Iowa agrees to give Medicaid management firms 7.5% raise to continue running program

Tony Leys | The Des Moines Register

Show Caption Hide Caption State officials explain medicaid budget increase The Register interviewed two state officials in August 2018 about Iowa giving Medicaid management firms a 7.5% raise to continue running program.

Iowa has agreed to give 7.5 percent more state money to the two private companies managing its $5 billion Medicaid program, officials announced Friday.

The agreement will keep UnitedHealthcare and Amerigroup in Iowa, but it will mean state leaders must come up with about $103 million more than last fiscal year.

The new agreements cover the current fiscal year, which began July 1. The increase in state spending is more than double the 3.3 percent increase the state agreed to for last fiscal year.

Overall, the new contracts will give the two companies raises of 8.4 percent in state and federal money, totaling $344 million.

The companies have complained about losing hundreds of millions of dollars in Iowa due to reimbursement rates they said were set far below their costs when the shift to private management began in 2016. A third Medicaid management firm, AmeriHealth Caritas, bailed out of the project last fall after failing to get the contract terms it sought from Iowa officials.

The raises come amid continuing controversy over whether Iowa should have hired private companies to run its Medicaid program in 2015.

Critics say the shift has led to cuts in services and loads of red tape. Supporters, including Republican Gov. Kim Reynolds, say it is leading to more efficient, effective care, and is saving taxpayers millions of dollars compared to what they would have otherwise spent.

Reynolds' office said the original managed-care payment rates for 2016 were set based on estimates of how much care Iowans on Medicaid would need. The new rates are more accurate, because they're based on actual experience, she said Friday.

"This new funding supports those who are taking care of patients and strengthens the program for more than 680,000 Iowans who rely on Medicaid," she said in a statement. "The old system wasn’t sustainable. As governor, I have to be able to tell parents this program will be there not just today, but tomorrow and in the future."

Jerry Foxhoven, Reynolds' director of human services, said Friday that some of the increased Medicaid money will pay for expanded mental-health services to be offered under a bill that passed the Legislature unanimously last spring. "We passed a comprehensive mental health bill in Iowa to really bring us to, I believe, state-of-the-art in mental health. Well, you've got to pay for that," he said.

However, he said he couldn't estimate how much of the increased Medicaid spending will go to those services, which are to be jointly financed by county property taxes and state and federal Medicaid money.

Democratic legislators, who have criticized Medicaid privatization, slammed the agreement to pay the Medicaid management companies so much more. "Where are we going to get the money?" said Sen. Liz Mathis, a Hiawatha Democrat. "It's going to take more than shaking the couch cushions to come up with that."

State Sen. Joe Bolkcom, D-Iowa City, said the pay raises prove privatization does not save money.

"From Day One we knew that this day would arrive. This is how these insurance companies have gamed the system in every state they operate in," Bolkcom wrote in an email to the Register. "How much longer are we going to be suckers to this failed scheme?"

Michael Randol, whom Reynolds hired last November to direct the Medicaid program, said in an interview Friday that the increases were needed to ensure "actuarially sound" payments for all services the management companies must cover. He expressed hope that Iowa wouldn't need to approve such large increases in future years.

Colin Tadlock, a spokesman for Republicans controlling the Iowa House of Representatives, said the state should have enough money in its unspent balance from the current fiscal year to cover the extra $103 million Medicaid expense without cutting other programs. Those reserves are now about $160 million, he said.

Fred Hubbell, the Democratic candidate for governor, ripped the new agreements: "Iowa taxpayers are paying hundreds of millions more than promised, tens of thousands of Iowans have had their services denied or reduced, and providers across the state are being forced to close because of delays and denials in payment."

Foxhoven and Randol said the new contracts include significant improvements in oversight of the Medicaid management companies. Those measures and proper payment levels should mean fewer complaints about inappropriate denials of services or unpaid bills, they said.

"I can assure you, I get pretty regular comments from people saying, 'Thank you for addressing the situation and making sure I got the services I need,'" Foxhoven said.

The official estimate of savings to the state budget has seesawed. Former Gov. Terry Branstad initially estimated those annual savings would hit $232 million for last fiscal year. By last fall, the estimate had fallen 80 percent, to $47 million. Then the estimate jumped again, to $140.9 million in May.

State Auditor Mary Mosiman agreed in June to examine the issue, but her office has declined to say when the results of that investigation will be released.

A third Medicaid management company, Centene, is expected to join UnitedHealthcare and Amerigroup in running Iowa's program starting July 1, 2019. Its contract terms have not been negotiated yet.