MDHHS, Milliman explain Medicaid capitation rate process as department seeks midyear adjustments

The Michigan Department of Health and Human Services and Milliman told the House Appropriations Committee how Medicaid managed‑care capitation rates are developed, why base data are lagged, and what triggers midyear rate amendments as the department pursues supplemental adjustments to close fiscal‑year gaps.

Amy Eppke, senior deputy director of financial operations at MDHHS, said the department is committed to maintaining access to care while setting actuarially sound managed care rates. She told the committee that the department’s supplemental request for health plan services includes a $55,000,000 adjustment needed to close out fiscal year 2024 and to align rates for fiscal year 2025. MDHHS emphasized that capitation rates must follow federal rules and be certified by a qualified actuary and reviewed by the Centers for Medicare & Medicaid Services (CMS).

Jeremy Cunningham and Chris Pettit of Milliman, the department’s actuarial contractor, walked the committee through the technical steps of capitation rate development. Key points they described: • Base data period and timing: certified capitation‑rate development typically uses a completed 12‑month historical period and, for the FY2025 rates discussed at the hearing, encounter and plan data from state fiscal year 2023 were used. That approach means base data commonly is two years behind the rating period because the state waits for a complete and reconciled historical year before projecting forward. • Steps in rate construction: the actuary summarizes encounter data by rate cell and service category, applies completion factors and policy or program adjustments, develops unit‑cost and utilization trend assumptions to project from the base period to the rating period, and adds non‑benefit loadings (administration, taxes and risk margin). For some programs the state applies regional adjustments and budget‑neutral risk‑adjustment processes. • Certification and federal review: Milliman certifies actuarially sound capitation rates for MDHHS; the department submits certifications to CMS, which reviews assumptions and methodologies and may request clarifications or adjustments. • Rate amendments: the department and actuary monitor emerging fiscal‑year claims and encounter data and will propose midyear amendments for material policy changes or when emerging experience diverges materially from projections. Milliman noted it is common for states to amend rates midyear for policy or utilization changes and that the public health emergency (PHE) and its unwinding created unusual national enrollment and utilization swings that increased uncertainty.

Committee concerns and clarifications: lawmakers pressed the department and Milliman on what drives midyear increases, how rate cells are defined, and how the department measures program effectiveness. MDHHS said rate cells are long‑standing and primarily stratified by program (for example, TANF/low‑income families, aged/disabled/blind who incur higher costs, and the Healthy Michigan Plan) and then by age group and gender within those populations. Milliman said the behavioral health program uses many granular rate cells (the actuary described 87 rate cells and about 50 service categories for that program) and that unit‑cost and utilization trends are applied at that level.

On drug costs and rebates: committee members asked whether rebates the state receives are incorporated into capitation rate development. Milliman and MDHHS said the Medicaid managed care plans do not receive the state rebate amounts, so those federal rebates are not used to reduce the capitation payments to plans; rebate flows to the state are treated separately from managed‑care entity costs. Lawmakers also asked about GLP‑1 weight‑loss drugs; MDHHS said the state covers GLP‑1s under defined clinical criteria and prior authorization, that it has about two years of utilization data for those drugs and that federal rulemaking on GLP‑1 coverage had been proposed and then not advanced, changing the regulatory backdrop.

Why it matters: committee members said the department’s supplemental requests arrived after the fiscal year began and asked why earlier transfers or adjustments were not possible. MDHHS explained it coordinated midyear with the budget office and other stakeholders and that the department waited for finalized data from the post‑PHE period before seeking a supplemental rather than relying on transfers that require offsetting underruns in other appropriations. Multiple members asked Milliman and the department for longer trend reports showing how actuarial recommendations have varied historically; Milliman and MDHHS offered to provide additional trend materials and to continue collaborating with managed care entities to reconcile base data and improve projections.

No formal committee vote on the health‑plan appropriations occurred during this session; the presentation was a technical briefing and Q&A to inform future budget and amendment decisions.

Speakers and sources: Amy Eppke (MDHHS senior deputy director of financial operations), Megan Groen (MDHHS senior deputy director over health services and the Medicaid program), Jeremy Cunningham (principal and certifying actuary, Milliman) and Chris Pettit (Milliman) provided the technical briefing and answered member questions. All technical descriptions on rate methodology and timing are drawn from their presentation and the committee transcript.

Follow-ups requested by the committee: lawmakers asked MDHHS and Milliman for (1) historical trend tables of prior actuarial recommendations and midyear amendments, (2) documentation on encounter‑data reconciliation and the department’s encounter quality initiative, (3) more detailed analysis of drug rebate flows and the financial impact of the preferred drug list, and (4) performance measures the department uses to evaluate whether services improve enrollee health over time.