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Texas Medicaid and CHIP Managed Care Final Comprehensive Report

This week, our In Focus section comes to us from Senior Consultant Ryan Mooney, reviewing the Texas Medicaid and Children’s Health Insurance Program (CHIP) Evaluation report. The 85th Legislature of the State of Texas required the Texas Health and Human Services Commission (HHSC) to report on its findings for Rider 61, Evaluation of Medicaid Managed Care (the Report). HHSC recently published the Report, which includes the following:

  1. Rider 61(a) – A review of the current Medicaid and Children’s Health Insurance Program (CHIP) managed care delivery system and an assessment of the performance of managed care;
  2. Rider 61(b) – An assessment of Medicaid and CHIP managed care contract review and oversight;
  3. Rider 61(c) – A study of Medicaid Managed Care rate setting processes and methodologies in other states; and
  4. Rider 61(d) – An analysis of MCO administrative costs, including a survey of each MCO to determine the nature and scale of administrative resources devoted to the Texas Medicaid and CHIP programs and the identification of cost reduction opportunities.

Overview of Texas Medicaid Managed Care

As of 2017, 92 percent of Texas Medicaid enrollees and all Children’s Health Insurance Program (CHIP) enrollees were enrolled in managed care. Currently, there are seven different Medicaid managed care programs in Texas, including specific programs for low-income individuals and families, elderly individuals, adults and children with disabilities, and foster children. STAR is the Texas Medicaid managed care program, through which most eligible Texans get their benefits. The program covers preventive, primary, acute, behavioral health and pharmacy services for pregnant women, newborns, children, and parents who meet income requirements. STAR+PLUS is a Texas Medicaid Managed Care program integrating the delivery of acute care services and long-term services and supports (LTSS) for people who are age 65 or older, blind, or disabled. STAR Kids is the Texas Medicaid managed care program that provides Medicaid benefits to children and adults 20 and younger who have disabilities.  STAR Health provides a full-range of Medicaid covered medical and behavioral health services for children in the Department of Family and Protective Services (DFPS) conservatorship and young adults in DFPS-paid placements.

Rider 61(a): A review of the current Medicaid and Children’s Health Insurance Program (CHIP) managed care delivery system and an assessment of the performance of managed care

Enrollment and Cost Increases

Between FY 2014 and FY 2017, Texas’ total Medicaid managed care enrollment increased by approximately 600,000 members while, over the same period, the aggregate per member per month (PMPM) costs increased by more than 10 percent annually. However, about 4.1 percent of that increase is tied to the implementation of the Dual-Eligible Integrated Care Demonstration Project (the “Dual Demonstration”) program in SFY 2015 and the STAR Kids program in SFY 2017.  After accounting for other service expansions, program changes, administrative expense changes, and population shifting from SFY 2009 to SFY 2017, the managed care program PMPM cost trended at 2.1 percent, slightly higher than the annualized Medicaid PMPM cost trend rate of 1.8 percent from the CMS National Health Expenditure (NHE) Report for Medicaid.

Quality Improvement

Of 19 unique measures that were analyzed, Texas MCOs’ HEDIS® results were above the national benchmark (national Medicaid 50th percentile and other comparable states’ 50th percentile) for nine measures and below the national benchmark for ten measures.


The report compared states’ access requirements and analyzed Texas’s methodology to determine if it was similar to the methodologies used by other states. The analysis concluded that Texas’s methodology was similar. The STAR, STAR+PLUS, and CHIP programs saw improvement in appointment availability metrics from 2015 to 2016, but one area of low compliance was OB/GYN appointment availability in the STAR program, with compliance rates below 50 percent for third trimester and for High-Risk OB/GYN appointments.

Consumer Assessment of Healthcare Providers and Systems (CAHPS)

Texas MCOs experienced improvements across all consumer satisfaction composite measures that HHSC reviewed.  The Report also compared Texas’s CAHPS® results to the national Medicaid 50th percentile and found that Texas MCOs scored lower than the national benchmark for four out of the five CAHPS® composite measures that HHSC reviewed.

Estimated MCO Savings

HHSC noted that during transition years, or managed care expansion years, the assumed acute service and prescription drug benefit managed care savings gained from shifting from FFS to managed care built into the premium was at least budget neutral, and possibly greater than any additional costs associated only under a managed care program.  HHSC reviewed cost savings by program, risk group, and medical and pharmacy costs and found that expanding managed care in the Texas Medicaid and CHIP programs between FY2009 and FY2017 has resulted in cost savings ranging from approximately $5.3 billion to $13.9 billion, or 4.7 percent to 11.5 percent, of the previous FFS model.

Rider 61(b): An assessment of Medicaid and CHIP managed care contract review and oversight

The findings of Rider 61(b) included new activities that HHSC may wish to implement to improve the oversight function. These opportunities fall into five broad categories:

  • Increase efficiency and automation of processes, making them less time and/or labor-consuming;
  • Share information across organizational units to strengthen oversight efforts using information that already exists;
  • Improve data integration by merging existing data sources or pulling in additional data sources to offer HHSC more insights on addressing certain oversight functions;
  • Improve the effectiveness of priority functions, such as strengthening key oversight efforts; and
  • Increase transparency of relevant information, which would provide more information to policy makers and consumers.

Rider 61(c): A study of Medicaid Managed Care rate setting processes and methodologies in other states

Managed Care Rate Setting Methodology

The approach utilized by Texas and its consulting actuary to select and develop base data for rate setting is consistent with most of the states that were reviewed. Key similarities between Texas’s approach and those utilized by other states include referencing different data sources to verify the most complete and accurate data is used to set the managed care capitation rates and utilizing a one-year period for base data.  Texas’s trend rate assumption development is also similar to other states in its use of state-specific historical data, a method preferred by CMS and an approach which Texas has been using for many years.  Texas currently incorporates incentive arrangements, efficiency adjustments, and quality programs in a similar manner as the other states reviewed.

CMS Medicaid Managed Care rate setting guidance states that “the development of the non-benefit component of the rate must include reasonable, appropriate, and attainable expenses related to MCO administration, taxes, licensing and regulatory fees, contribution to reserves, risk margin, and cost of capital.” The approach utilized by Texas to develop nonmedical expense loads is consistent with the other states reviewed.  The annual update of Chronic Illness and Disability Payment System (CDPS+Rx) risk scores used in the Texas’s rate development process is a similar risk-adjustment approach utilized by many other states. Other common risk-sharing methods used by other states to stabilize premium payments to MCOs against unexpected high costs include high-cost risk pools, risk corridors, and reinsurance. Finally, Texas has been certifying specific rates for each rate cell rather than rate ranges, putting it ahead of many states which are now adjusting their approaches to comply with the new federal managed care regulations.

MCO Selection

Texas currently contracts with MCOs based on competitive bidding with a technical component.  HHSC’s review of MCO selection across other states identified five considerations when reviewing the states utilizing competitive bidding processes: 1) Number of MCOs; 2) Published Rate Range; 3) Adjustments to Submitted Bids; 4) Procurement and Ongoing Administrative Costs; and 5) Cost Savings.

Rider 61(d): An analysis of MCO administrative costs, including a survey of each MCO to determine the nature and scale of administrative resources devoted to the Texas Medicaid and CHIP programs and the identification of cost reduction opportunities

HHSC conducted an analysis of MCO administrative costs, including a survey to understand the nature and scale of administrative expenditures and resources of the State of Texas’s Medicaid and CHIP MCOs, to help identify potential savings and efficiencies that may be achieved.  The Report examines recently available administrative expenditure data from MCOs, including annual Financial Statistical Reports (FSRs) and other MCO financial data provided to HHSC. While the STAR and STAR+PLUS programs have the highest administrative expenditures in total dollars, the STAR Kids program in its first year is the most expensive on a PMPM basis.  While the new MLR standard of 85 percent will put increased pressure on MCOs to limit administrative expenditures, most already exceed the threshold (and on average, all of Texas’s Medicaid Managed Care programs are above 85 percent MLR in SFY 2016 and SFY 2017).

The surveys showed that approximately 70 percent of MCO staff are employed in Texas, most of corporate allocations expenditures are for salary and other compensation, claims processing (non-capitated) and behavioral health services (capitated) are the most common outsourced services, and approximately three percent of total administrative expenditures were indicated as the result of Texas reporting requirements. In the survey, one of the most popular suggestions from MCOs involved potentially reducing the overall administrative expenses for the Texas Medicaid and CHIP programs through changing the State’s reporting requirements. While the MCOs reported that less than 5 percent of total administrative expenses are attributable to HHSC reporting requirements as defined by the UMCM, there was variation by MCO with several low and high-cost outliers. For more information, contact Ryan Mooney at [email protected].

Link to Report