Actuarial Soundness

Actuarial soundness is an important tool for retaining the viability of Medicaid managed care as a legitimate alternative to Medicaid fee-for-service delivery systems. Actuarial soundness ensures that health plans serving state Medicaid programs are adequately reimbursed based on the cost of health care expenditures and the populations served.

The Balanced Budget Act of 1997 expanded the ability of states to use managed care in their Medicaid programs. In doing so, Congress required that managed care organizations be reimbursed in a manner that is actuarially sound. In 2002, CMS regulations defined actuarially sound rates as those that are (1) developed in accordance with generally accepted actuarial principles and practices; (2) appropriate for the populations to be covered and the services to be furnished; and (3) certified as meeting applicable regulatory requirements by qualified actuaries.

State budget pressures sometimes influence Medicaid agencies to develop capitation rates based on factors beyond the scope of the Medicaid program. However, to be actuarially sound, rates must be determined independent of budget considerations. When states develop rates that are sound, plans are encouraged to participate in Medicaid, and it helps ensure plans are able to maintain adequate provider networks. Payment of actuarially sound rates also protects plan enrollees by ensuring that plans have adequate funding to deliver health care services and by reducing the likelihood plans will become insolvent, leave Medicaid, and disrupt enrollees’ continuity of care.

ACAP Position and Legislative Action  (all Actuarial Soundness documents)

In a report issued in August 2010, the GAO found a lack of consistent enforcement of federal actuarial soundness requirements on the part of CMS’ Regional Offices.  ACAP agrees with the GAO’s recommendations to improve the actuarial soundness review process within CMS and urges CMS to implement the actions outlined in the CMS response to the report. Additional actions such as increased use of the CMS Office of the Actuary to ensure an independent voice in the rate setting process and a workable appeal process for health plans to challenge rates would also positively contribute to this effort.


Continuous Eligibility

p>THE MEDICAID PROGRAM is a partnership among states and the Federal government that provides health coverage to low-income children, pregnant women, adults, seniors, and people with disabilities. Children in low-income families who are not eligible for Medicaid may be covered by the Children’s Health Insurance Program, or CHIP.

Medicaid and CHIP cover doctor’s visits, hospitalizations, visits to community health centers, prescription drugs and behavioral health and substance abuse services. Medicaid also supports a variety of services, such as nursing home care and long-term services for those with disabilities and support for those with developmental conditions such as autism. Low-income seniors rely on Medicaid to pay for certain services not covered by Medicare.

Medicaid and CHIP combine to cover more than 80 million people. But coverage in the program is unstable, and cannot be counted on to be there when it is needed.

What is “Churn?” / What Makes Coverage Unstable?

The Average Medicaid Enrollee Is in the Program 9.7 Months of the Year


How Does Your State Compare?

State-By-State Rates of
Overall Enrollment Continuity

Children | Non-elderly adults
SeniorsBlind/disabledData Tables


Enrollment in Medicaid and CHIP—unlike private insurance or Medicare—is like a sieve; every year millions of people enroll, only to subsequently lose their coverage, despite still being eligible. These interruptions in coverage, widely known as “churn,” harm the continuity and effectiveness of care.

Many otherwise-eligible beneficiaries are continuously disenrolled and reenrolled in the program owing to bureaucratic and paperwork problems, or small and often temporary changes in income. These income changes can stem from items as simple as getting a few extra hours of overtime in a week.

People who would otherwise be eligible for coverage through Medicaid frequently become uninsured because no other source of coverage is affordable, or available.

“Churn” is More Common Than You Think. /
How Unstable Is the Coverage?

In 2009, a George Washington University study commissioned by ACAP, “Improving Medicaid’s Continuity and Quality of Care,” found that the typical enrollee receives Medicaid coverage for about three-quarters of the year. A March 2013 update of the report shows that on average, an adult on Medicaid is covered for only about 8½ months out of the year; the average child is on the Medicaid program for fewer than 10 months a year.

This is not “coverage you can count on.”

This problem won’t go away once the Affordable Care Act’s health insurance expansions take effect in 2014. A recent Health Affairs article estimated that more than half of all adults with incomes under 200 percent of the poverty line – 28 million people – will have income changes that will require them to change coverage between Medicaid and the Exchanges within any one-year period, and many of them will shift in and out of these programs more than once during a year.

Why is unstable coverage a problem?

Research shows that even brief gaps in insurance coverage can have harmful consequences for people. The uninsured have poorer access to care and to prescription drugs. A Medicaid enrollee with high blood pressure may have trouble getting needed medicine. Children with asthma who churn off Medicaid or CHIP may not be able to get needed inhalers or control medication. Diabetics may experience difficulty controlling their blood glucose levels. Expensive visits to the emergency room, or worse, may result when the continuity of care is interrupted through gaps in health coverage.

Research bears this out. The George Washington study shows the average monthly medical expenditure for an adult enrolled in Medicaid for 12 continuous months is about two-thirds the level of a person enrolled for just six months and half the level of a person enrolled for just one month.

When people enroll, then dis-enroll, and then enroll again, they incur higher administrative costs associated with enrollment procedures and processing for new enrollees. Studies have estimated of the cost of processing the paperwork to re-enroll a child in Medicaid at roughly $200 in California, and $280 in New York.

Churning also interferes with efforts to measure quality of care. The most commonly-used measures of care require that patients be continuously enrolled for a year to include their data in quality results. The high level of churn in Medicaid makes measuring quality more difficult. Twelve-month continuous enrollment would provide for more stable measurement and help health plans, providers and policymakers improve the quality of care delivered to beneficiaries.

What Can We Do?

Congress must act to protect working families and provide them with health care coverage they can count on. Twelve-month continuous enrollment already exists for people who have private insurance and for people with low incomes in the Medicare prescription drug benefit. Enacting legislation to provide 12 months’ continuous enrollment for Medicaid and CHIP beneficiaries is a common-sense solution.

Improving retention through 12-month continuous enrollment in Medicaid and CHIP is a cost-effective way to reduce the number of uninsured people, strengthen the stability of their health insurance coverage, improve the measurement of health care quality, and ultimately improve people’s health.

Congress has moved to close these gaps in coverage in a bipartisan way. Representatives Joe Barton and Gene Green have introduced the Stabilize Medicaid and CHIP Coverage Act. This bill provides 12-month continuous enrollment for all Medicaid and CHIP enrollees. The Stabilize Medicaid and CHIP Coverage Act would reduce the number of low-income Americans who lack health insurance coverage and improve the stability, continuity and quality of care they receive. It will ensure more efficient and cost-effective care, both from the perspective of medical and administrative expenses.

It will help people in need have coverage they can count on.

Related Documents