Iowa Medicaid won't renew contract with controversial consulting firm

Iowa Medicaid leaders won't renew their contract with a national consulting firm whose cost estimates were blamed for some of the turmoil the public health care program has faced under private management.

The Milliman firm provided Iowa with complicated estimates of how much care 600,000 Iowans on Medicaid would use. State officials and private Medicaid management companies used those estimates to negotiate rates the state has paid the companies to cover those Iowans, starting in April 2016. The Medicaid management companies have complained that Milliman’s estimates were as much as 40 percent below the actual costs, leading to a “drastically underfunded” system and a “catastrophic experience” for the companies. The management companies complained of losing hundreds of millions of dollars.

Leaders of Iowa’s Department of Human Services recently decided not to renew Milliman’s contract, which runs through this June. In the meantime, the department has hired another firm, Optimus, to help set Medicaid rates that management companies will be paid for the next fiscal year, which starts July 1. That decision comes as another state agency, the Iowa Insurance Division, is suing Milliman for “professional malpractice” for its role in the 2014 collapse of the insurance carrier CoOportunity Health.

Milliman, based in Seattle, is one of the nation’s largest actuarial firms.

Department of Human Services spokesman Matt Highland said the decision to switch actuarial firms was not based on criticism of Milliman’s work for the state.

Mike Randol, who recently became Iowa’s Medicaid director, told legislators Thursday that the department had planned to have Milliman provide estimates for next year’s costs, then hire another actuarial firm to review them. “I felt that was duplicative. So I made the decision and felt it was more appropriate to just move forward with another actuarial firm,” he said in testimony to a joint House and Senate committee that sets the Department of Human Services budget.

Highland said the state has paid Milliman $535,279 since July.  

Milliman spokesman Jeremy Engdahl-Johnson said the company’s Iowa contract “is now being allowed to expire” after four years. The contract is not being cancelled, he said. He declined comment on whether Milliman would bid on similar work for Iowa in the future.  

The DHS decision not to renew Milliman’s Medicaid contract comes as the Iowa Insurance Division presses a separate lawsuit against Milliman for its role in the 2014 collapse of the fledgling health-insurance company CoOportunity Health.

Insurance Commissioner Doug Ommen filed the lawsuit in Polk County District Court last June. The suit contends Milliman committed “professional malpractice” by improperly forecasting how many Iowans and Nebraskans and would sign up for CoOportunity health insurance and how much health care those people would use.

CoOportunity, which was set up with more than $100 million in federal loans and grants under the Affordable Care Act, folded after offering coverage for a little over a year. Ommen’s lawsuit says CoOportunity used Milliman's projections to set insurance premiums, which were much too low to cover the cost of health care its members wound up using. The company lost more than $163 million, the lawsuit says. CoOportunity was the first of a wave of health-insurance co-ops to fail, drawing national criticism of the co-op portion of the Affordable Care Act.

The lawsuit, which also names former CoOportunity Health leaders as defendants, is still working its way through Polk County District Court. Milliman has asked the judge to let a mediator settle the dispute.

Engdahl-Johnson said Milliman doesn’t comment publicly on pending legal cases.

Two legislators who help oversee Iowa’s privately run Medicaid system said they weren’t sorry to hear Milliman was being replaced as the actuarial firm coming up with cost estimates.

Sen. Mark Segebart, R-Vail, said he has nothing against Milliman, but he believes the company’s initial cost estimates were substantially too low. The estimates led to inadequate funding of the new system, he said in an interview this week. “That’s part of the reason we’re in the pickle we’re in,” he said.

Sen. Joe Bolkcom, D-Iowa City, said he supported finding a different actuarial firm. Bolkcom said Milliman officials who testified to legislators came off as boosters of the idea that privatized Medicaid could save the state substantial money. “I’m happy they found somebody else,” Bolkcom said of DHS’ decision, adding that he doesn’t know much about the replacement company.

The new actuarial firm will have to work quickly to provide Medicaid cost estimates for next fiscal year. State officials and the Medicaid management companies will use those numbers to negotiate payment rates, which are to take effect July 1. Last year, those negotiations dragged on until October.

Randol vowed Thursday that the next round of contract negotiations with the Medicaid managed-care companies will wrap up before the Legislature adjourns, which is expected to be by late April. Hundreds of millions of dollars are at stake in the negotiations, and legislators want to know how much Medicaid will cost the state before they approve the overall budget.

The two Medicaid management companies serving Iowa, UnitedHealthcare and Amerigroup, have said they hope to at least break even on the project soon, after losing hundreds of millions of dollars here.

A leader of Amerigroup’s parent company, Anthem, told investment analysts Wednesday that he’s optimistic the Iowa negotiations will be fruitful. John Gallina, Anthem’s chief financial officer, singled out the Iowa situation as a matter of concern during a national conference call. “We are very focused on making sure our July 1, 2018, rate increase is actuarially sound and establishes a path to target profitability,” Gallina said.