Financial performance of health plans in Medicaid managed care.

Objective: This study assesses the financial performance of health plans that enroll Medicaid members across the key plan traits, specifically Medicaid dominant, publicly traded, and provider-sponsored.

Data and methods: National Association of Insurance Commissioners (NAIC) financial data, coupled with selected state financial data, were analyzed for 170 Medicaid health plans for 2009. A mean test compared the mean values for medical loss, administrative cost, and operating margin ratios across these plan traits. Medicaid dominant plans are plans with 75 percent of their total enrollment in the Medicaid line of business.

Findings: Plans that are Medicaid dominant and publicly traded incurred a lower medical loss ratio and higher administrative cost ratio than multi-product and non-publicly traded plans. Medicaid dominant plans also earned a higher operating profit margin. Plans offering commercial and Medicare products are operating at a loss for their Medicaid line of business.

Policy implications: Health plans that do not specialize in Medicaid are losing money. Higher medical cost rather than administrative cost is the underlying reason for this financial loss. Since Medicaid enrollees do not account for their primary book of business, these plans may not have invested in the medical management programs to reduce inappropriate emergency room use and avoid costly hospitalization.