FAQ on UCare $30 million Contribution

1) 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 federal government and states. In Minnesota, federal Medicaid funds support both Medical Assistance and the MinnesotaCare program. Minnesotas Medicaid program is administered at the statelevel by the Department of Human Services. Medicaid was established by Congress in 1965. This federal law requires all participating states to offer basic health care services to certain categories of low income individuals. States administer Medicaid and are reimbursed by the federal government for a percentage of the cost of providing the required services. Federal law also gives states the option to receive federal dollars if their Medicaid program covers additional services and additional categories of lowincome individuals. In Minnesota, the federal government generally covers 50 percent of the states Medicaid spending. 2) What is CMS? The Centers for Medicare and Medicaid Services (CMS) is the federal agency that administers Medicaid in partnership with states. 3) Why does the state pay managed care companies? The majority of Minnesotas Medicaid program is split into fee-for-service and managed care. Minnesota pays managed care companies to provide health care coverage for certain lowincome adults without children, pregnant women and families with children. Medical Assistance and MinnesotaCare enrollees that participate are offered a choice of plans through managed care organizations or county based purchasing organizations. The state then pays an established (capitated) monthly rate to managed care organizations or county based purchasing organizations for services that enrollees receive. 4) What are capitated rates? The Minnesota Department of Human Services pays health plans a fixed monthly amount for the cost of health care services for its enrollees. The capitated rate per enrollee is established in the states contracts with the health plans and is designed to cover the costs of the services the plans provide. This amount varies depending on factors such as the enrollees age, sex, and their specific coverage program(s) and their county of eligibility. The health plans are responsible for ensuring that costs are managed within the capitated rate.

5) How were managed care contracts determined prior to competitive bidding? Prior to competitive bidding, managed care contracts were developed by taking historical cost information for enrollees and then adjusting these costs for changes in benefits, program eligibility and cost/utilization trends. These factors were used to set the rates the plans received for covering enrollees. All health plans received the same rate per enrollee, even if their projected costs were less than the specified rate. As a result, plans did not have incentives to accept lower rates.

6) 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 competitive bidding process for awarding state health care contracts beginning in 2012. 7) 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 coverage in the seven-country Twin Cities Metropolitan area were required to submit a bid for a monthly payment amount per enrollee. The health plans provided bids by county and the state assessed the bids based on the quality and cost. The state then selected two plans which to contract in each county. For Hennepin, Ramsey and Dakota counties, the state included a third health plan, due to higher volume of enrollees in these areas. 8) 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 states severe budget deficit as the reason for the donation. The donation was made voluntarily. The state did not ask UCare for the donation, nor was the donation made in return for other payments. 9) 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 contracts for 2011 were already in place. In light of recent past earnings by the health plans, health plan reserves and the historic budget deficit, in late March 2011 the state asked the plans to agree to voluntarily cap their profits at 1 percent of revenue for the state health care program. The health 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. 10) How did the one percent cap affect the status of UCares $30 million donation? In November 2011, the state received the $30 million donation from UCare. DHS believes these funds 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 states Medicaid matching rate. 2

At the time of the donation, the Department could not predict whether any health plan would exceed the one percent profit cap on their 2011 PMAP contracts. When the health plans submitted their 2011 financial reports to the Department of Health on April 2, 2012, it was clear that all the plans - including UCare - exceeded the one percent profit cap on their 2011 PMAP contracts. At this time, UCare Minnesota reported an $8 million excess over the cap. If the $30 million donation had been reported as profit rather than as an administrative expense, UCares repayment to the state would have been $38 million rather than $8million. DHS has always agreed that the federal government is entitled to half the repayments under the one per cent cap. 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 donation with the plans operating margin, Minnesota has agreed to pay the federal share on the $30 million donation. 11) What is the difference between a donation and a repayment? A repayment from a Medicaid participating provider is required when the state has overpaid a provider beyond the agreed upon rate. If the state receives a repayment, it must return the federal share to the federal government. States can retain bona fide donations which have no direct or indirect relationship to Medicaid payments. 12) What was MNs claim that it was a donation? In March 2011, UCare donated $30 million from its reserves to the state, citing the states severe budget deficit as the reason for the donation. The donation was provided on a voluntary basis and the state did not believe the donation was a return of Medicaid dollars to the state. At the time of the donation, the Department could not predict whether any health plan would exceed the one percent profit cap on their 2011 Medicaid contracts. 13) How common are disagreements between the federal government and the states about the administration and financing of the Medicaid program? Medicaid is a complex program jointly administered by states and the federal government. Due to this complexity, there are often vigorous discussions and negotiations around even the most seemingly 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 their Medicaid programs. Where millions of dollars are in dispute, CMS and the state frequently have different 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 disagreements are inherent in a program that includes the intricacies of both state and federal government. 14) Was the process used to notify CMS about the UCare donation in 2011 the appropriate process? 3

Minnesota dealt transparently and in good faith with CMS throughout its discussions about this issue. We notified them when we received the contribution, informed them of how we intended to characterize the contribution, and responded fully and in a timely fashion to all of their requests. Over the past months we were in earnest and productive discussions, and were able to resolve the issue to the satisfaction of both parties.