State agrees to help Medicaid companies shoulder huge losses

State leaders have agreed to help private Medicaid management companies shoulder huge losses they’ve suffered in covering more than 500,000 poor or disabled Iowans, documents released Friday show.

The three national companies have complained about “catastrophic” losses on the Iowa project, which started last April. They have pleaded for the government to help them make up for about $450 million in red ink.

Department of Human Services leaders signed contract amendments in February, under which the government agreed to shoulder losses beyond a certain point, the newly disclosed memos show.

The documents were released Friday afternoon in response to a Des Moines Register open-records request made Jan. 12. A previous Register open-records request led to the December disclosure that the companies were complaining of severe losses and demanding higher rates for a “severely underfunded” system, despite Gov. Terry Branstad’s public assurances the project was going well.

State Sen. Liz Mathis, a leading critic of the shift to private Medicaid management, was startled to learn from the Register Friday that the department had agreed to help shoulder the managed-care companies’ losses.

“This is a shock,” she said. “Where are we going to get the money?”

The state is already in a deep budget crunch. Department of Human Services spokeswoman Amy McCoy said Friday the agreements are expected to cost the state roughly $10 million, which would be paid more than a year from now. She said the federal government would also contribute.

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The documents released Friday also show one of the companies, AmeriHealth Caritas, sought permission in February to stop taking new members. AmeriHealth, which wound up with the largest share of Medicaid recipients with serious disabilities, also asked state human services to reassign some of them to the other two companies, Amerigroup and UnitedHealthcare.

“This letter serves as notice that we are beyond the capacity of risk our rates allow us to absorb,” AmeriHealth’s Iowa president, Cheryl Harding, wrote to Iowa Medicaid Director Mikki Stier Feb. 15.

Stier turned down both of Harding’s requests, the memos show. She wrote that her department has no authority to reassign disabled members to different managed-care companies. She also wrote that AmeriHealth did not demonstrate a legal need to stop accepting new members.

The state's pledge to help cover the companies' losses is contained in “risk-corridor agreements," which were included in February amendments to the companies' contracts with Iowa's Medicaid program. Those agreements are complicated arrangements under which the government agency agrees to shoulder the management companies’ financial losses if they grow beyond a certain point. McCoy said federal officials, who pay more than half of Iowa’s Medicaid costs, have signed off on the contract amendments.

The risk-corridor agreements are to run through this June. They would affect payments the management companies receive for covering care for about 150,000 poor Iowa adults on the Iowa Health and Wellness Plan, which is Iowa’s version of an expanded Medicaid program. The managed care companies have complained that many of those people, who previously were uninsured, are using more health care than predicted. The risk-corridor agreements also would affect payments the management companies receive for care of 57,000 seriously disabled Medicaid members, who tend to need extensive services.

Under the risk-corridor agreements, the Department of Human Services would cover 100 percent of financial losses for the Medicaid expansion population if the management companies spend at least 94 percent of their income on services for the recipients. For the Medicaid recipients with serious disabilities, the state agreed to cover 100 percent of losses if costs are between 8 percent and 12.5 percent more than expected.

The risk-corridor arrangements also say the companies would have to refund money to the state if they make more than a certain amount of profit, although that is unlikely to come into play during this budget year.

Mathis, a Robins Democrat who is her party’s top-ranked member on the Senate committee overseeing the Department of Human Services, said she had not been told of the contract amendments, which were signed last month.

Mathis said Branstad, who is a Republican, should speak frankly about how he intends to address the privatized Medicaid program’s problems, including widespread complaints that the management companies are failing to pay service providers properly. She said that every time there’s a new piece of troubling news about the program, “he puts out a media release saying everything’s hunky-dory, and it’s not. … It’s almost like he’s in denial.”

Branstad has contended the shift to private management of Medicaid will save the state more than $118 million this year, by providing more efficient and effective care. Branstad's spokesman did not respond to a request for comment Friday afternoon.

Rep. David Heaton, a Mount Pleasant Republican who helps oversee Medicaid spending, said Friday that he had not been informed about the Branstad administration’s agreement to help the managed-care companies shoulder their financial losses. Heaton is the longtime co-chairman of the joint House and Senate subcommittee that works out budgets for health-care programs.

Heaton said “it would have been comforting to me,” to be told about the arrangements before now, but he understands why the agreements could be a good idea. He hopes they could bring in substantially more federal money to help the managed-care companies do a better job of paying bills from the many community agencies providing crucial services to Iowa's Medicaid members. “Some of them can hardly make payroll at the rate things are going,” he said of the agencies.

Heaton said he expects more details to come next week, when Branstad’s office releases proposals to deal with the state’s worsening budget problems. The situation is so dire that legislators plan to dip into the state’s reserves to cover a $131 million gap in the current fiscal year’s budget before tackling the next fiscal year’s budget.

McCoy, the human-services department spokeswoman, said the state’s share of the risk-corridor payments would come out of the fiscal year 2019 budget, which takes effect on July 1, 2018.  McCoy noted that the risk-corridor agreements do not include increases in rates paid to the management companies for the current budget year.

"We remain confident in our rates and a risk corridor provides an extra level of protection for taxpayers," she wrote in an email to the Register.

Negotiations are to begin in April for rates to be paid to the Medicaid management companies for the budget year that begins July 1. The companies are expected to seek sharp increases in their payments from Iowa's Medicaid program. If they succeed, their new contracts could further pinch the state budget.

Spokespeople for the three management companies either declined comment or did not respond to requests for it Friday afternoon.