AHIP, BCBS Association support lawsuit against health insurance tax for Medicaid managed care

America's Health Insurance Plans and the Blue Cross Blue Shield Association have filed a friend of the court brief supporting a lawsuit against the health insurance tax as it affects Medicaid Managed Care Organizations.

The tax has been on-again, off-again since it was included in the Affordable Care Act. Congress has often delayed its implementation, but it's scheduled to go into effect in 2020.

In 2017, AHIP called the HIT a $100 billion-plus sales tax on health insurance. It affects all plans and consumers can expect to see premium increases because of it. For example, families in the small-employer market could see their premiums go up an additional $7,000 over the next 10 years because of the tax, said AHIP, which is continuing to push for full repeal.

The ongoing lawsuit is about how the tax affects Medicaid Managed Care Organizations.

A district court in Texas found that states are not required to include the tax when paying MCOs their capitated rates.

This decision is now on appeal to the Fifth Circuit Court.

Because states are not currently including the tax when paying MCOs their capitated rates, and because these organizations operate on low margins, the tax could force some of these value-based MCOs to cut provider rates or to exit the market, according to the amicus brief filed by AHIP and BCBS Association last week with the U.S. Court of Appeals for the Fifth Circuit.

States stand to lose value-based arrangements, social determinant programs and the millions in savings these plans negotiate.

This lawsuit and a larger case involving the constitutionality of the Affordable Care Act, are similar in that they both originated in Texas and from the ACA. A decision in the larger case is expected at any time.

The HIT case is separate and oral arguments are not expected until June. 

In their brief, AHIP and BCBS Association ask for the district court's orders granting partial summary judgment in favor of the plaintiff states reversed, and the case remanded back to the district court for entry of summary judgment in favor of the United States.

WHY THIS MATTERS TO MCOs

Should the HIT go into effect, Medicaid managed care organizations would suffer financially, according to the brief. This could lead to cost containment measures that would affect beneficiaries.

Medicaid MCOs might be forced to pay providers reduced rates, which could decrease provider participation in the Medicaid program and infringe on beneficiaries' access to care, AHIP and the Association said.

More dire, the HIT could see MCOs leaving the market, leading Medicaid back to a fee-for-service model. 

"The Society of Actuaries reports that average Medicaid MCO margins in 2015 were between 1.5% and 1.8%. Another study by the Menges Group reviewed operations of 113 Medicaid MCOs for the period 2011 to 2016, and found that MCOs realized an average net margin of 1.5% of revenues," AHIP and BCBS Association said in the brief. "Yet the HIPF (health insurance provider fee) increases the average premium cost per Medicaid beneficiary by 1.6%. Thus, requiring Medicaid MCOs to pay the HIPF without states taking that cost into account in their capitation rates would operationally compromise Medicaid MCOs and could result in some becoming financially unstable or insolvent."

States are saying they're not required to pay the tax, but the Department of Health and Human Services requires states to set actuarially sound capitation rates, which requires including all costs.

When the ACA was passed in 2010, one portion of the legislation imposed the health insurance providers fee, or HIT, on all covered health insurers. The purpose of the fee was to generate revenue from a windfall Congress expected insurers to receive by increasing enrollment.

But the ACA includes no language requiring states, as a condition of the federal funding for their Medicaid and CHIP managed care organizations, to include the HIT when paying the managed care organizations.

THE LARGER TREND\BACKGROUND

From the inception of Medicaid in the mid-1960s until the early 1980s, Medicaid benefits were generally delivered on a fee-for-service basis.

Starting in the 1980s, and increasingly in the 1990s, states began shifting their Medicaid delivery systems to full risk-based contracts with Medicaid Managed Care Organizations.

By 2010, over 70% of Medicaid beneficiaries were enrolled in some form of managed care, and nearly half were enrolled in full-risk based comprehensive managed care systems.
The MCO lawsuit has been ongoing for five years.

In October 2015, in the U.S. District Court Northern District of Texas, six states brought the lawsuit against the U.S. government, HHS and the IRS over the tax, and sought to get reimbursed.

The district court granted and denied motions from both sides. The federal government appealed and the states appealed.

The tax was expected to total $8 billion in 2014 and $14.3 billion by 2018.

Nonprofit managed care organizations that receive more than 80% of their gross revenues from government programs serving low income, elderly, and disabled populations, are exempt from the fee.

ON THE RECORD

"As the district court acknowledged in its summary judgment ruling, Medicaid MCOs provide healthcare services more efficiently and less expensively than the traditional FFS [fee-for-service] health insurance model… . Indeed, the court found that the plaintiff states 'have saved hundreds of millions of dollars by transitioning to MCOs,'" AHIP and BCBS Association said.

Twitter: @SusanJMorse

Email the writer: susan.morse@himssmedia.com