Oversight group criticizes HUSKY managed care profits

The three managed care companies in the state’s HUSKY insurance program for low-income children and families recorded profits of $18.8 million last year, according to figures released by the state Department of Social Services.

In one part of HUSKY, the insurers made margins of at least 20 percent and spent less than 72 percent of their revenues on medical care.

The figures released this month drew criticism from members of the Medicaid Care Management Oversight Council, who are in the midst of considering moving HUSKY out of managed care. The numbers, covering the 2009 calendar year, also come as state officials forecast skyrocketing Medicaid spending and as DSS attempts to negotiate rates with the insurers amid scrutiny over how much the state pays them.

Insurers said that the HUSKY information should be viewed alongside financial data from the Charter Oak Health Plan, a state program on which they lose money. The state requires insurers that participate in HUSKY also participate in Charter Oak, although HUSKY premiums cannot be used to subsidize Charter Oak.

Several members of the Medicaid council expressed concern at how little of the insurers’ HUSKY B revenues were spent on medical care. The proportion of premium revenue that is spent on health care is known as the medical care ratio, or medical loss ratio.

AmeriChoice, part of UnitedHealthcare, spent 62 percent of its revenue on medical care and posted a 22.9 percent profit margin in the HUSKY B program.

By contrast, the federal health reform law sets minimum medical care ratios for insurers of 80 percent or 85 percent, depending on the type of plan. The provision does not apply to Medicaid plans, but was cited as a benchmark in the council’s discussion.

None of the insurers met those benchmarks in HUSKY B, which covers children whose family income does not qualify for Medicaid. Last year, it covered between 13,000 and 16,000 children, many whose families earned below 300 percent of the federal poverty level.

Aetna spent 70.5 percent on medical care and made a 20 percent margin, while Community Health Network of Connecticut, a non-profit with far more enrollees than the other insurers, spent 71.8 percent of its revenues on medical care and made a 20.6 percent margin.

Margins were lower, and medical care ratios higher, in HUSKY A, a Medicaid program that enrolled as many as 358,088 children and adults in 2009.

Community Health Network reported a 95.1 percent medical care ratio and a -0.3 percent margin. AmeriChoice spent 86.3 percent of its revenue on medical care and achieved a 3.5 percent margin, while Aetna had an 83.9 percent medical care ratio and 6.5 percent margin.

Overall, the medical care ratio was 90.7 percent for both HUSKY programs and all three insurers. The overall margin was 2.3 percent.

Ellen Andrews, executive director of the Connecticut Health Policy Project and a member of the Medicaid council, pointed to DSS figures showing that more than 1,000 children had lost HUSKY B coverage in the past year because their families did not pay premiums.

If insurers made less profit and premiums were lower, Andrews asked, “How many of those kids would have insurance right now?”

State Rep. Vickie Nardello, who said she cringed at AmeriChoice’s 62 percent medical care ratio, said she understood that managed care companies need to make money.

“But on the other hand, our position is that we have to look at again how these moneys are spent, because they’re being paid for with state dollars,” said Nardello, a Democrat from Prospect. “So hopefully we can find a happy medium.”

Tom Kelly, head of Medicaid for Aetna, said the 2009 data was likely misleading because it was the first year Aetna and AmeriChoice participated in HUSKY. Aetna’s 2010 figures should show a higher medical care ratio, he said.

Leaders of AmeriChoice and Community Health Network told the council that they should take Charter Oak into account, not just the two HUSKY programs.

“When you look at all the products combined, it’s a different story,” AmeriChoice CEO Don Langer said.

Langer said the company’s 2009 audited financials showed an $800,000 profit, or less than a 1 percent margin. He said the company is not using HUSKY to subsidize Charter Oak, but that the council should recognize that insurers cannot participate in HUSKY without Charter Oak.

Mark Schaefer, DSS’ director of medical care administration, said Charter Oak’s premiums are as low as they are because insurers are taking a loss. He also acknowledged that the premiums, $307 a month, are out of reach for many citizens.

“[The insurers] have come to us and said, ‘we’re not prepared to, on an ongoing basis, to have this program operate in a deficiency,'” Schaefer said.

In HUSKY, he said, nothing prohibits the insurers from making a profit.

“It might be difficult for us around this table knowing what kinds of economic circumstances the state is in to see a profit that might be more than you would want to see in this program today,” Schaefer said. “But it’s not illegal to have a profit of 6.9 percent and in fact it’s expectable that profits would be well north of, say 2, 3 or 4 percent.”

Schaefer said there is “plenty of room” in HUSKY B to negotiate rates with the insurers that would produce lower margins.

State lawmakers and members of the Medicaid council have been contemplating bigger changes to the programs.

Earlier this year, lawmakers authorized DSS to move HUSKY and Charter Oak from a risk-based system – in which the insurers are paid a set rate for each member each month, which they use to pay medical claims – to one in which the insurers administer the plans for a lower monthly fee while the state pays the claims. The move was forecasted to save $76 million.

But DSS raised concerns about the move. The council is now studying various options.

The rates the state pays the HUSKY insurers have come under fire before. In 2009, an audit conducted by Milliman Inc. found that the rates paid to the HUSKY insurers were 5 to 6 percent higher than necessary, representing an extra $41 million to $49 million.

DSS officials have disputed the findings. At the time the rates were negotiated, the department was trying to entice Aetna and AmeriChoice to participate in the program and took into account the initial costs they would face in establishing provider networks, officials said.

Gov. M. Jodi Rell budgeted saving money from the rates paid to insurers, but the savings have not materialized. DSS is negotiating with the insurers on rates dating back to July 1.

Kelly said the projected savings were speculative and unlikely to be realized.