A St. Louis-based insurer has refunded about $6.7 million to the Arkansas Medicaid program because the firm collected too much in premiums last year compared with what it spent on medical care, a spokesman for the state Department of Human Services said Thursday.
Centene Corp. made the payment on Sept. 30 to reimburse the Medicaid program for premiums paid under the state's private option, department spokesman Kate Luck said.
A provision in the 2010 Patient Protection and Affordable Care Act requires insurance companies to spend 80 percent of premiums on medical care rather than on overhead and profits.
The percentage of premiums spent on medical care is known as the medical loss ratio, or MLR.
The refund paid by Centene ultimately will go to the federal government, which is expected to pay the full cost of the private option through 2016 as long as the cost of the program over its first three years stays below a cap based on monthly per-enrollee cost targets.
Under the private option, the state uses Medicaid funds to buy coverage on the state's federally run health insurance exchange for about 180,000 low-income Arkansans.
The state created the program in 2013 as a primary way to extend coverage to adults with incomes of up to 138 percent of the poverty level: $16,242 for an individual, for instance, or $33,465 for a family of four.
John Ryan, chief executive of Centene subsidiary Celtic Insurance Co., told a legislative task force this week that the company spent about 76 percent of the private-option premiums it collected last year on medical care.
Ryan said after the Health Reform Legislative Task Force meeting that participants' overall medical expenses were lower than the company had predicted.
As a result, the company lowered its premiums for this year by 12 percent compared with last year.
"There's nothing that stands out to us that caused the MLR rebate," Ryan said. "It's a look at all services versus the premium that was paid."
Next year, the company's premiums will increase by 0.8 percent, according to the state Insurance Department.
Representatives of Arkansas Blue Cross and Blue Shield and of QualChoice Health Insurance reported at the task force meeting on Tuesday that each company spent about 81 percent of the premiums they collected last year on medical care.
The premiums for Blue Cross plans, including those offered on behalf of the national Blue Cross and Blue Shield Association, will increase 7.15 percent starting Jan. 1, the Insurance Department has reported.
QualChoice premiums will decrease 8.2 percent.
How refund works
Figures previously provided by the Human Services Department show the cost of the private option last year, before applying any refund, was about $781 million. The average monthly cost was $489.70 per enrollee.
The Centene refund reduces that cost to $485.50 per enrollee. That's still above the target of $477.63 for last year.
This year, the monthly target rose to $500.08. Through September, the monthly cost of the program this year was $487.82 per enrollee.
Overall, the cost of the program from January 2014 through this September, without accounting for the refund, was $1.685 billion, about $3.5 million below the cap, according to figures previously released by the Human Services Department.
Including the refund would reduce the cost to more than $10 million below the cap.
Next year, the monthly target used to calculate the cap rises to $523.58 per enrollee.
Sen. David Sanders, R-Little Rock and a sponsor of the law creating the private option, said he expects the cost total for 2014 to be lowered further in April, when the expenses paid by the insurance companies are compared with the subsidies the companies received to reduce or eliminate enrollees' out-of-pocket costs for medical care.
If the subsidies turn out to be more than what was required, the insurance companies will owe money to the Medicaid program. If the expenses exceeded the subsidies, the Medicaid program will owe money to the companies.
"The fact is, the private option has been covering individuals who are largely healthy and are beginning to learn the health care system," Sanders said.
Even if Arkansas' cost for the three years is below the cap, the state will be required to pay a portion of the cost starting in 2017. The state's share will start at 5 percent, rising every year until it reaches 10 percent in 2020.
Citing concerns about the cost and opposition by some legislators and others, Gov. Asa Hutchinson has called for the task force to recommend changes to the program that would take effect in 2017. The panel is expected to issue the recommendations next month.
A Section on 11/13/2015