On September 30, 2024, the Centers for Medicare & Medicaid Services (CMS) released its most recent Medicaid technical assistance toolkit related to the medical loss ratio (MLR) reporting. CMS developed this toolkit as part of its commitment to strengthening the monitoring and oversight of Medicaid and Children’s Health Insurance Program (CHIP) managed care programs. CMS continues to develop a series of reporting templates and technical assistance toolkits to engage and collaborate with states on the implementation of these tools.
Relevant Rule Background
Capitation rates are required to be developed based on managed care plans (MCPs) achieving a federal minimum MLR of 85 percent. MCPs meet this minimum by spending capitation dollars on clinical services and quality improvements. In order to bring consistency and standardization across all health insurance markets and to promote fiscal stewardship, administrative efficiency, and comparability across states and markets, CMS requires that a MLR for MCPs be calculated and reported based on 42 Code of Federal Regulations (CFR) § 438.8.
CMS regulations at 42 CFR § 438.74(a) require that states must submit, with their annual rate certification required in 42 CFR § 438.7, a summary description of the MLR report(s) received from the MCPs under contract with the state and be used in the development of actuarially sound rates.
Download the Medicaid Managed Care Medical Loss Ratio (MLR) Toolkit one sheet.
Medicaid MLR Toolkit Focus Areas
This toolkit offers guidance/approaches/tools for the following primary areas to assist states with applying oversight to improve the completeness and accuracy of MLR reporting.
- Introduction and purpose:
- Including the importance of the MLR as a key measure of MCP financial performance as well as the state’s responsibility to conduct or contract to conduct an audit of the MLR information as required under 42 CFR § 438.602(e).
- MLR data collection:
- Including a template that defines requirements for MLR data collection and helps states ensure complete and accurate MLR reporting from MCPs.
- MLR data validation:
- Including steps and methods to assist states with validating MLR data reported by their MCPs, such as comparing MLR data to audited financial statements, reviewing trends in MCP MLR reporting, and comparing statistics across MCPs in a program.
- Making use of validated MLR information:
- Including financial performance, capitation rate setting, additional analyses of MCP operations or policies, determining if MCPs owe remittances, and contract re-procurement.
- MLR reporting guidance for key areas:
- Including specific guidance on non-claims costs, enhanced expense allocation reporting, reinsurance arrangements, utilization management expenses, health-related social needs, incentives, and taxes/community benefit expenditures.
- Staffing and organization considerations:
- Including state Medicaid agency staffing and organization considerations, and incorporating the use of contractors, if needed. The MLR audits as required under 42 CFR 438.602(e) are typically conducted by certified public accountants.
- Using the CMS technical resource for plan-to-state MLR reporting:
- Including utilization by states in the review and potential revisions of existing MLR reporting templates and instructions.
Periodic Audit Requirement – Financial Data
Per 42 CFR § 438.602(e), states must periodically, but no less frequently than once every three years, conduct an independent audit of the accuracy, truthfulness, and completeness of the encounter and financial data submitted by, or on behalf of, each MCP.
CMS expects states to develop processes to independently audit managed care plans’ “financial data” and confirmed that conducting an audit of the MLR, as well as an audit of the administrative expense used in rate setting is one way that states would satisfy the periodic audit requirement under 42 CFR § 438.602(e). The MLR toolkit confirms MLR information is included as financial data that should be included in the independent audit.
The toolkit outlines several non-claims costs reporting approaches as it relates to MLR reporting. The toolkit discusses the importance of proper reporting by MCPs of non-claims costs, indicating that states cannot effectively verify that non-claims costs are properly excluded from the MLR numerator when MCPs fail to report non-claims costs on the MLR. However, non-claims costs may differ from allowable administrative expenses based on state contractual requirements for reporting and rate setting.
Next Steps
Myers and Stauffer is currently performing MLR examinations and administrative expense testing for more than 20 Medicaid programs. We are available to perform these examinations to assist states in compliance with 42 CFR § 438.602(e). We are also available to help states in adopting CMS guidance and tools included in the MLR toolkit to improve states’ financial oversight of the MLR. This may include assistance with recommendations for financial data reporting templates, instructional guidance, and contract language revisions to improve the completeness and accuracy of MCP-reported MLR data.
For More Information
Should you have further questions or wish to discuss the toolkit in more detail, please reach out to us.