Medicaid and commercial health plans: Accounting considerations for 2021 and beyond
Medicaid health plans, commercial plans, and providers across the country face both opportunity and uncertainty as the federal government and many states work to manage healthcare benefits for an increasing number of subscribers. But with growth potential also comes risk. Understanding the impacts on your plan’s accounting and financial reporting is crucial. We share key considerations for the remainder of 2021 and beyond.
Regulatory flexibilities and the end of the public health emergency
During the COVID-19 pandemic, the federal government provided states increased flexibility to help keep Medicaid recipients on the rolls. During the public health emergency — declared by the Department of Health and Human Services in January 2020 — many states exercised this flexibility through continuous beneficiary enrollment and reimbursement for telehealth services.
Continuous benefit enrollment
The emergency declaration is expected to remain in effect through the end of 2021. When the declaration period ends, states must redetermine beneficiaries’ eligibility and resume normal eligibility and enrollment operations. This is likely to be a tall order given tremendous growth in enrollment. Take Michigan, for example, where the state’s expanded Medicaid program, the Healthy Michigan Plan, grew from 682,000 enrolled residents at the onset of the pandemic in March 2020 to over 900,000 as of April 2021, according to the office of Governor Gretchen Whitmer.
In addition to continuous beneficiary enrollment flexibility afforded to states under the emergency declaration, the increase can also be attributed to additional Medicaid funding from the federal government through the Families First Coronavirus Response Act and to newly eligible subscribers.
As the declaration nears its end date and states reevaluate eligibility requirements, health plans and providers will need to consider several things, including resources for managing expanding enrollment, uncertainties for cost and care of members who haven’t had insurance, and the accounting and reporting implications of a changing member population.
The public health emergency declaration also provided flexibility by reimbursing telehealth services, which were not eligible pre-pandemic. Going forward, it’s possible that excess COVID-19 and American Rescue Plan Act (ARPA) federal funding at the state and local level could be allocated to broadband access and infrastructure improvements that make virtual care options more accessible. But whether states will allow telehealth services to continue to be Medicaid-reimbursable and whether states promote these services remain to be seen.
Whether states will allow telehealth services to continue to be Medicaid-reimbursable and whether states promote these services remain to be seen.
Developing Medicaid trends to watch
Coverage, access to care, and equity in care will be key themes for federal initiatives around Medicaid. Expect to see targeted efforts to expand Medicaid coverage to incarcerated populations, targeted strategies in the maternal mortality space to improve equity, and strategies targeting preventive care, including mental healthcare.
Another major focal area will be addressing the coverage gap for the uninsured — individuals who are ineligible for Medicaid but unable to afford private insurance benefits. Closing the gap will be highly cost-intensive, potentially funded through increased subsidies or expansion of offerings on state health insurance exchanges. But with increased scrutiny on federal spending in the wake of COVID-19 funding through the CARES Act and ARPA and the looming infrastructure bill, funding mechanisms remain an open issue.
That said, health plans and providers will need to consider the possible impacts of providing coverage to previously uninsured populations, particularly on developing estimates for accounting purposes on populations with little to no historical data. Estimates include claims reserves and risk-sharing components of underwriting these populations, such as risk corridors and risk adjustments. These estimates may be subject to significant volatility, which may pose elevated risks in managing and projecting cash flows.
Managing prescription drug costs
Rising prescription drug costs continue to concern Medicaid stakeholders. With exponential increases in costs each year, states are considering several strategies to rein them in, such as outcome- or value-based rebates to providers, use of preferred drug lists, and other approaches. Ongoing federal initiatives and efforts by larger states such as California may result in negotiated pricing with manufacturers or other strategies that could trickle down nationally. Drug-related costs continue to be a hotly debated item, and statutory filers should be familiar with accounting for rebates should new programs materialize.
Medicaid health plans, commercial insurers, and providers should prepare for both opportunity and volatility in the coming quarters as the public health emergency declaration and related regulatory flexibility comes to an end. As states reevaluate eligibility and enrollment swells, or declines, don’t risk the financial losses that can come from underserving populations or overlooking enrollment opportunities. Carefully consider the growth opportunities — particularly in states expanding Medicaid programs — and potential impacts on your accounting and financial reporting when estimating outcomes of new populations.
As always, if you have questions feel free to reach out — we’re happy to help.