On Monday, State Auditor Mary Mosiman released a report on a review of Medicaid savings estimates as a result of the Iowa Department of Human Services transitioning the Medicaid program from a primarily fee-for-service program to a managed care program. Her office determined the state used incomplete data for two of the three methods to estimate how much money the state of Iowa would save.
Mosiman’s office reviewed three estimates prepared using different methodologies for estimating fiscal year 2018 savings from the transition to a managed care program:
–January 2017 estimate from the Governor’s Office, which reported estimated savings of $234 million
–November 2017 estimate from the Department, which reported estimated savings of $47 million
–May 2018 estimate from the Department, which reported estimated savings of $141 million
Because of the nature and complexity of the Medicaid program, and the timing of the determination of costs associated with the program which cannot be paid until a future period, Mosiman’s office determined “it is necessary to use estimates in all three methodologies.”
The State Auditor reported the January 2017 and the November 2017 estimates were based on data which did not account for all Medicaid program costs or costs incurred during the year which were not paid by fiscal year-end and, therefore, Mosiman wrote in the report that “these methodologies should not be used to estimate Medicaid savings.”
Mosiman determined the May 2018 methodology is “an accurate and reliable method for estimating Medicaid savings” and that this is the methodology which should continue to be used by DHS for the following reasons, according to the report:
–The estimate was calculated based on a financial assessment of the overall Medicaid program.
–The May 2018 methodology applies the accounting matching principle by adjusting the raw data to align expenditures with the year in which they were incurred.
The May 2018 savings of $141 million reported by DHS was an accurate estimate based on the information available at the time. In the report on page 13, the May 2018 estimate has been updated with September 30, 2018 cost information and updated estimates as of November 7, 2018 and compared to the original May 2018 estimate. This updated information, according to the state auditor, will be used for financial reporting purposes and included in the Comprehensive Annual Financial Report (CAFR).
The comparison shows the May 2018 estimate was accurate based on the information available at the time the estimate was prepared. The average cost per member for SFY 2018 is $8,934 while it is estimated to be $9,436 for SFY 2019. This differs from the average cost per member reported by the Department in the recent Improve Iowans’ Health Status Report because those numbers were not adjusted to match most Medicaid costs paid with the year in which the services were provided. The unadjusted estimate shows average cost-per-member growth of 6.6% in SFY 2018 and 11.0% in SFY 2019. The adjusted estimate shows an average cost-per-member growth of 1.5% in SFY 2018 and 5.6% in SFY 2019.
Mosiman concluded in the report that, “Over time, savings estimates will become less accurate and less meaningful as the State gets further from a fee-for-service program. The estimate of what it may have cost to provide services under the fee-for-service program will become more difficult to determine because future cost trends may or may not be representative of the annual growth rates currently used to estimate future Medicaid costs.”