Grappling with Rates

January 1, 2006

On a national level, the Medicaid population has grown by 11 million since 1996 and has increasingly spread into managed care. Ten years ago, 40.1% of the 33 million Medicaid enrollees were covered by managed care plans, and as of June 2004, 60.6% of 44 million enrollees were covered by managed care, according to the Centers for Medicare and Medicaid Services.

On a national level, the Medicaid population has grown by 11 million since 1996 and has increasingly spread into managed care. Ten years ago, 40.1% of the 33 million Medicaid enrollees were covered by managed care plans, and as of June 2004, 60.6% of 44 million enrollees were covered by managed care, according to the Centers for Medicare and Medicaid Services.

iCare's members are residents of Milwaukee County who qualify for the federal Supplemental Security Income (SSI) cash assistance program, often referred to in the past as "disability welfare." Approximately 17% of Americans covered by Medicaid qualify for SSI because of physical disability, developmental disability, mental retardation or serious mental illness. According to Jerominski, the problem is that managed care is largely underutilized on a national basis for this costly population.

When the organization began in 1994 under a three-year federal grant, its purpose was to demonstrate the cost effectiveness of managed care for SSI individuals. A not-for-profit community organization and a licensed HMO joined together to form iCare and began the process of developing appropriate capitation rates.

"Analyzing the state's data to assess the utilization of this population is challenging," Jerominski says. "When the state of Wisconsin first met with iCare, they reported there were a lot of developmentally delayed individuals in the population who aren't very costly, so they thought the capitation rate should be about $300 PMPM. A week later, they believed there were more physical disabilities in the population, and said the rate should be $1,300 PMPM. That's a huge difference."

She says a trust issue between the state and iCare also came into play during negotiations because the state data needed to determine rates was not reliable. Eventually a risk-sharing program was developed. In the first year, a capitation payment of $575 PMPM was paid to iCare with a 2% risk sharing corridor. iCare agreed to share profits above 2%, and the state agreed to share losses greater than 2%. The plan saw consecutive losses the first few years. In 1997, the state of Wisconsin began to get uncomfortable with the financial exposure but continued contracting on a month-to-month basis.

Jerominski says pent up demand for the managed care SSI arrangement was significant, and the start-up costs certainly weighed the plan down initially. The state was willing to be patient but needed to determine the viability of the investment moving forward with little data to go on. Collectively, they developed a new arrangement that shifted the risk away from the state and onto iCare.