The end of the COVID-19 Public Health Emergency will result in a historic realignment of Medicaid funds and enrollees as state Medicaid programs shed beneficiaries they have previously been obligated to keep.
While a great deal of attention has been paid to how this will impact states and individual enrollees, there has been less discussion of how this will impact the managed care organizations which serve as the means of delivery for the majority of Medicaid coverage. The impact will be significant and could have repercussions for investors.
MCOs in Medicaid programs
First adopted in demonstration programs under federal waivers in the 1970s, managed care has become the primary model for the delivery of Medicaid benefits.
Under the risk-based managed care model, states pay health plans a per-member, per-month or capitation rate for the provision of a defined set of benefits and services to Medicaid beneficiaries. The MCO assumes the financial risk, although states may institute risk-corridors to limit plan losses.
A Kaiser Family Foundation analysis this year found that 40 states and the District of Columbia had contracts with managed care organizations for Medicaid delivery. And, according to the Medicaid and CHIP Payment Access Commission (MACPAC), Medicaid managed care now accounts for more than half of all federal and state Medicaid spending.
With a 15% market penetration, Centene characterizes itself as “the leader in Medicaid managed care.” The list of the top five in Medicaid MCOs is rounded out by Elevance (formerly Anthem), UnitedHealth, Molina, and CVS Health, which owns Aetna.
Maintenance of enrollment
The Families First Coronavirus Response (FFCRA) was the second major piece of legislation passed by Congress in response to the COVID-19 pandemic. Signed into law on March 18, 2020, FFCRA addressed issues ranging from unemployment insurance to payment for COVID-19 testing.
Key among its provisions was an increase in the Federal Medical Assistance Percentage (FMAP)—the rate at which the federal government matches individual state Medicaid expenditures. Calculated annually by HHS, FMAPs reflect a state’s per capita income compared to the U.S. per capita income. FMAPs have a statutory minimum of 50% and a statutory maximum of 83%.
Under FFCRA, each state was eligible for a 6.2 percentage point increase in its FMAP, if it met several conditions. Among these was the institution of policy of continuous enrollment for Medicaid beneficiaries. Under maintenance of enrollment (MOE) agreements, states could not remove individuals from Medicaid rolls until the end of the Public Health Emergency (PHE).
MOE stopped the “churn”—cycles of disenrollment and reenrollment—which characterizes Medicaid programs, and which has been found to increase both program costs and gaps in coverage. In non-pandemic times, states are required to review the eligibility of enrollees based on Modified Adjusted Gross Income (MAGI) annually. Under FFCRA, they are prohibited from doing so.
Pandemic growth
Each of the top five MCOs has seen an increase in Medicaid membership since 2020, as well as an increase in profits.
Anthem reported profits of $1.1 billion in the fourth quarter of 2021, driven by an increase in Medicaid enrollment. Centene described a year-over-year increase in revenues in the third quarter of this year as “driven by organic Medicaid growth, primarily due to the ongoing suspension of eligibility redeterminations.”
But the end of the PHE will mean a decline in Medicaid enrollment and the potential for an initial, if not lasting, decline in revenue.
Plan overlap
The Department of Health and Human Services has previously predicted that 15 million Medicaid and Children’s Health Insurance (CHIP) enrollees would leave Medicaid after the PHE. A study conducted by the Urban Institute and the Robert Wood Johnson Foundation puts the number at 18 million. Over half the disenrolled will leave because of a loss of eligibility.
It remains to be seen where the disenrolled will find health insurance coverage. Some current Medicaid enrollees will have the option of employer-sponsored health insurance through new or existing jobs. We can reasonably expect others to seek health insurance coverage through healthcare exchanges, especially considering enhanced federal subsidies for insurance premiums adopted during the pandemic
The American Rescue Plan increased exchange subsides for individuals between 100% and 400% of Federal Poverty Level (FPL) and expanded subsidies to those making over 400% of FPL. The Inflation Reduction Act extended these for an additional three years.
In theory many current Medicaid enrollees could find themselves moving to an employer sponsored or Marketplace plan managed by the same company managing their current Medicaid plan.
According to a brief by Assistant Secretary for Planning and Evaluation of HHS, “In 2021, 47 percent of all parent insurers offered a Marketplace plan and Medicaid plan in the same state, and there were 36 states with at least one of these parent insurers.” In New Mexico, for example, Centene operates a Medicaid program under the name Western Sky Community Care, while offering nearly identical coverage through the Marketplace as Ambetter.
In November, CMS Administrator Chiquita Brooks-LaSure noted that the agency was seeing a increase in both plan selections and new enrollees over 2021 open season. But, with the PHE still in effect, it is too early to attribute this increase to former Medicaid enrollees.
Economic implications
In listing “recession-proof business ideas for proactive investors” earlier this month, Forbes observed that “(p)ublicly traded… insurance companies deliver steady return in the form of dividends and stock value, no matter what is going on in the greater economy.” And many American investors own stock in insurance companies, whether through their individual investments or through mutual funds.
Vanguard is the major stockholder in both Centene and UnitedHealth with 11.3 percent and 8.46 stakes respectively. This means that declines in revenues from Medicaid have the potential to negatively impact pension funds and retirement accounts if they are not offset by gains in other markets.
The PHE is currently set to expire in January. However, given that the Biden administration has previously indicated that it will give 60-days notice before lifting the PHE and that no notice was given in November, it is reasonable to expect that the PHE will be renewed through mid-April.
But the rumblings of uncertainty are already being heard. On December 13, Bank of America downgraded Centene in anticipation of realignment in the insurance market at the end of the PHE.