Kaiser Family Foundation Survey on State Medicaid Managed Care ...

Figure 4Capitation Rate-Setting Approaches(35 states responding)Administrative rate-setting(using actuaries)NegotiationNumber of states using approach:1127Most states (23) reported using only onemethodology to set capitation rates, butseveral others combined multiplemethods, including two states (Delawareand Nevada) that reported using all fourapproaches over time. Of the 11 statesthat reported negotiating rates, only Utahused this approach alone.Competitive bid within actuariallydetermined rangesCompetitive bidNote: 36 states contract with MCOs.SOURCE: KCMU/HMA <strong>Survey</strong> of Medicaid Managed Care, September 2011.510Most states risk-adjust their capitationrates for age and eligibility category, andabout two-thirds adjust for health status.Capitation rates are intended to reflect theaverage monthly cost associated withproviding a defined set of covered servicesto an enrolled population. Becausemonthly costs are known to vary significantly based on age, gender, and other variables, states generallyadjust capitation rates by a number of factors so that the amount paid to an MCO more closely reflectsthe plan’s actual average monthly cost to serve its actual enrollees. Among the 34 states that providedinformation on their rate-setting factors, the most commonly cited rate cell adjustment factors were age(31 states) and Medicaid eligibility category (28 states), followed by geography (27 states), gender (26states), and health status (22 states) (Table 5).States that risk-adjust MCO capitation rates for healthstatus use various risk-adjustment and/or predictivemodeling software systems. The 22 states that reportedadjusting their MCO capitation rates for health status use anumber of different programs that have been developed forthis purpose. The systems used by more than one state arethe Chronic Illness and Disability Payment System or CDPS(13 states), Medicaid Rx (four states), and Adjusted ClinicalGroups or ACGs (three states).Table 5: Rate-Setting Factors Used by States(34 states responding)FactorNo. of states usingAge 31Eligibility category 28Geography 27Gender 26Health status 22Most states with MCOs reported that they use encounter data in setting capitation rates. Twenty-eightstates (of 34 responding) said that they use encounter data for rate-setting or related purposes,including some that use the data for risk-adjustment or risk-sharing reconciliations.Half the states with MCOs have risk-sharing arrangements with their plans. Separate from the riskadjustmentmethods that most states use in rate-setting, some also have one or more risk-sharingarrangements with health plans, primarily to encourage MCO participation in Medicaid by mitigatingtheir downside financial exposure. Of the 36 states with MCOs, 18 reported that they have sucharrangements; most prevalent are commercial or state-sponsored stop-loss/reinsurance, risk corridors,and condition-specific risk-sharing arrangements. Stop-loss/reinsurance limits an MCO’s losses in22 00