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Published by: Minnesota Public Radio on Apr 23, 2012
Copyright:Attribution Non-commercial


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FAQ on UCare $30 million Contribution
What is Medicaid?
 Medicaid is a program that provides health care coverage for low-income individuals, families,pregnant women and people with disabilities. Medicaid is jointly funded by the federalgovernment and states. In Minnesota, federal Medicaid funds support both Medical Assistance
and the MinnesotaCare program. Minnesota’s Medicaid program is administered at the state
-level by the Department of Human Services.Medicaid was established by Congress in 1965. This federal law requires all participating statesto offer basic health care services to certain categories of low income individuals. Statesadminister Medicaid and are reimbursed by the federal government for a percentage of the costof providing the required services. Federal law also gives states the option to receive federaldollars if their Medicaid program covers additional services and additional categories of low-income individuals. In Minnesota, the federal government generally covers 50 percent of the
state’s Medicaid spending.
What is CMS?
The Centers for Medicare and Medicaid Services (CMS) is the federal agency that administersMedicaid in partnership with states.
Why does the state pay managed care companies?
The majority of Minnesota
Medicaid program is split into fee-for-service and managed care.Minnesota pays managed care companies to provide health care coverage for certain low-income adults without children, pregnant women and families with children. Medical Assistanceand MinnesotaCare enrollees that participate are offered a choice of plans through managedcare organizations or county based purchasing organizations. The state then pays an established(capitated) monthly rate to managed care organizations or county based purchasingorganizations for services that enrollees receive.
What are capitated rates?
 The Minnesota Department of Human Services pays health plans a fixed monthly amount for thecost of health care services for its
enrollees. The “capitated” rate per enrollee is established inthe state’s contracts
with the health plans and is designed to cover the costs of the services theplans provide.
This amount varies depending on factors such as the enrollee’s age, sex, and
their specific coverage program(s) and their county of eligibility. The health plans areresponsible for ensuring that costs are managed within the capitated rate.
How were managed care contracts determined prior to competitive bidding?
Prior to competitive bidding, managed care contracts were developed by taking historical costinformation for enrollees and then adjusting these costs for changes in benefits, programeligibility and cost/utilization trends. These factors were used to set the rates the plans receivedfor covering enrollees. All health plans received the same rate per enrollee, even if theirprojected costs were less than the specified rate. As a result, plans did not have incentives toaccept lower rates.
When did DHS begin competitive bidding for managed care contracts with health plans?
In February 2011, Governor Dayton released his budget proposal, which included a competitivebidding process for awarding state health care contracts beginning in 2012.
How are managed care contracts determined under the current competitive bidding process?
 Prior to competitive bidding, all health plans were paid a standard monthly rate for all enrollees(see #5 above). Under competitive bidding, instead of a standard rate, plans providing coveragein the seven-country Twin Cities Metropolitan area were required to submit a bid for a monthlypayment amount per enrollee. The health plans provided bids by county and the state assessedthe bids based on the quality and cost. The state then selected two plans which to contract ineach county. For Hennepin, Ramsey and Dakota counties, the state included a third health plan,due to higher volume of enrollees in these areas.
How did UCare come to donate $30 million to Minnesota?
On March 14, 2011, UCare informed the state that it intended to donate $30 million from its
reserves to the state, citing the state’s severe budget deficit as the reason for the donation.
Thedonation was made voluntarily. The state did not ask UCare for the donation, nor was thedonation made in return for other payments.
What was the one percent cap on health plan profits that was negotiated in 2011?
When the Dayton Administration came into office in 2011, the managed care PMAP contractsfor 2011 were already in place. In light of recent past earnings by the health plans, health planreserves and the historic budget deficit, in late March 2011 the state asked the plans to agree tovoluntarily cap their profits at 1 percent of revenue for the state health care program. Thehealth plans agree to the cap and the contracts were amended to reflect the agreement.Revenue exceeding one percent in 2011 would be returned to the state in 2012.
How did the one percent cap affect the status of UCare’s $30 million donation?
 In November 2011, the state received the $30 million donation from UCare. DHS believes thesefunds were a bona fide donation. The state did not believe the donation was a return of Medicaid dollars to the state, for which half would have to be returned to the federal
government under the state’s Medicaid
matching rate.
3At the time of the donation, the Department could not predict whether any health plan wouldexceed the one percent profit cap on their 2011 PMAP contracts. When the health planssubmitted their 2011 financial reports to the Department of Health on April 2, 2012, it was clearthat all the plans - including UCare - exceeded the one percent profit cap on their 2011 PMAPcontracts. At this time, UCare Minnesota reported an $8 million excess over the cap. If the $30million donation had be
en reported as profit rather than as an administrative expense, UCare’s
repayment to the state would have been $38 million rather than $8million. DHS has alwaysagreed that the federal government is entitled to half the repayments under the one per centcap.The Minnesota Department of Human Services continues to believe that the $30 million
donated in 2011 was a bona fide donation. However, in fairness that donation should “count
toward the one per cent cap. As a result of the interaction of the donat
ion with the plan’s
operating margin, Minnesota has agreed to pay the federal share on the $30 million donation.
What is the difference between a “donation” and a “repayment”?
from a Medicaid participating provider is required when the state has overpaid aprovider beyond the agreed upon rate. If the state receives a repayment, it must return thefederal share to the federal government. States can retain
bona fide donations
which have nodirect or indirect relationship to Medicaid payments.
What was MN’s claim that it was a donation?
In March 2011, UCare donated $30 million from its reserves to the state, citing the state’s
severe budget deficit as the reason for the donation. The donation was provided on a voluntarybasis and the state did not believe the donation was a return of Medicaid dollars to the state. Atthe time of the donation, the Department could not predict whether any health plan wouldexceed the one percent profit cap on their 2011 Medicaid contracts.
How common are disagreements between the federal government and the states about theadministration and financing of the Medicaid program?
 Medicaid is a complex program jointly administered by states and the federal government. Dueto this complexity, there are often vigorous discussions and negotiations around even the mostseemingly minor aspects of the program. Where federal rules are unclear or contradictory,Minnesota and other states often dispute or appeal federal guidance and rulings regarding theirMedicaid programs. Where millions of dollars are in dispute, CMS and the state frequently havedifferent positions which can take years to negotiate to conclusion. Where they cannot agree,there is an appeals process to resolve these high stakes disagreements. These disagreementsare inherent in a program that includes the intricacies of both state and federal government.
Was the process used to notify CMS about the UCare “donation” in 2011 the appropriate

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