Iowa Department of Human Services
Managed Care Savings Summary
Executive Summary
In January 2018, the Department of Human Services (DHS) notified stakeholders that
we would be developing a more comprehensive methodology to calculate managed
care savings, or ‘cost avoidance.’ This summary provides an overview of the projected
savings for Iowa’s managed care program.

Background—Unsustainable Growth
Prior to the implementation of managed care, the cost of the Medicaid program was
growing at an unsustainable rate with an average annual growth of 5%. 1 Meanwhile, the
average annual growth of state revenue was 3.98%.
• Over the course of ten years (2005 to 2015) the total spend (including federal
dollars) for the old Medicaid system, nearly doubled, from $2.5 billion in 2005 to
$4.9 billion in 2015.
• In state dollars, the state general fund appropriation increased from $423 million
in 2005 to $1.31 billion in 2015. The SFY2019 state general fund appropriation
is $1.34 billion. (This represents an increase from 9% of the state budget to 19%.)
Total Spend
(state + federal)

State Appropriations
(general fund)

Percent of State
Budget

2005

$2.5 billion

$423 million

9%

2015

$4.9 billion

$1.31 billion

19%

$5.3 billion

$1.34 billion

18%

2019

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Table A: Annual growth rate of Iowa Medicaid program.

The three primary goals of Medicaid Modernization are:
• Improving quality and access to care
• Promoting accountability for patient outcomes
• Creating a more predictable and sustainable Medicaid budget
Ensuring we are able to serve Iowa’s most vulnerable, now and into the future, requires
having a predictable and sustainable budget.

1

The annual growth, excluding expansion years, was as high as 8.4% (2009). The growth of the program during Medicaid
expansion was 9.8% (2014) and 17.3% (2015). Note: the growth attributable to Medicaid expansion was not included in the 5%
average growth figure.
2
Projections based on 2019 Governor’s recommendations

 Analysis
The Department’s managed care savings analysis compares total projected Medicaid
program spending under the current payment model (With MCO) to the estimate of what
spending would have been for the same period under the previous Medicaid payment
model (Without MCO).
• SFY 2018 Projected Cost (FFS): $5,595,697,354
• SFY 2018 Estimated Annual Cost (Managed Care): $5,184,248,970
• SFY 2018 Difference: $411,448,384
o Applying the average state match rate (34.25%) results in a projected cost
avoidance of $140.9m.

Base "Without MCO" Trend
Cost Containment Adj.
Revised "Without MCO" Trend

Without MCO
With MCO

SFY16
5.0%
0.0%
5.0%

SFY17
5.0%
0.0%
5.0%

SFY18
5.0%
-2.1%
2.9%

SFY15
SFY16
SFY17
SFY18
4,936,488,051 5,181,578,396 5,438,837,165 5,595,697,354
5,070,561,872 5,184,248,970

Total Savings
State Share

368,275,293
133,217,292

411,448,384
140,939,522

Table B: Cost avoidance calculation comparing the Iowa Medicaid program with and without managed care.

The $140.9m for SFY18 combined with the $133.2m for SFY17 results in more than
$274m of projected savings.

Methodologies
The annual cost of the Medicaid program is determined by considering total
expenditures, including both state and federal dollars.
The projected costs were calculated by looking at a five year period and averaging the
growth of the program year-over-year. The actual average annual growth was 5%.
• Under the old system, annual growth, excluding expansion years, was as high as
8.4% (2009). The growth of the program during Medicaid expansion was 9.8%
(2014) and 17.3% (2015). The growth attributable to Medicaid expansion was
not included in the 5% average growth figure.
I. ‘Without MCO’ Methodology
Base Expenditures
• SFY15 was used as the base expenditure period since it was the last
complete year under the previous Medicaid payment model.
• An adjustment was made to base expenditures to include the SFY15
University of Iowa physician upper payment limit (UPL) payment that was not
paid until SFY16.

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 o This UPL payment is included in the “With MCO” expenditure totals.
For consistency, it also needed to be included in the “Without MCO”
totals.
Expenditure Trend
• SFY15 base period expenditures were trended to SFY18 using a 5 % annual
trend rate.
• The trend rate is based on actual Medicaid program trends from SFY11 SFY15.
• Iowa Health and Wellness Plan expenditures were excluded from the trend
calculation as this one-time program expansion is outside of normal trend
factors.
• Adjustments were made to the SFY18 trend rate to account for cost
containment strategies implemented in that fiscal year.
o For consistency, the department assumed the cost containment
strategies implemented in SFY18 for the current program would have
also been implemented under the previous payment model.
II. ‘With MCO’ Methodology
SFY17
• Base expenditures represent final SFY17 expenditures as recorded in the
state’s accounting system.
• Adjustments were made to account for SFY17 managed care payment
obligations that will not be paid until a future period. This included emerging
trend capitation rate adjustments, withhold payments, risk corridor payments,
and the health insurer fee reconciliation.
SFY18
• Base expenditures represent the December 2017 estimate of total SFY18
Medicaid program spending.
• Adjustments were made to remove SFY16 and SFY17 managed care
payment obligations that will be paid in SFY18.
• Adjustments were made to account for SFY18 managed care payment
obligations that will not be paid until a future period. These adjustments are
similar to those made in SFY17.
III. Savings Calculation
Total Savings
• Total savings were calculated as the difference between the “Without MCO”
(Section I.) expenditure estimate and the “With MCO” (Section II.)
expenditure estimate.
State Savings
• State savings were calculated by multiplying total savings by the average
state match rate for the applicable fiscal year. The average state match rate

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 was 36.17 percent in SFY17. The average state match rate is estimated at
34.25 percent in SFY18.

Assumptions
There are many factors which are both unpredictable and fluid that make the calculation
of “projected costs” difficult as you consider whether those same factors would have
applied, in the same way, in the old model as they do under managed care. Some of
those factors are included in Table C. For example, new hemophilia medications have
been introduced and are now covered through managed care. These medications have
added significant cost to the program. However, these new medications would have
increased the cost of the old program as well. This updated methodology does not
individually isolate these factors; instead it aims to account for them by looking at total
cost.

Factors Considered
Program Trends

Include, but are not limited to: enrollment trends, new technology and introduction of
new pharmaceuticals. Not only are these trends fluid, but some are impacted by
managed care in a way that would not have been applicable in a fee for service
model.

Cost
Containment

Include legislatively mandated changes to the program that impact cost (this is a
responsibility of the DHS Council spelled out in Iowa Code).

Risk Corridors

A period of 2-3 years is required to determine payout or recoupment under a risk
corridor.

Health Insurance
Fee

This fee is an obligation determined by the federal government; while Iowa insurers
are required to pay the fee in 2019, it is not required in 2020. This alone has an
impact of about $20 million.

Health and
Wellness
Population

The expansion of Medicaid to the health and wellness population resulted in
significant, one-time growth in the Medicaid program.

Administrative
Costs

The savings calculation includes administrative costs paid to the MCOs for case
management services that were previously not provided.

FMAP

One of the reasons for using total funds, rather than state general funds, is the
every-changing Federal Medical Assistance Percentage (FMAP); the FMAP is
calculated by the federal government and changes on an annual basis based upon
each states average per capita income. As a state’s per capita income increases,
their FMAP will be adversely impacted. FMAP has varied by more than two
percentage points in recent years.

Table C: Factors considered when calculating managed care cost avoidance.

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