New Medicaid Report Finds Health Reform Law Insurer Fee Costly to States

Tax Will Cost State Medicaid Programs $38.4 Billion Over Ten Years

WASHINGTON, Feb. 1, 2012 /PRNewswire-USNewswire/ -- A new report from actuarial consulting firm Milliman, Inc. shows a provision of the health reform law intended to tax health insurance companies to help fund coverage expansions, will be paid entirely by state Medicaid programs for the portion assessed to Medicaid managed care organizations.

The report, "PPACA Health Insurer Fee: Estimated Impact on State Medicaid Programs and Medicaid Health Plans," commissioned by Medicaid Health Plans of America (MHPA), concludes the cost to states is greater than previously thought, with one-sixth of the total fee being paid by Medicaid health plans. According to the report, that fee, along with additional taxes paid due to the non-deductibility of the fee, will be entirely passed along to state Medicaid programs, costing $38.4 billion over the ten year period 2014-2023 according to conservative moderate growth scenarios. This will cost the states themselves about $13.6 billion and the federal government about $24.8 billion due to the state-federal Medicaid matching formula.  

"It is clear from this report that the states will be the ones who will feel the pain of this unintended and misguided policy," said Thomas L. Johnson, president and CEO of MHPA. "There seemed to be confusion and uncertainty about whether this fee applied to Medicaid health plans when it was originally considered by Congress, and they certainly didn't think about the implications of this tax within Medicaid. This report makes a strong case that Medicaid and CHIP should not have been included in this fee."  

The Balanced Budget Act of 1997 and implementing regulations require Medicaid managed care payment rates to be actuarially sound, inclusive of medical costs, administrative costs, taxes and fees. According to the authors, "The PPACA health insurer fee is a cost that must be treated in a manner consistent with how premium taxes or other fees and assessments are now treated." This means that due to federal law and rules, the fee must be paid by the state and federal governments through higher payments provided to plans, and results in the federal government taxing states and itself.   

"As we suspected all along, this report shows that applying the health insurer fee to Medicaid health plans will raise the cost platform in state Medicaid programs significantly," said Johnson. "This will further exacerbate the fiscal problems in the states with Medicaid funding, forcing states to make further cuts to providers like mental health professionals and physicians, and jeopardizing services for poor children, pregnant women, the elderly and disabled by cutting eligibility and benefits." 

Milliman, Inc. is a leading actuarial firm in the country, setting Medicaid managed care payment rates in 15 states with Medicaid managed care programs. MHPA went directly to the source to analyze the effect of the fee. States are required to get an independent actuarial certification of payment rates to ensure they are adequate and comply with federal rules. Milliman and other actuarial firms with which states contract will be tasked with accounting for the fee when it goes into effect in 2014.

About MHPA
Medicaid Health Plans of America (MHPA) is the leading trade association solely focused on representing Medicaid health plans. MHPA provides advocacy, research and organized forums that support the development of policy solutions to enhance the delivery of quality health care. For more information, visit Medicaid Health Plans of America at or email at [email protected].

Contact: Joe Reblando; [email protected]
(202) 857-5722

SOURCE Medicaid Health Plans of America