Background

The legal and policy landscape regarding protections based on sexual orientation and gender identity in health care and other areas has shifted markedly in the last decade. Most recently, on June 15, 2020 in Bostock vs. Clayton County, the Supreme Court of the United States ruled that, under Title VII of the Civil Rights Act of 1964, it is unlawful sex discrimination for an employer (with at least 15 employees) to fire an employee because of their sexual orientation or gender identity. It is likely that this ruling will have implications for employers’ decisions regarding health insurance coverage for employees with same-sex spouses, among other areas of employment.

Using the latest data from our annual Employer Health Benefits Survey (EHBS), we assessed access to employer sponsored health insurance (ESI) coverage for same-sex spouses during the first half of 2020 (prior to the Bostock decision), as well as trends over time; ESI remains the primary way people in the U.S. receive health coverage, either directly or as a spouse or other dependent.^1 ,2  We find that, as of mid-2020, while employer offer of same-sex spousal coverage has increased over time, it remains less common than opposite sex spousal coverage.³  These increases follow two other Supreme Court rulings (United States v Windsor and Obergerfell v Hodges) which guaranteed the right to marriage nationwide and paved the way for wider access to health insurance through the workplace (see Appendix).⁴ 

Findings

Firms Offering

In 2020, about three-quarters (74%) of firms offering health insurance coverage to opposite-sex spouses also provided coverage to same-sex spouses, a substantial increase from 43% in 2016 (see Figure 1).⁵  Of the remaining 26% of firms, 5% reported that they do not offer this benefit (similar to the share in 2018) and 21% reported they had not encountered this as a benefits issue, a finding driven by small employers (those with fewer than 200 workers), who represent the majority of employers overall (97%).⁶  It is becoming less common for employers to report not encountering this benefits issue.

The likelihood of employers offering both opposite-sex spousal coverage and same-sex spousal coverage increases with firm size (see Figure 2). Among firms offering opposite sex spousal coverage, large firms (those with 200 or more employees) were more likely to offer coverage to same-sex spouses compared to smaller firms (89% vs 73%). Almost nine in ten (89%) large firms with opposite-sex spousal coverage offered such coverage, 9% did not, and 2% reported they had not encountered this benefits issue. Among the largest firms (those with a 1,000 or more workers), 95% offered coverage to same-sex couples. By contrast, just 73% of small employers (3-49 workers) offered coverage to same-sex spouses. Four (4%) percent did not and 23% said they had not encountered it.

 

Covered Workers

While the majority of firms in the United States are small, the majority of covered workers are employed by large firms (200 or more workers) (see Figure 3).⁷  In 2020, among employees who worked at firms offering opposite-sex spousal health benefits, 91% also had access to same-sex spousal coverage, up somewhat from 88% in 2018 and 84% in 2016 and 2017 (see Figure 4). Five percent (5%) did not have access to this benefit, and 4% worked at firms who reported they had not encountered this benefits issue.

As with firms offering same-sex spousal coverage, the share of employees with access to this benefit increases with firm size (see Figure 5). Most covered workers (96%) at large firms (those with 200 or more employees) who have access to opposite-sex spousal coverage also have access to same-sex spousal coverage. Just 4% did not, and less than1% worked at firms that reported they had not encountered the issue. Among workers at the largest firms (1,000+ workers), nearly all (98%) had access to same-sex spousal coverage. Those least like to have access were employees at firms with 50-199 workers, 15% of whom did not have same-sex spousal coverage when opposite sex coverage was available.

Workers at small firms offering opposite-sex spousal coverage were less likely to have access to health insurance benefits for same-sex spouses, though a majority did (77%). Nine percent (10%) did not have access to this benefit and another 13% worked at firms that report they have not encountered this issue.

Conclusion

These findings indicate that access to employer coverage for same-sex spouses is increasing in the U.S., though it still is less than access to opposite sex spousal coverage. Coverage varies substantially by employer size, with employees at small firms having less access while those at the largest firms have almost uniform access to this benefit. In some cases, lack of access could be a policy decision, though that appears to be on the decline, with smaller shares of firms saying explicitly that they do not offer same-sex spousal coverage. Moreover, it is likely that the Bostock decision will have further implications for same-sex spousal coverage, with more firms being required to offer this benefit under the sex protections in Title VII. However, Title VII nondiscrimination protections do not apply to the 5% of employees at firms with less than 15 employee. Further, the Bostock court cautioned that employers could potentially secure religious liberty exemptions from extending sex protections to encompass sexual orientation and gender identity and it is yet to be seen how such exemptions interact with Title VII.

This work was supported in part by the Elton John AIDS Foundation. We value our funders. KFF maintains full editorial control over all of its policy analysis, polling, and journalism activities.

Supreme Court Marriage Cases – Background

Prior to the Windsor and Obergefell decisions, same-sex couples faced limited options for obtaining spousal coverage through an employer and when they did, this benefit was treated differently under federal law from benefits received by heterosexually married couples. While some employers offered domestic partner benefits for same-sex partners⁸  and a growing number of states began to recognize same-sex marriage⁹ , in 2012, less than half of all workers with health coverage had access to same-sex health benefits.¹⁰  In addition, because the federal government did not recognize same-sex marriages, where such benefits were offered, they were not considered tax exempt which meant that same-sex couples faced higher tax burdens compared to heterosexual counterparts.

In June 2013, in Windsor, the Supreme Court overturned a major portion of the Defense of Marriage Act (DOMA) which had, for federal purposes, defined marriage as between a man and a woman. The Windsor decision required federal recognition of same-sex marriages, even if a couple lived in a state that did not recognize same-sex marriage. As a result, employer-sponsored health benefits provided to legally married same-sex couples were now considered tax exempt.¹¹  Windsor, however, did not require states to issue same-sex marriage licenses or recognize those performed elsewhere, leading to a patchwork of recognition across the U.S. and lack of access to legal same-sex marriage for many couples where they lived. In 2015, the Supreme Court’s ruling in Obergefell legalized same-sex marriage nationwide, requiring all states to recognize same-sex marriages and issue marriage licenses to same-sex couples. While neither decision required private employers to offer same-sex spousal coverage if they offered coverage to opposite-sex spouses¹² , it was expected that wider access to marriage would lead to greater access to coverage. In fact, one study found that the legalization of same-sex marriage in New York was associated with an increase in employer-sponsored insurance among same-sex couples.¹³  In addition, an increasing number of states (22 states and DC as of 2019) have protections in place that prohibit employers from discriminating against individuals based on sexual orientation, and presumably would require employers offering opposite-sex spousal coverage to extend that benefit to same-sex spouses.¹⁴  Furthermore, employers who refuse to offer same-sex spousal coverage while providing coverage to opposite-sex spouses could face legal challenges. Still, employers are not required to provide same-sex spousal coverage parity to their employees.

1. Virtually all employers offering health benefits offer spousal coverage, allowing over half those covered by an employer plan to be covered as a dependent. ↩︎
2. Kaiser Family Foundation. Health Insurance Coverage of the Total Population, 2019. State Health Facts. https://modern.kff.org/other/state-indicator/total-population/ ↩︎
3. Note: the survey was largely fielded prior to the Bostock decision, see Methods. ↩︎
4. Additional detail about these Supreme Court cases is available in the Appendix. ↩︎
5. This increase was driven by the smallest firms so this finding may have some year-to-year volatility based on the mix of small firms sampled. ↩︎
6. Distribution of Employers, Workers, and Workers Covered by Health Benefits, by firm size, 2020 from The KFF 2020 Employer Health Benefits Survey (2020). Exhibit available here: https://modern.kff.org/report-section/ehbs-2020-survey-design-and-methods/#figurem6 ↩︎
7. Distribution of Employers, Workers, and Workers Covered by Health Benefits, by firm size, 2020 from KFF 2020 Employer Health Benefits Survey (2020). Exhibit available here: https://modern.kff.org/report-section/ehbs-2020-survey-design-and-methods/#figurem6 ↩︎
8. The first employer to do so was the Village Voice in 1982. (Appleby, J. May 14, 2012. “Many Businesses Offer Health Benefits To Same-Sex Couples Ahead Of Laws.” PBS Newshour. Retrieved from: http://www.pbs.org/newshour/rundown/many-businesses-offer-health-benefits-to-same-sex-couples-ahead-of-laws/.) ↩︎
9. Massachusetts became the first state to recognize same-sex marriage in 2003. By June 2013, 12 states and the District of Columbia recognized gay marriage. (See Honan, E. June 26, 2013. “Factbox: List of states that legalized gay marriage.” Reuters. Retrieved from: http://www.reuters.com/article/us-usa-court-gaymarriage-states-idUSBRE95P07A20130626.) ↩︎
10. Among Large Firms Offering Health Benefits, Percentage That Offer to Unmarried Opposite-Sex and Same-Sex Domestic Partners, 2008-2019, from The KFF 2019 Employer Health Benefits Survey (2019). Exhibit available here: https://modern.kff.org/report-section/ehbs-2019-section-2-health-benefits-offer-rates/#figure213 ↩︎
11. IRS Revenue Ruling 2013-17,  August 29, 2013. https://www.irs.gov/pub/irs-drop/rr-13-17.pdf. ↩︎
12. However, the Windsor decision ensures federal employees and contractor employees, have access to same-sex spousal coverage at parity with opposite-sex spousal coverage offerings and the Obergefell ruling means that spousal coverage benefits should be extended to state and municipal employees across the nation to the same degree as their heterosexual counterparts. ↩︎
13. Gonzales G. “Association of the New York State Marriage Equality Act with Changes in Health Insurance Coverage.” JAMA. 314(7). 2015. ↩︎
14. Human Rights Campaign. Map of State Laws and Policies- Statewide Employment Laws and Policies. Available at: http://www.hrc.org/state_maps. Accessed 10/15/20. ↩︎

Managed care is the predominant Medicaid delivery system in most states, with over two-thirds of beneficiaries enrolled in comprehensive risk-based managed care organizations as of July 2019, and millions of others covered by limited-benefit risk-based plans or primary care case management programs. On November 13, 2020, the Centers for Medicare and Medicaid Services (CMS) finalized revisions to the Medicaid managed care regulations which were proposed in November 2018. CMS previously finalized a major revision to these regulations in 2016, under the Obama Administration. A few months after taking office, the HHS Secretary and CMS Administrator under the Trump Administration released a letter to state governors noting their plan to conduct a “full review of [Medicaid] managed care regulations to prioritize beneficiary outcomes and state priorities.” CMS then released a June 2017 Informational Bulletin, indicating it would use “enforcement discretion” to work with states on achieving compliance with many provisions of the 2016 final rule while the rule was under review.

Most of the new provisions take effect on December 14, 2020, which means that the incoming Biden Administration would have to issue a new notice of proposed rule-making, with a reasonable justification for any changes, to modify the new rule. The changes, including modifications to network adequacy standards and relaxed requirements for accessibility of written health plan materials for people with disabilities and Limited English Proficiency, take effect in the midst of the COVID-19 public health emergency, when states are using various Medicaid emergency authorities to facilitate access to coverage and care during the pandemic.

The November 2020 final rule is not a wholesale revision of the 2016 regulations but adopts changes in areas including network adequacy, beneficiary protections, quality oversight, and rates and payment. Most changes were finalized as originally proposed with very few changes between the Trump Administration’s proposed to final rule. Key changes between the new Trump Administration rule and prior Obama Administration rule include the following:

Network adequacy. The 2020 final rule removes the requirement that states use time and distance standards to ensure provider network adequacy and instead lets states choose any quantitative standard.

Beneficiary protections. The 2020 final rule relaxes requirements for accessibility of written materials for people with disabilities and those with limited English proficiency; modifies some provider directory requirements; and changes the timeframe within which plans must tell enrollees that a provider is leaving the network. It also lets states shorten the timeframe for enrollees to request a state fair hearing and eliminates the requirement for enrollees to submit a written appeal after an oral appeal.

Quality oversight. The 2020 final rule revises the requirement that a state’s alternative managed care quality rating system (QRS) yield information substantially comparable to the CMS-developed QRS; clarifies that health plan encounter data must include allowed and paid amounts; allows but does not require states to broaden the definition of disability when addressing health disparities under states’ managed care quality strategies; and requires states to annually post online which health plans are exempt from external quality review.

Rates and payment. The 2020 final rule allows states to set capitation rate cell ranges instead of a single rate per cell. It also expressly prohibits states from varying capitation rates based on the amount of federal financial participation for covered populations in a manner that increases federal costs. Under the final rule, states also cannot retroactively add or modify risk-sharing mechanisms after the start of a rating period. The final rule recognizes two minimum fee schedules for directed payment arrangements from health plans to providers; codifies sub-regulatory guidance for multi-year approvals of value-based purchasing models; and allows states to make new supplemental provider pass-through payments for up to three years when transitioning populations or services from fee-for-service to managed care.

Introduction

On November 13, 2020, the Centers for Medicare and Medicaid Services (CMS) finalized changes to the Medicaid managed care regulations.¹  CMS last revised these regulations in 2016 (“the 2016 final rule”) under the Obama Administration.²  The 2016 final rule represented a major revision and modernization of federal regulations in this area, which had not been updated since 2002.³  CMS’s major goals in issuing the 2016 final rule were to align Medicaid managed care requirements with other major health coverage programs where appropriate; enhance the beneficiary experience of care and strengthen beneficiary protections; strengthen actuarial soundness payment provisions and program integrity; and promote quality of care.⁴ 

In March 2017, the HHS Secretary and CMS Administrator under the Trump Administration released a letter to state governors noting the new Administration’s plan to conduct a “full review of [Medicaid] managed care regulations to prioritize beneficiary outcomes and state priorities.”⁵  CMS then released an Informational Bulletin in June 2017, indicating it would use “enforcement discretion” to work with states on achieving compliance with the 2016 final rule, except for specific areas that “have significant federal fiscal implications.”⁶  CMS’s stated goals in releasing the November 2018 Notice of Proposed Rulemaking (NPRM) to revise the 2016 final rule were to streamline the managed care regulatory framework; reduce state and federal administrative burden; support state flexibility; and promote transparency, flexibility, and innovation in care delivery. The new regulations are not a wholesale revision of the 2016 final rule, but they include changes in the following key areas, which are summarized in this issue brief and Table 1: network adequacy, beneficiary protections, quality oversight, and rate setting and payment.⁷  Most of the new provisions take effect on December 14, 2020. Exceptions are noted in the discussion below and Table 1. Most changes were finalized as originally proposed.

Background

According to the most current national data, as of July 1, 2019, 54.0 million Medicaid beneficiaries, or 69%, were enrolled in comprehensive risk-based managed care organizations (MCOs).⁸  As of July 1, 2019, 39 states and DC contract with MCOs; in many of these states, at least 75% of all beneficiaries are enrolled in these health plans.⁹  While MCOs are the predominant form of Medicaid managed care, millions of other beneficiaries receive at least some Medicaid services, such as behavioral health or dental care, through limited-benefit risk-based plans, known as prepaid inpatient health plans (PIHPs) and prepaid ambulatory health plans (PAHPs). Several million beneficiaries are also enrolled in primary care case management (PCCM) programs that range from basic managed fee-for-service (FFS) models to more enhanced models.¹⁰ 

Key Changes in the 2020 Final Rule

Network adequacy

The 2020 final rule removes the requirement that states use time and distance standards to ensure health plans’ provider network adequacy and instead allows states to choose another quantitative standard. Health plan efforts to recruit and maintain their provider networks can play a crucial role in determining enrollees’ ability to access covered services. The 2016 final rule required states to develop and enforce enrollee travel time and distance standards for certain specified provider types as well as additional providers to be determined by CMS, for health plan contracts beginning on or after July 2018. The new rule instead allows states to use an alternative standard such as minimum provider-to-enrollee ratios, maximum travel time or distance to providers, minimum percentage of contracting providers accepting new patients, maximum wait times for an appointment, or hours of operation requirements. The new rule also allows states to use any quantitative network adequacy standard for long-term services and supports providers to whom enrollees must travel to receive services, eliminating the requirement in the 2016 final rule for states to develop time and distance standards for these providers. Additionally, the new rule allows states to define the specialists to which network adequacy standards apply. Finally, the new rule eliminates the “other provider type” language, curtailing CMS’s ability to add to the list of providers subject to network adequacy standards without further rule-making.

Beneficiary protections

BENEFICIARY INFORMATION

The 2020 final rule relaxes the requirements for accessibility of written materials for people with disabilities and those with limited English proficiency. The 2016 final rule required taglines in large print and in locally prevalent non-English languages on all written materials (e.g., enrollee handbooks, provider directories, enrollee notices) to explain the availability of interpretation and translation services and to provide the toll-free choice counseling number and the plan’s toll-free customer service number, for plan contracts beginning on or after July 2017. The new rule only requires taglines on written materials for potential enrollees that “are critical to obtaining services.” The final rule also changes the definition of “large print” from at least 18-point font to font that is “conspicuously visible.”The 2020 final rule eliminates the requirement to identify in health plan provider directories whether a provider has completed cultural competence training and decreases the frequency of updating paper provider directories. The 2016 final rule required plan directories to indicate whether a provider has completed cultural competence training and specified that paper directories must be updated at least monthly, for plan contracts beginning on or after July 2017. The new rule only requires monthly updates to paper directories if a mobile-enabled, electronic directory is not available; otherwise, updates are required quarterly.

The 2020 final rule changes the timeframe within which plans must tell enrollees that their provider is leaving the plan network. The 2016 final rule required plans to make a good faith effort to give written notice of termination of a contracted provider to enrollees within 15 calendar days after receipt or issuance of the termination notice, for plan contracts beginning on or after July 2017. The new rule changes this requirement to the later of 30 calendar days prior to the effective termination date, or 15 calendar days after receipt or issuance of the termination notice.

APPEALS

The 2020 final rule allows states to shorten the timeframe within which an enrollee can request a state fair hearing to appeal a health plan decision to deny or terminate covered services. The 2016 final rule provided enrollees with 120 days from the plan’s notice of resolution of the internal plan appeal to request a state fair hearing, for contracts beginning on or after July 2017. The new rule lets states set the timeframe for enrollees to request a fair hearing between 90 to 120 days, to allow states to align this period with the timeframe for enrollees to appeal decisions covered under Medicaid fee-for-service.

The 2020 final rule also eliminates the requirement for beneficiaries to submit a written, signed appeal after an oral appeal is submitted. The 2016 final rule required enrollees to submit a written, signed appeal following an oral appeal, for contracts beginning on or after July 2017.

Quality oversight

QUALITY RATING SYSTEM

The 2020 final rule revises the requirement that states’ alternative managed care quality rating systems (QRS) yield information substantially comparable to the CMS-developed QRS, instead requiring this only “to the extent feasible.” CMS is to develop performance measures and a methodology for a managed care QRS framework to rate health plans and enable comparisons across states.¹¹  States also can implement an alternative QRS with CMS approval. Under the new rule, a state’s alternative QRS must include the mandatory performance measures to be established by CMS, although the alternative QRS has to yield information substantially comparable to the CMS-developed QRS only to the extent feasible. CMS will issue sub-regulatory guidance specifying the criteria and process for determining “substantial comparability.” CMS did not finalized its proposal that would have eliminated the requirement that states obtain prior approval from CMS before implementing an alternative QRS.

ENCOUNTER DATA

The 2020 final rule clarifies that health plan submission of encounter data must include allowed and paid amounts. CMS underscored the importance of these data for monitoring and administration of the Medicaid program, particularly for capitation rate setting and review, financial management, program integrity, and utilization analysis. The 2016 final rule conditioned federal matching funds for Medicaid managed care payments to states on state reporting of validated, complete, and timely enrollee encounter data, for contracts beginning on or after July 2018.

QUALITY STRATEGY

The 2020 final rule allows states to expand the definition of “disability status” when addressing health disparities in the state’s managed care quality strategy.  Under the 2016 final rule, states must have a written quality strategy for assessing and improving the quality of care and services furnished by health plans and PCCM entities, for health plan contracts effective on or after July 2018. Among other elements, state quality strategies must describe their plans to reduce health disparities based on certain demographic factors including disability. The 2016 regulations identified enrollees with a disability based on whether they qualify for Medicaid in a disability-related eligibility pathway, and the new rule requires states to adopt this standard at minimum in their definition of disability status. Under the 2020 final rule, states must include in their quality strategy the state’s definition of disability status and how the state will determine whether an enrollee meets that standard, including the data sources used. This change is effective for all quality strategies submitted after July 1, 2021. CMS proposed but did not finalize a broader definition of “disability,” which would not have been limited to individuals who qualify for Medicaid based on a disability and would have recognized that enrollees with disabilities may qualify for Medicaid on another basis (such as low income).

EXTERNAL QUALITY REVIEW

The 2020 final rule requires that states annually post online which health plans are exempt from external quality review (EQR) and specify when the exemption began. Under the 2016 final rule, states must ensure that a qualified organization performs an annual EQR for each health plan or PCCM entity to assess quality, timeliness, and access to health care services, for contracts beginning on or after July 2018. CMS also adopted a requirement for states to identify exempted plans in their annual EQR technical report, effective for all reports submitted on or after July 1, 2021.

Rate setting and payment

CAPITATION RATE DEVELOPMENT

The 2020 final rule allows states to set capitation rate cell ranges¹²  instead of a single rate per cell, effective for rating periods beginning on or after July 1, 2021. The allowable range is 5 percent, or +/- 2.5 percent from the midpoint. The 2016 final rule required a single rate per cell for contracts beginning on or after July 2016. In support of the change, CMS noted that the single rate requirement could diminish a state’s ability to obtain the best rates. To address concerns about transparency, state websites must post certain information about the development of rate ranges.¹³  States also must document the rates payable to health plans at points within the range prior to the start of the rating period. CMS will provide additional guidance on how to implement this requirement. The final rule also allows states to change capitation rates within the range up to 1 percent during the rating year without submitting a new rate certification, if the change is consistent with a modification of the health plan contract and other rate development criteria are met.

The 2020 final rule expressly prohibits states from varying capitation rates based on the amount of federal financial participation for a covered population in a manner that increases federal costs. CMS did not finalize its proposed list of certain rate development practices that increase federal costs and therefore are prohibited. While CMS continues to believe that those practices generally increase federal costs, it acknowledged that it cannot predict every future scenario where such practices nevertheless could be actuarially appropriate.¹⁴  The final rule clarifies that rate development standards must be based on actual cost differences in providing covered services to covered populations and that compliance with this requirement is evaluated program-wide, across all managed care contracts and covered populations. During rate review, CMS may require states to provide written documentation and justification that any differences in the assumptions, methodologies, and factors used to develop capitation rates represent actual cost differences based on the characteristics or mix of covered services or populations.

The 2020 final rule clarifies that states may adjust certified capitation rates within a rating period by +/-1.5%, without submitting a revised rate certification or justification to CMS. CMS has determined that rates will remain actuarially sound if adjusted within this range. Under the final rule, CMS can specifically request supporting documentation from states. Notably, states that choose to use rate ranges as described above, instead of a single rate per cell, cannot also apply the +/-1.5% rate adjustment provision. In addition, the 2020 final rule provides that CMS will issue guidance at least annually that describes the federal standards for capitation rate development and related documentation requirements.

The 2020 final rule prohibits states from retroactively adding or modifying risk-sharing mechanisms after the start of the rating period.¹⁵  CMS also requires states to document risk-sharing mechanisms in health plan contracts and rate certification documents prior to the start of the rating period. In the preamble to the final rule, CMS noted that states can adopt retroactive rate adjustments (as opposed to changes to risk-sharing mechanisms) when necessary to address disease outbreaks, launches of high-cost prescription drugs, or other unforeseen circumstances that increase benefit costs mid-year.¹⁶ 

PAYMENT

The 2020 final rule recognizes two distinct minimum fee schedules for states’ directed payment arrangements from health plans to providers. The 2016 final rule allowed states to adopt a minimum or maximum fee schedule for health plan payments to network providers that provide a particular service, for contracts beginning on or after July 2017. The first minimum fee schedule adopted by the new final rule applies to directed payment arrangements that use state plan approved rates. These rates are defined as amounts calculated for specific services provided to an individual under the approved state plan methodology and excluding supplemental payments. The other minimum fee schedule adopted by the new final rule applies to directed payment arrangements that use rates other than state plan approved rates for network providers that provide a particular service. CMS did not finalize its proposal that would have allowed states to direct plans to adopt a cost-based rate, a Medicare equivalent rate, a commercial rate, or another market-based rate. The 2020 final rule also eliminates the requirement for CMS prior approval of states’ directed payment arrangements based on state plan approved rates, as CMS believes this is duplicative of the state plan amendment process. Minimum fee schedules are approved for one rating period at a time.

CMS proposed but did not finalize changes that would have allowed states to direct the amount or frequency of plan expenditures to providers as part of delivery system or payment reform initiatives; these activities remain prohibited as established under the 2016 rule.  While CMS initially believed that prohibiting states from directing the amount or frequency of health plan expenditures may have created unintended barriers to the implementation of innovative payment models, like global payment initiatives, it ultimately decided that health plans should retain discretion in managing risk and their provider contracts, even when states require plans to adopt specific parameters for provider payment through delivery system or payment reform initiatives.

The 2020 final rule codifies sub-regulatory policy guidance governing multi-year approvals of value-based purchasing models or those tied to larger delivery system reform efforts. Specifically, the final regulation adopts the criteria in the November 2017 CMCS Informational Bulletin. Approvals are for one rating period unless the state explicitly describes the arrangement as multi-year, describes its implementation and evaluation plan, and affirms that it will not make changes to payment methodology or magnitude without prior CMS approval. The 2016 final rule described states’ authority to require managed care plans to implement value-based purchasing models for provider payment (such as pay-for-performance arrangements, bundled payments, or other models intended to reward value over volume) or participate in multi-payer or Medicaid-specific delivery system reform or performance improvement initiatives. In the preamble to the 2020 final rule, CMS said that it is reviewing state-directed payments because it has seen state proposals for significant changes to provider reimbursement that could affect program spending and may issue further guidance or regulations based on its review.

The 2020 final rule allows states to make new supplemental provider pass-through payments up to three years when states are transitioning populations or services from fee-for-service to managed care.¹⁷  This change takes effect for pass-through payments to hospitals, physicians, and nursing facilities in managed care rating periods starting on or after July 1, 2021. The provisions of the 2016 final rule that phase out existing pass-throughs of state supplemental provider payments in the capitation rates paid to managed care plans continue to apply. CMS believes that because supplemental payments are not tied to the provision of services covered under plan contracts, they therefore conflict with the actuarial soundness requirement.¹⁸  Specifically, the 2016 rule phases out pass-through payments that existed in contracts and rate certifications for the rating period including July 1, 2016 to hospitals from 2017-2027, and to physicians and nursing facilities from 2017-2022.

The 2020 final rule allows states to specify how health plans covering enrollees dually eligible for Medicare and Medicaid receive crossover claims, instead of requiring plans to have a coordination of benefits agreement and participate in the automated Medicare process. Crossover claims arise for dual eligible beneficiaries because Medicaid may cover the portion of the service charge that is not covered by Medicare. The 2016 final rule required health plans that cover dually eligible enrollees to participate in the Medicare automated crossover claim process in an effort to simplify billing for providers. The new rule allows states to retain that process or adopt an alternative process, such as the state forwarding crossover claims to the appropriate health plan. CMS said that some states indicated that an alternative process enables them to ensure that health plans receive only the claims for which they are responsible in situations where an enrollee is in more than one plan and/or FFS for different benefits or where the enrollee has changed plans.

CMS did not change the “institution for mental disease” (IMD) “in lieu of” authority codified in the 2016 final rule.¹⁹  CMS requested but did not receive any public comment on additional currently available data sources that it could review in support of any changes. Under the 2016 final rule, states can receive federal matching funds for capitation payments made to health plans on behalf of enrollees ages 21-64 who receive psychiatric or substance use disorder (SUD) inpatient or crisis residential services in an IMD for up to 15 days in a month, as services covered “in lieu of” those under the Medicaid state plan benefit package.²⁰  This is an exception to the general federal prohibition against Medicaid payments for services for non-elderly adults in IMDs. Instead of a regulatory change, CMS notes that states may continue to apply for Section 1115 demonstration waivers to receive federal Medicaid matching funds for longer IMD SUD stays.²¹  Additionally, the federal Substance Use Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities (SUPPORT) Act created a new option from October 2019 through September 2023, for states to receive federal Medicaid payments for non-elderly adults with SUD in an IMD up to 30 days per year. In November 2018, CMS also issued new guidance inviting states to apply for Section 1115 waivers of the federal IMD payment exclusion for services for individuals with serious mental health conditions.²² 

Looking Ahead

Most provisions of the new rule take effect on December 14, 2020, which means that the incoming Biden Administration would have to issue a new notice of proposed rule-making, with a reasonable justification for any changes, in order to modify the 2020 final rule. While the new final rule is not a wholescale revision of the comprehensive 2016 final rule, it does make changes in key areas, including network adequacy standards, beneficiary information and appeals, quality oversight, and capitation rate development and provider payment. Federal rules governing Medicaid managed care are important as managed care remains the predominant care delivery system in most states. The changes, including modifications to network adequacy standards and relaxed requirements for accessibility of written health plan materials for people with disabilities and those with Limited English Proficiency, take effect in the midst of the COVID-19 public health emergency, at a time when states are using Medicaid emergency authorities to facilitate access to coverage and care during the pandemic.

1. 85 Fed. Reg. 72754-72844 (Nov. 13, 2020), https://www.govinfo.gov/content/pkg/FR-2020-11-13/pdf/2020-24758.pdf. The proposed changes were published at 83 Fed. Reg. 57264-57299 (Nov. 14, 2018), https://www.federalregister.gov/documents/2018/11/14/2018-24626/medicaid-program-medicaid-and-childrens-health-insurance-plan-chip-managed-care. ↩︎
2. 81 Fed. Reg. 27498-27901 (May 6, 2016), https://www.federalregister.gov/articles/2016/05/06/2016-09581/medicaidand-childrens-health-insurance-program-chip-programs-medicaid-managed-care-chip-delivered. ↩︎
3. For a summary of the 2016 final rule, see KFF, CMS’s Final Rule on Medicaid Managed Care: A Summary of Major Provisions (June 2016), https://modern.kff.org/report-section/cmss-final-rule-on-medicaid-managed-care-issue-brief/. ↩︎
4. Most provisions were effective July 2016, although some provisions became effective later. See id.  ↩︎
5. Letter from HHS Sec’y Thomas E. Price and CMS Administrator Seema Verma to governors (March 14, 2017), https://www.hhs.gov/about/news/2017/03/14/secretary-price-and-cms-administrator-verma-take-first-joint-action.html. ↩︎
6. CMCS Informational Bulletin, Medicaid Managed Care Regulations with July 1, 2017 Compliance Dates (June 30, 2017), https://www.medicaid.gov/federal-policy-guidance/downloads/cib063017.pdf. ↩︎
7. The November 2020 final rule also includes some proposals related to CHIP which are outside of the scope of this brief. ↩︎
8. KFF analysis of the Centers for Medicare and Medicaid Services’ Medicaid Managed Care Enrollment Reports, 2020, https://modern.kff.org/other/state-indicator/total-medicaid-mco-enrollment/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D. ↩︎
9. KFF, State Health Facts, Share of Medicaid Population Covered under Different Delivery Systems (July 1, 2019), https://modern.kff.org/medicaid/state-indicator/share-of-medicaid-population-covered-under-different-delivery-systems/. ↩︎
10. This brief generally refers to “health plans.” Provisions in the proposed rule generally apply to MCOs, and some provisions also apply to PIHPs, PAHPs, and PCCM entities. ↩︎
11. CMS is continuing its stakeholder engagement process and plans a future quality rating system specific rulemaking. ↩︎
12. Rate cell ranges are allowed provided the following conditions are met: 1) the rate certification identifies and justifies the assumptions, data, and methods specific to the upper and lower bounds of the rate range; 2) both the upper and lower bounds of the rate range are certified as actuarially sound; 3) the upper bound does not exceed the lower bound multiplied by 1.05; 4) the rate certification documents the state’s criteria for paying health plans at different points within the rate range; and 5) the state does not use as criteria for payment for different points within the rate range the willingness or agreement of plans or their network providers to enter into intergovernmental transfer (IGT) agreements or the amount of funding plans or their network providers provide through IGT agreements. ↩︎
13. States must post the upper and lower bounds of each rate cell; a description of all assumptions that vary between the upper and lower bounds of each rate cell, including the specific assumptions used for the upper and lower bounds; and a description of the data and methodologies that vary between the upper and lower bounds of each rate cell, including the specific data and methodologies uses for the upper and lower bounds. ↩︎
14. These practices include 1) using a profit, operating, or risk margin to develop capitation rates that is higher than the margin used to develop capitation rates for the covered population, or contract, with the lowest average rate of FFP; 2) factoring into the development of capitation rates the additional cost of contractually required provider fee schedules or minimum levels of provider reimbursement, above the cost of similar provider fee schedules, or minimum levels of provider reimbursement, used to develop capitation rates for the covered population, or contract, with the lowest average rate of FFP; and 3) lowering the remittance threshold for a medical loss ratio for any covered population, or contract, below the threshold used for the covered population, or contract, with the lowest average rate of FFP. ↩︎
15. The 2020 final rule provides a non-exhaustive list of risk-sharing mechanisms, including reinsurance, risk corridors, and stop-loss limits. In the preamble to the 2020 final rule, CMS also confirmed that a minimum medical loss ratio with a remittance and additional restrictions on profits or contractual profit caps are considered risk-sharing mechanisms under the final rule. ↩︎
16. Retroactive rate adjustments must be supported by a rationale; the data, assumptions, and methodologies used to determine the magnitude of the adjustment must be adequately described in enough detail for CMS or an actuary to determine that the adjustment is reasonable; certified by an actuary in a revised rate certification; and submitted as a contract amendment for CMS approval. ↩︎
17. CMS clarified that disproportionate share hospital (DSH) and graduate medical education (GME) payments are not considered supplemental payments. ↩︎
18. On January 17, 2018 CMS posted a final rule clarifying pass-through payment transition periods and maximum allowable pass-through payments. See 82 Fed. Reg. 5415-5429 (Jan. 18, 2017), https://www.federalregister.gov/documents/2017/01/18/2017-00916/medicaid-program-the-use-of-new-or-increased-pass-through-payments-in-medicaid-managed-care-delivery. ↩︎
19. For background about the Medicaid IMD payment exclusion, see KFF, State Options for Medicaid Coverage of Inpatient Behavioral Health Services (Nov. 2019), https://modern.kff.org/medicaid/report/state-options-for-medicaid-coverage-of-inpatient-behavioral-health-services/. ↩︎
20. To receive federal matching funds for “in lieu of” services, a state must identify the services in the plan’s contract and determine that they are medically appropriate and cost-effective. In lieu of services are offered at plan option, and an enrollee cannot be required to use them. KFF, CMS’s Final Rule on Medicaid Managed Care:  A Summary of Major Provisions (June 2016), https://modern.kff.org/report-section/cmss-final-rule-on-medicaid-managed-care-issue-brief/. ↩︎
21. In July 2015, the CMS issued a state Medicaid director letter describing Section 1115 IMD SUD payment waivers. In November 2017, the CMS issued a state Medicaid director letter revising the 2015 guidance. For current IMD state waiver activity, see KFF, Medicaid Waiver Tracker:  Approved and Pending Section 1115 Waivers by State (Nov. 13, 2020), https://modern.kff.org/medicaid/issue-brief/medicaid-waiver-tracker-approved-and-pending-section-1115-waivers-by-state/. ↩︎
22. CMS, SMD #18-011, Opportunities to Design Innovative Service Delivery Systems for Adults with a Serious Mental Illness or Children with a Serious Emotional Disturbance (Nov. 13, 2018), https://www.medicaid.gov/federal-policy-guidance/downloads/smd18011.pdf.   ↩︎