Medicaid plans have found success in ACA exchanges. A new study highlights why

A new study found that Medicaid managed care insurers’ business models are the reason their plans have become a dominant force in the Affordable Care Act’s (ACA's) insurance exchanges.

The study, from think tank Urban Institute and the Robert Wood Johnson Foundation, examined why Medicaid insurers have expanded their footprint in ACA exchanges in recent years.

This year, Medicaid plans offered ACA coverage in 255 out of 502 rating regions.

“Prior research indicates that the presence of a Medicaid insurer in the marketplace tends to be associated with lower premiums and smaller premium increases,” the analysis said.

Researchers spoke with stakeholders in six states with one or more Medicaid insurers in 2020, including state departments of insurance, hospital associations, primary care provider associations and consumer advocates.

The study found that Medicaid managed care plans’ business model was a key reason for their success in the marketplaces.

“Many Medicaid insurers have built their marketplace business on preexisting relationships with providers serving their Medicaid managed-care enrollees,” the study said.

Many of the stakeholders found that Medicaid insurers have an advantage because they can bring Medicaid volume to a provider contract in addition to ACA business.

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On the other hand, providers can negotiate the joint Medicaid and ACA contracts to their advantage, the study said.

Managed care plans also tend to have lower administrative costs than commercial plans.

“Commercial insurers must spend resources developing plan designs and tend to have larger marketing budgets,” the study said. “Medicaid insurers spend less on actuaries and developing alternative plan designs, which are not required in Medicaid managed care.”

But a leaner administrative base could mean Medicaid insurers lack the infrastructure to handle the “influx of covered lives and new systems involved in marketplace participation," the study said.

Medicaid managed care plans also had much stricter health utilization measures than their commercial plans. Several stakeholders said that Medicaid insurers were more likely to have stricter prior authorization and step therapy requirements employed to control drug costs.

A New York stakeholder told researchers that they see more denials from Medicaid insurers and that commercial plans have also gotten stricter to keep up with Medicaid plan policies.

The study also highlighted that skepticism over Medicaid plans’ participation in ACA exchanges has dissipated since the exchanges went online in 2014.

When the marketplaces started, there were concerns that managed care plans could lack the infrastructure and experience to serve a new consumer market, and their networks could be too narrow.

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But stakeholders told researchers those concerns have not become a reality.

Most stakeholders also agreed that Medicaid managed care plans haven’t caused commercial plans to drop out or scale back participation.

One of the insurance brokers researchers talked to noticed that two new insurers joined the marketplace this year despite the prevalence of Molina’s managed care plan.

“The stakeholders interviewed like having Medicaid insurers in their markets but understand that robust participation might be impossible for many of them,” the study said. “One state-based marketplace official explained that it can be daunting for these plans, whose core business is in the Medicaid program, to pour resources into doing a small amount of business in the individual market.”