Iowa Paying An Additional $33 Million For Medicaid Management

Oct 31, 2016

The State of Iowa is increasing the amount of money it pays to the three private companies managing Iowa’s Medicaid system by $33.2 million. Gov. Terry Branstad says the increase is largely due to pharmaceutical costs, which are higher than anticipated since April when the state privatized its Medicaid system.

"We're dealing with healthcare costs," says Branstad. "It's not something that's going to be perfect." 

Despite the additional payments, the governor insists Iowa will still reap the $110 million in savings projected by state actuaries. Branstad says that’s because the money Iowa is saving by privatizing Medicaid is also higher than expected, so the state can afford to increase contract rates to the Managed Care Organizations.

Governor Branstad does not need legislative approval to increase rates for the MCO's. But he will need to find the money if there is a shortfall in Medicaid. 

"It's looking like there will be at the moment," wrote Legislative Services Agency analyst Jess Benson in an email. "Funding for that shortfall could come from a number of different places including a supplemental appropriation from the Legislature, transfers from other appropriations within DHS (Department of Human Services), or transfers from other appropriations from other departments in state government." 

One benefit of privatization is that by paying the MCOs a fixed rate, Iowa is insulated from unforeseen costs. So some, like Democratic Sen. Joe Bolkom of Iowa City, argue the state should not be giving the companies more money to grapple with increased drug costs.

"The governor's numbers have been smoke and mirrors for months," says Bolkom. "I thought that we were shifting the risk to these companies when they agreed to sign a contract with the state. Here we are, seven months into the program, and they're asking us for like $30-plus million more."

In a letter to the governor, Iowa Department of Human Services Director Chuck Palmer wrote that setting "sound rates" which follow industry standards promotes a stable and sustainable Medicaid system. 

In addition to the $33.2 from Iowa, the MCOs will also receive $94.5 million more in matching federal funding. This brings the entire capitation rate increase to $127.7 million. 

Roughly 560,000 Iowans are enrolled in Medicaid, or 18 percent of the state's population.