$5 billion Iowa Medicaid negotiations were supposed to be done by now, but they haven't started

Iowa legislators are poised to pass their annual budget without knowing how many millions they’ll need to spend on Medicaid — the state’s second-biggest expense.

Department of Human Services Director Jerry Foxhoven pledged in January not to put legislators in this position again. He said his department would promptly finish contract negotiations with the for-profit companies running Iowa’s $5 billion Medicaid program.

“We need a contract before the Legislature goes home so you’ll know what it’s going to cost ­— so you’ll know what it’s going to take to do it,” Foxhoven told senators at a committee hearing Jan 17.

It hasn’t happened. In fact, the contract negotiations haven’t started yet.

Hundreds of millions of dollars from the state and federal governments will be on the table in the annual talks between the Department of Human Services and UnitedHealthcare and Amerigroup.

Iowa hired the national management companies in 2015 to cover the health care needs of about 600,000 poor or disabled Iowans who use Medicaid. They provide health insurance for more than one out of every five Iowans.

The companies have complained about "catastrophic" losses on the project, and they want raises. A third management company, AmeriHealth Caritas, pulled out of Iowa last fall after failing to get as much as it wanted from the annual contract negotiations.

The Legislature is poised to pass a $7 billion budget and adjourn for the year as soon as next week. That budget could be tens of millions of dollars short if state administrators agree to substantial raises for UnitedHealthcare and Amerigroup.

The new round of Medicaid contract negotiations has been delayed by several months. That's because state officials decided earlier this year to hire a different actuarial consulting company to estimate how many health care services Iowa’s Medicaid members would need in the budget year that will start July 1, a Department of Human Services spokesman said.

The Medicaid management companies complained that Iowa's previous consulting firm, Milliman, severely underestimated Medicaid needs in previous budget years, sparking underpayment by the state. Iowa's new consulting company, Optimus, has not completed its estimates of next year's needs, Department of Human Services spokesman Matt Highland said last week.

The contract negotiations between the state and the Medicaid management companies will start once Optimus' estimates are available, he said.

Iowa contributes about $1.5 billion annually to Medicaid, which it jointly finances with the federal government. That makes Medicaid the second-largest state expense, after the $3 billion cost of state aid to local schools.

Sen. Liz Mathis, who is a leading critic of Medicaid privatization, recalls Foxhoven pledging that his department would conclude the Medicaid contract negotiations for next fiscal year before the Legislature had to set its overall budget.

“He said that repeatedly to us,” the Hiawatha Democrat said in an interview last week. She added that he repeated the pledge privately to legislators a few weeks ago.

Mathis said she’s concerned that if Foxhoven’s department agrees to significant pay raises for the Medicaid management companies, state officials will have to make mid-year cuts to Medicaid services and spending on other programs, including the state universities.

But Republicans expressed confidence that the Medicaid rate negotiations won’t cause a disruptive need for more state money.

“It’ll be what it’ll be, and we have some estimates we can work off of,” said Sen. Mark Costello, R-Imogene, who is co-chairman of the Legislature’s main health-care budget committee.

Gov. Kim Reynolds’ spokeswoman, Brenna Smith, said the governor understands why the Medicaid negotiations are being delayed again.

“The governor supports the efforts of her team to make sure this process is done efficiently and that it is done right on behalf of Iowans,” Smith wrote in an email to the Register. “And while Director Foxhoven laid out an ideal case in January, Medicaid is just too important for so many Iowans, and it would be irresponsible to rush these negotiations. Gov. Reynolds is committed to ensuring a sustainable Medicaid program so that Iowans will have access to the care they need."

Shortly after Reynolds hired Foxhoven to run the Department of Human Services last June, he predicted the annual Medicaid contract negotiations would be finished by the end of July. But they dragged on into October, more than three months after the new rates were to take effect.

When the closed-door talks finally concluded, the state had agreed to give UnitedHealthcare and Amerigroup a 3 percent raise for the current budget year. AmeriHealth, which was unsatisfied with the terms, pulled up stakes. That forced most of its 220,000 members to be hastily shifted to UnitedHealthcare coverage. UnitedHealthcare now covers about two-thirds of all Iowa Medicaid members, which could give it substantial leverage in the new round of contract negotiations.

The Department of Human Services is seeking one or two more Medicaid management companies to replace AmeriHealth, but those companies are not scheduled to cover Iowans until July 2019.

Iowa's shift to private Medicaid management has been intensely controversial. Then-Gov. Terry Branstad, a Republican, ordered the change in 2015, saying it would lead to more effective and efficient care. Critics say it has caused cuts in services to vulnerable Iowans and piles of unpaid bills for the agencies that care for them. Reynolds, a Republican who succeeded Branstad, has acknowledged problems but contends the change is a success overall.

Branstad had predicted the shift to private Medicaid management would save $232 million by the current fiscal year. That estimate plummeted 80 percent, to $47 million, in a report released by the Department of Human Services late last year. The new savings estimate fueled criticism of the change. Iowa's new Medicaid director, Michael Randol, responded to the controversy by declaring the method of estimating savings was flawed.

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