Medicaid insurers facing more losses

Firms call latest state rate hike inadequate

The insurance plans serving Massachusetts Medicaid patients are rated the best in the country in terms of care, but they are losing lots of money and say rates for the coming year are half as much as they need just to break even.

Industry officials say the plans are expected to lose a total of $150 million during the fiscal year that ends Wednesday and losses will continue to mount in the coming year with a 3.7 percent rate increase approved by the state. Officials say some of the plans may appeal the rate decision, while others are nearing insolvency and may be unable to survive.

“If this course is not corrected, it will be very difficult for some of the plans to continue operating going forward,” said Lora Pellegrini, president and CEO of the Massachusetts Association of Health Plans.

The insurance plans operate like traditional health insurers except all of their clients come from the state’s Medicaid program, which serves the poor and elderly. The plans are also paid rates set largely by the state, which splits the cost of care with the federal government. The insurance plans can reject the rates offered by the state and pull out of the Medicaid business, but none have done so.

“We are pleased that all of our plans have recently signed contracts for our new managed care organization rates, which include a 3.7 percent increase over last year’s rates to help meet their financial needs,” said Julie Kaviar, a state spokesman, in a statement.

The 3.7 percent increase is an average, so some plans will receive more and some less. The rate is also adjusted to reflect the risks associated with each individual plan’s patient base and includes for the first time what’s being called a risk corridor. A risk corridor caps how much money a plan can lose serving its members.

State officials say privately that the Medicaid insurance plans are losing money because they have failed to live within the rates they agreed to, but the plans say they are being forced to absorb totally unexpected costs.

One such cost is Sovaldi, a drug for hepatitis C that came on the market last December and costs $1,000 a pill, or $84,000 for a typical 12-week course of treatment. The plans say losses due to Sovaldi in the current fiscal year will total $60 to $70 million. Many of the plans are now taking their case to the Legislature, seeking a special appropriation to cover all or a portion of their Sovaldi costs.

Officials at the plans say they also have been inundated with Medicaid clients who don’t fit expected risk profiles, meaning they are far more costly to care for than expected. Insurance officials suspect many of their clients were improperly classified by the state because of chaos associated with the breakdown of the Massachusetts Health Connector, the state’s health insurance website.

For example, officials at several different plans said their costs rose in part because of an unexpected increase in the number of women giving birth. Network Health, a division of Tufts Health Plan, said it had 48 deliveries in the first quarter of 2013 and 249 in the corresponding period in 2014. Some of those births in 2014 had complications, which increased costs even more.

“We’re left insuring a population with rates that don’t reflect the nature of that population,” said Christopher “Kit” Gorton, the head of Medicaid/state-sponsored programs at Tufts Health Plan.

Ray Howell, a spokesman for Neighborhood Health Plan, a division of Partners HealthCare, declined comment. “NHP is engaged in a process with the state to solve the underfunding problem and doesn’t want to comment while that process is under way,” he said.

The Medicaid insurance plans have relatively few options financially. If state rates don’t keep pace with expenditures, the only alternative for a plan is to cut costs, either by eliminating waste within the organization or by paying health providers less. BMC HealthNet, an affiliate of Boston Medical Center, is currently trying to convince Bay State Health in Springfield to accept millions of dollars less for serving some 50,000 HealthNet members.

Kevin Klein, chief marketing and sales officer for BMC HealthNet, confirmed the negotiations with Bay State Health are an outgrowth of the inadequate rates BMC HealthNet is receiving from the state. He said the plan needed rates in the 8 percent range for the coming year to cover its costs. “We will be incurring significant losses, even more than 2014,” he said.

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Bruce Mohl

Editor, CommonWealth

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

Klein said the losses are likely to trigger closer monitoring by the state Division of Insurance to ensure that the plan remains solvent.

Four of the state’s six Medicaid insurance plans were rated tops in the country recently by the National Committee for Quality Insurance. The four, in order, are Network Health; Fallon Health, a division of Fallon Community Health Plan; Neighborhood Health Plan; and BMC HealthNet.