the underwriting gain assumption in capitation rate development which will support the financial stability of managed Medicaid programs.

Response: A model-based approach for the development of the underwriting gain assumption is not required by regulation nor is it required for CMS to perform its rate review for actuarial soundness. We believe Section I.5.B of the Guide, which requires rate certifications to describe the development of the projected non-benefit costs included in the capitation rates, is appropriate and reflects our current regulatory requirements at 42 CFR § 438.7(b)(3). As such, we decline to add this information to the Guide.

Comment: One commenter supports the applicability of actuarial soundness standards to Dual Eligible Special Needs Plans (D-SNPs).

Response: Thank you. The Guide does not require any changes in response to this comment as Section I.1.A.iii.c.i. includes language indicating rate certifications must identify when D-SNPs are under contract with a State Medicaid agency. The Guide also notes as discussed in the preamble of the Final Rule for the Medicare Program: Contract Year 2023 Policy and Technical Changes to the Medicare Advantage and Medicare Prescription Drug Benefit Programs (87 FR 27704), capitation rates developed for Medicaid managed care contracts between a State Medicaid agency and a D-SNP must meet Medicaid managed care actuarial soundness requirements under 42 CFR § 438.4.

Comment: One commenter urges CMS to clarify that retroactive rate adjustments are permitted only in the case of significant data errors or other omissions related to program changes.

Response: CMS declines to make any changes to the Guide as Section I.1.A.iii.c.vi. appropriately reflects federal requirements in accordance with 42 CFR § 438.7(c)(2) when the actuary is certifying rates. The state’s actuaries must describe the rationale for the adjustment; the data, assumptions and methodologies used to develop the magnitude of the adjustment; describe whether the state is adjusting rates by a de minimis amount; and account for all differences from the most recently certified rates. Section I.1.A.ix.c of the Guide reflects the criteria for adjusting rates when the actuary is certifying rate ranges and incorporates all pertinent requirements at 42 CFR § 438.4(c). We believe the documentation requirements currently reflected in the Guide provide CMS with sufficient information to evaluate actuarial soundness of the capitation payments and decline to include any additional requirements.

Comment: One commenter supports language in the Guide that specifies a rate certification relating to a range of capitation rates per rate cell must document the criteria for paying MCOs at different points within the range.

Response: Thank you. The Guide does not require any changes in response to this comment as Section I.A.viii.d includes language incorporating 42 CFR § 438.4(c) indicating that states may develop and certify a range of capitation rates per rate cell as actuarially sound when all pertinent conditions are met including that the rate certification documents the state’s criteria for paying MCOs, PIHPs and PAHPs at different points within the rate range.

Comment: One commenter supports the requirement to publish the upper and lower bounds of each rate cell on the state’s website when a state certifies a range of capitation rates.

Response: Thank you. The Guide does not require any changes in response to this comment as Section 1.A.ix.d. includes language incorporating 42 CFR § 438.10(c)(3) indicating the items a state must post on their website prior to executing a managed care contract or contract amendment that includes or modifies a rate range including the upper and lower bounds of each rate cell.

Comment: One commenter appreciates that CMS will require state actuaries to describe their evaluations and rationale for assumptions relating to the resumption of Medicaid eligibility determinations.

Response: Thank you. The Guide does not require any changes as Section I.1.B.x. details our documentation expectations for how states and their actuaries must describe in their rate certification the approach to address the impact of the COVID-19 public health emergency and related unwinding/Medicaid redeterminations to ensure the rates are actuarially sound in accordance with 42 CFR § 438.4.

Comment: One commenter recommends that CMS provide more detailed guidance on its specific expectations for descriptions of assumptions related to unwinding/Medicaid redeterminations, given the unprecedented effort to redetermine Medicaid eligibility that will be unfolding over the coming year, including potential impacts on Medicaid risk pools.

Response: CMS believes the current documentation requirements in the Guide are sufficient. Section I.1.B.x. of the Guide indicates the documentation in the rate certification related to unwinding/Medicaid redeterminations must include (but is not limited to) a detailed description of state specific, and/or other applicable national or regional data and information that is available and applicable for determining how to address the COVID-19 public health emergency and related unwinding in rate setting; a description of how the capitation rates account for the direct and indirect impacts of the COVID-19 public health emergency and related unwinding, including but not limited to changes in acuity of the covered population due to enrollment changes, changes in utilization of services, COVID-19 testing, new treatments and vaccines, deferred care, expanded coverage of telehealth, etc. CMS expects that the resumption of Medicaid eligibility determinations impacts on Medicaid managed care capitation rates will vary across both states and programs and thus CMS would like to ensure that states and their actuaries retain the ability to evaluate and determine the approach that is most appropriate for their program(s). We believe the documentation requirements currently reflected in the Guide provide CMS with sufficient information to evaluate actuarial soundness of the capitation payments and decline to include any additional requirements.

Comment: One commenter recommends that CMS advise states to make prospective rate adjustments to capture the estimated impact of Medicaid redeterminations over the coming year instead of implementing or continuing two-sided risk mitigation strategies for the period of time following the end of the public health emergency until enrollment is expected to stabilize.

Response: CMS declines to adopt this recommendation as we believe the Guide appropriately reflects that states have the option to implement or continue two-sided risk mitigation strategies for the period of time following the end of the public health emergency. We believe Section I.1.A.xii and Section I.4.C.ii appropriately incorporate 42 CFR § 438.6(b)(1) with regard to risk sharing mechanisms and provide CMS with sufficient information to evaluate the actuarial soundness of the certified capitation rates. Additionally, Section I.1.A.xii addresses rate setting considerations for the COVID-19 public health emergency and unwinding (such as when the continuous enrollment condition ends as part of the Consolidated Appropriations Act, 2023). CMS has no regulatory requirements for including the additional guidance recommended.

Comment: One commenter recommends for states that decide to implement risk corridors, that the rate setting process in the Guide ensure that such corridors are developed and applied symmetrically, prospectively, and with bands wide enough (at least plus or minus 3% around the risk corridor midpoint) to encourage MCO efficiency. In addition, such corridors should use metrics that mirror the state’s existing MLR requirements so as to simplify reporting and preserve the equitability of the risk sharing arrangement.

Response: CMS declines to adopt this recommendation as we believe the Guide appropriately reflects all requirements found in federal regulation related to risk mitigation arrangements. Section I.4.C.ii of the Guide requires rate certifications to include a description of any risk-sharing arrangements including a rationale, a detailed description of how it is implemented, a description of any effect it may have on the development of the capitation rates, and documentation demonstrating that it has been developed in accordance with generally accepted actuarial principles and practices. There are additional documentation requirements in the Guide for risk-sharing mechanisms with a remittance/payment requirement and reinsurance requirements. We believe the current documentation requirements in the Guide appropriately incorporate 42 CFR § 438.6(b)(1) and provide CMS with sufficient information to evaluate the actuarial soundness of the certified capitation rates.

Comment: One commenter recommends that CMS add uncertainty regarding the acuity of the population due to the resumption of Medicaid eligibility redeterminations as an example of when an acuity adjustment should be considered. The commenter believes we should explicitly list this as an appropriate trigger for retroactive acuity adjustments.

Response: Sections I.7.A and B of the Guide describe the rate development standards and documentation expectations for acuity adjustments consistent with 42 CFR § 438.5(f). We note that the examples currently provided in Section I.7.A.i.b. are not meant to be exhaustive but rather illustrative of what types of situations may warrant a retroactive acuity adjustment. We do recognize that it may be helpful to states and actuaries to reiterate our commitment that prospective or retrospective acuity adjustments are appropriate for unwinding related to the COVID-19 public health emergency, such as when the continuous enrollment condition ends as part of the Consolidated Appropriations Act, 2023. Therefore, we have added this example to Section I.7.A.i.b of the Guide. We do not believe this edit to the Guide impacts the estimated burden of the Guide; therefore, there are no changes to the burden hours.

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