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MDHHS, actuary defend Medicaid capitation process as lawmakers press for more data and transparency
Summary
Michigan Department of Health and Human Services officials and actuaries from Milliman described how Medicaid managed-care capitation rates are developed, explained a $55 million supplemental adjustment in the current package, and outlined continued uncertainty tied to the public health emergency unwinding and enrollment changes.
Department officials and the state's contracted actuary on Monday outlined the process used to set Medicaid managed-care capitation rates and explained why the department included a $55 million adjustment in a supplemental request to close out fiscal 2024 and stabilize the current fiscal year.
Amy Eppke, senior deputy director of financial operations at the Michigan Department of Health and Human Services, told the House Appropriations Committee that capitation rates are established to ensure access to services while maintaining provider viability. "MDHHS is committed to ensuring access to care for Michigan's Medicaid enrollees," Eppke said, adding that Milliman monitors costs monthly and the state coordinates with budget offices and fiscal agencies when recommending appropriation levels.
Jeremy Cunningham, a principal and consulting actuary with Milliman, described the federal and actuarial requirements for capitation rates. "Actuarially sound capitation rates must be adequate to cover reasonable and appropriate costs," Cunningham said, and described a process in which the state, a contracted actuary and CMS each have defined responsibilities: the agency sets coverage and policy, the actuary develops certified rates, and CMS reviews the certification.
Key technical points explained to the committee:
- Base data lag: The certifying actuary uses a 12-month base data period that is typically the most recently completed prior year; for fiscal 2025 rates, Milliman used state fiscal year 2023 encounter data. That means current rate projections are based on data that can be approximately two years behind the rating period. Milliman and MDHHS said they apply completion factors, policy and fee-schedule adjustments, and trend factors to project costs forward to the rating period.
- Rate cells and stratification: The department said it stratifies populations by program (for example TANF, aged/disabled, Healthy Michigan) and, within those groups, by age and gender for rate cells used in capitation-rate development. Milliman noted there are many granular rate cells in programs such as behavioral health.
- Midyear amendments: Milliman and MDHHS described a routine process for monitoring emerging claims and enrollment data and making midyear amendments when changes materially affect managed-care entity costs. The panel cited the public health emergency (PHE) unwind and enrollment changes as a recent, unusual driver of volatility.
- Rebates and drug costs: Milliman said state rebates are not incorporated in the capitation rates paid to managed-care plans because the managed-care entities do not receive those rebate dollars; the state does. MDHHS said drug rebates remain a significant state offset for high-cost drug classes.
Committee members pressed officials on several topics, including why base data are lagged, how regions are determined, the role of Medicare fee schedules in state fee updates, whether the department tracks health outcomes tied to preventive services, and whether the preferred drug list (PDL) and coverage of GLP-1 class drugs are producing the anticipated savings. Lawmakers requested more historical trend data from the actuary and a clearer reconciliation between plan-submitted encounter data and the summary base data Milliman uses.
Requests and follow-ups: Representatives asked Milliman and MDHHS for (1) historical trend information showing actuarial recommendations over many years; (2) documentation of the encounter-data reconciliation effort; (3) a breakdown of policy-driven versus department-driven rate changes; and (4) additional detail about the fiscal effect of the preferred drug list and rebate flows. The department agreed to provide follow-up information in writing and to work with the committee on measures and quality metrics tied to prevention programs.
Context: MDHHS said the supplemental includes a $55 million adjustment related to managed-care rates as part of a broader set of health-service consensus appropriations. Milliman and department staff said that while some midyear amendments reflect routine fee-schedule or program changes, the period following the PHE unwind produced enrollment and utilization patterns that are atypical and have required additional monitoring and adjustments.
No formal action was taken on Medicaid policy during the hearing; the session concluded after the presentations and questions.
