In a recent decision, the Fifth Circuit Court of Appeals reversed a United States District Court judgment that would have resulted in Medicaid managed care organizations (MCOs) paying the Affordable Care Act’s (ACA) Health Insurance Provider Fee (HIPF) without having that enormous expense factored into their capitation rates.  The appellate decision maintains the rule that actuarially sound rates are to provide for all reasonable, appropriate, and attainable costs, and such costs include government-mandated taxes and fees like the HIPF.

In Texas v. United States the states of Texas, Kansas, Louisiana, Indiana, Wisconsin, and Nebraska (the “States”) challenged the rule that Medicaid actuarial rate-setting must require an MCO’s rates to include an amount accounting for the HIPF that MCOs are required by law to pay.  The judgment in the States’ favor threatened the future of actuarial rate-setting because Medicaid MCOs would have been at risk of paying the HIPF without being compensated for this liability through their capitation payments.

The States also challenged the “Certification Rule,” which requires that the capitation rates paid by the States be certified by actuaries who follow the practice standards established by the Actuarial Standards Board (ASB).  The States argued that by creating the Certification Rule, the federal government unlawfully delegated to the ASB rulemaking power governing the States’ access to Medicaid funds.  The States also argued that the federal government’s incorporation of Actuarial Standard of Practice (ASOP) 49 into the Certification Rule was unlawful because doing so exceeded statutory authority.

The Fifth Circuit ruled that requiring actuaries to follow the ASB’s standards was not an unlawful delegation of federal authority and that the federal government can require states to factor the HIPF into Medicaid capitation rates pursuant to ASOP 49 and other actuarial soundness principles established by the ASB.

For more information about the Fifth Circuit’s recent decision, please contact Tony Eaton or Mike Daponde.