ALC-State Insurance Programs Oversight Subcommittee
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- October 5, 2026
Representative Robin Lundstrum
Unverified
1:30
Let's go ahead and get started, Mr. Wallace, come on up.
If you could state your name for the record, and then I'd
Speaker 10
2:10
like to hear that update on United Care and their re-bid. Good morning, Grant Wallace, Director of the Employee Benefits Division and Office of Property Risk. So the quicker update for where we are on the re-bid and kind of the whole conversation around the Medicare Advantage group plan is we, since you all asked that we go and look at the RFP
and explore the concept of decoupling, and again, decoupling is the notion that we would split the medical and pharmacy benefits for our post-65 retirees. We started down that path and at the same time started engaging UnitedHealthcare, who is our incumbent vendor, with what would this decoupling look like for their program and for our relationship and our plan. So kind of to step back a little bit, in the process, every year the Medicare Advantage
plans have to go and negotiate with CMS on what their annual rates are going to be. So that process usually kicks off in late December, early January. We are towards the final end of that process. There's this rate negotiation that goes on, and final rates are usually set sometime in April. So we're nearing the end of when those final rates are going to be set up. The initial kind of response that we were getting, and I'm not holding anybody to these numbers
because there is a lot that can happen between the conversation of what we think it's going to be to the reality of what it is. We were seeing a significant savings by decoupling our plan for our members to the tune of $100, $200 per participant per month. So we continue to look at that. We have asked UnitedHealthcare to go and start moving down the path of decoupling our plan and look at what that would contractually do for our plan and our members.
And we are now just awaiting the final responses through the final rate-setting exercise that UnitedHealthcare is doing with CMS. So I think that probably is a good kind of catch you up to date of where we are. i'll pause there and see where the conversation y'all
Representative Robin Lundstrum
Unverified
4:44
would like to go from here can
Speaker 10
4:47
you give us a little bit of a time frame just to ballpark so what i've got is that um the final rate announcements april 2026 uh the bidding process is in june and um kind of the national release is
like july early august we would know for our plan in april what that would do between us united health care and our plan so you all would see that a revised amendment to that contract sometime may june because i still have to go to the ebd advisory commission state board of finance before it comes to you all so those kind of the time frame and kind of the next steps Representative Collins
Representative Robin Lundstrum
Unverified
5:38
All right, well, we're just gonna pass over that and
Representative Dwight Tosh
Unverified
5:58
go to representative Tosh Thank you, Madam Chair. Grant, you keep saying our members. Who's included in that? What agencies is, when you say our members, who does that cover?
Speaker 10
6:09
So this would be all post-65 teacher and
Speaker 15
6:12
state employee retirees would be eligible for the Medicare Advantage group plan. So that would include any
Representative Dwight Tosh
Unverified
6:21
agency that's got their own insurance plan or whatever. So you're talking about anyone post-65 or any retiree from any state agency, is that correct? Any state agency, any public school, K-12,
Speaker 10
6:32
yes. Okay, thank you. Anyone else? All right. Well, I think that gives
Representative Robin Lundstrum
Unverified
6:39
us an update. Is there anything else we need to know at this time?
No, ma'am. Okay. All right. Thank you. All right. Moving on. We have a presentation today by the Medicare Advantage prescription drug contracts and related marketing trends. Patrick and Kristen, could you introduce yourselves for
Speaker 21
7:04
the record? Good morning. I'm Kirsten Shatton from Segal Consulting. I'm a senior vice president. And Patrick, I'll let you introduce
Speaker 23
7:12
yourself. I'm Patrick Klein with Segal Consulting, and I'm a vice president.
So thanks for having us today. We've had some back and forth, and we've been invited to talk today. And I think our focus is really going to be on the market dynamics in two key areas that Grant already touched on. So really, what's the current state of the Medicare Advantage market and what we're hearing from what we're seeing with other plans and other states? And then we're going to touch on the strategy that Grant talked about with the decoupling, the medical and the pharmacy contracts, and we'll give you some background on how that works and some of the savings we've seen.
But before we get into those discussions, just to back up a little bit, I want to talk about the history of the Medicare Advantage plan with you guys here at Arkansas. So Siegel was hired by the BLR to review EBD's program from front to back. This was in 2021. We were presenting monthly to a legislative committee, and then we provided a detailed report at the end of the year with all our recommendations. And one of the key recommendations we made that really was going to generate the most savings was for EBD to offer a Medicare Advantage prescription drug plan.
And at the time, most other states have already implemented this plan, so the recommendation was adopted by the committee, and then the next step was Siegel and EBD working together on an RFP that was effective in 2023. So there's two options. We could have done a full replacement where the Medicare Advantage replaced the current med sub option administered by Health Advantage. Ultimately, we decided to have those options side by side and structure the benefits to be the same or even better on the Medicare Advantage plan.
And the rates we got back in the RFP, if we're just looking at AASC, for example, the Medicare Advantage rate was 165 per month, and that's significantly lower than the current Health Advantage MedSupp rate of 483. So a huge savings per retiree that joined the Medicare Advantage plan for the same rates. And the enrollment was just over 50% to start, and that generated around $40 million in savings.
In addition, for the PSE group, they didn't have a pharmacy plan before, and so the Medicare Advantage Prescription Drug Plan allowed them to reinstate that pharmacy benefit. So in addition to those savings, the teachers got the pharmacy benefit as well. And since then, we know there's been some challenging renewals. The markets, there's been a lot of movement in the market, but still the MAPD rates are significantly lower than the other option side by side.
Speaker 27
10:18
So that was a little background, and now I'm going to turn it over
Speaker 19
10:28
to Kirsten to talk more about what's going on in the market currently. Thank you, Patrick. and and you know you heard grant talk about what's
Speaker 21
10:35
coming up this year so so the difference when you're working with a med sup plan medicare traditional medicare is paying a claim and then it comes in and you are paying something left over from that claim that would be members cost
sharing when you're talking about medicare advantage it works a different way so medicare advantage, instead of paying fee for service, they're paying a capitated rate up front to the carrier, UnitedHealthcare in this case, and then whatever's left over that needs to be revenue to cover the claims is what the premium is to your plan. As just a little bit more technical on some
of the things that Grant was talking about. So the way that this works is the Medicare Advantage plans each year wait for some key information that comes out from CMS. So they release two notices regarding the payment policy. So in January, they release what's called the advanced notice. And this tells what they anticipate the MA rate funding will be, which is payments for every single county in the country and any updates to the risk models because the
way they get paid is also based on the risk of each of your members and then they kind of give a preliminary look at what the part d the pharmacy side benefits will be between that january notice and the first monday in april in the first monday in april there will be a final rate notice during that time period after they have put out what they think what they are proposing for methodological changes they get a lot of feedback.
Representative Robin Lundstrum
Unverified
12:42
We lost you. I don't know if you can hear us or not but we can definitely
Speaker 21
12:53
not hear you. Give me a minute, I'm mute, Kirsten. Oh, sorry. Just for a second, yeah. Okay, so the advance notice this year had a lot of changes to the risk score methodology, and that is really bringing down the rates and at this point saying that they're going to be flat. Obviously, flat doesn't keep up with trends. My understanding is they've received more feedback this year than they have in any other previous year,
So we are awaiting that final rate notice that comes out first Monday in April so that they will know what the final payment rules will be. A lot of times when they propose changes and receive feedback, they may decide to implement over a two- or three-year time period. Hopefully that would be the decision this year. Also, they'll get another quarter of data in for those funding rates.
So, as Grant stated, they will receive that in April, and then UnitedHealthcare will be able to put together their renewal rate. Individual bids go in in June, but from an employer group perspective, they'll know what's happening on the medical side once that April notice comes in. It's a pretty lengthy document, so it may take them a few weeks to sort of digest all that information and make sure they run the risk models that will be necessary to give the final renewal document.
But then in August, we will receive final information on the Part D plan. Some of the major funding there will come out, national average bid, national average premium, that if the renewal document is to grant in that time frame, some of that information will be unknown, but hopefully you could have that adjusted once that comes out.
So the other piece is there was a big change in 2025 on the Part D side due to the Inflation Reduction Act. They changed the benefit designs, and so there are some different components of the funding that comes in that are significantly different from what happened in all of the previous years. That started in 2025, and because of that change, risk scores are much more important than they were before.
And, um, so when we think about these changes to risk models, it's a big deal because, um, because of the inflation reduction act, there've been some changes over the last couple of years in how they are adjusting for those risk model differences. And that's where the decoupling comes into play. And I'm going to hand it back to Patrick to go through some of the specifics on that piece, but I'll pause there for a moment to see if there are any questions
Speaker 23
16:00
on what we've talked about so far. So far, no questions. Thanks. All right. So I want to talk about the mechanics of the decoupling. For most group Medicare Advantage plans, it's all one package. You've got your medical care and prescription drugs under the same contract with a single insurance carrier. And that's EBD's current arrangement with UnitedHealthcare. And this bundled structure made sense for years. It was simpler to administer,
got everything under one roof. But as Kirsten said, the IRA really made some significant changes, and there's an opportunity now. So before the Inflation Reduction Act, the federal government subsidized the Medicare drug coverage through a bunch of different levers. But the biggest was a reimbursement on large claims in the catastrophic phase. And that came after the fact. It was based on your actual claims. IRA changed that. So now, instead of paying carriers on the back end for
high claims, the federal government sends an upfront payment directly to the carrier for each enrolled member. And this subsidy is known as the direct subsidy, and it's risk-adjusted, unlike the catastrophic claims reimbursement. So the sicker the population, the more federal money the plan gets. And risk scores are the tool used to determine what that perceived health of the population is and how much money you get from the federal government. So risk scores are much more
important from the changes that the IRA made. And just to get a feel for the size of the direct subsidy before and after, so 2023, we were looking at a $2 direct subsidy, and now it's over $200. And again, those risk scores, that $200 is like an average, and depending on the risk score being higher or lower, that's going to manipulate what that actual amount is that goes to the plan.
Representative Robin Lundstrum
Unverified
18:11
Patrick, could you say that one more time? Because I'm still, my mind is still tripping on the fact
that we used to pay $2, now we're paying $200, and
Speaker 23
18:27
the sicker you are, the higher the rent. It's really, yeah, it's really the federal government, how they're subsidizing the Part B plan. So before most of it was coming in reimbursements on catastrophic claims, that was the bulk of their subsidy.
And now they've scaled way back. So instead of paying 80% of those large claims, they're paying around 20% of those large claims. So they're paying much less on the back end. They've just kind of shifted and moved a lot of money into this direct subsidy. And because of that, risk scores are now important. And before, when the direct subsidy was so low, if your risk scores were higher or lower, maybe the money that came into the plan changed from $2 to $3.
It was nothing. But now when you're talking about a $200 starting point, there's much more magnitude there. And Kirsten, feel free to add if I missed anything there. Does
Speaker 21
19:38
that make sense to you? I think you're on mute. Thank you. It's a lot of information, but essentially what Patrick is saying is there are three different types of reimbursements that come in to cover claims.
One is a direct subsidy. One is what used to be called coverage gap from manufacturers, now called discount from manufacturers, and the other piece is from CMS. So when they change the benefit design in the Inflation Reduction Act, they just change the percent that's coming from each one of those components. And the piece that used to be the small component that was $2 is now a large component, putting more risk on the average population of the plan.
And so because that piece is set up to be funded based on risk scores, now the risk scores are much more important. So that part went from $2 to $200, but other parts went from a lot more money down to a smaller piece, but that one wasn't based on averages. So it has nothing to do with, well, it's the money coming in to cover the claims.
Senator Jim Petty
Unverified
21:02
Senator Petty. Thank you, Madam Chair. So, Kirsten, I was just trying to, or either one of you, Patrick, the risk is more important. The risk score is more important. Is it still being funded? Is it more important because you're being funded more the higher your risk is, or is it being funded more because it's less? What makes the risk score now more important?
Speaker 21
21:34
So if you go back to the way the Part D program was initially set up, it was set up in 2006 it began. And they had a direct subsidy, but after you got over a certain out-of-pocket maximum, Medicare was paying 80% of the claims over there. That would have been called catastrophic. Originally, there was what was called the donut hole.
And so there was a portion where a member would pay a deductible and then they would pay 25 percent up until they hit the donut hole. And then they paid 100 percent until they hit the out-of-pocket max and then CMS would pick it up. And what happened and CMS was picking up 80 percent of it. And what happened over time was the Accountable Care Act came in and said, we're going to close the donut hole. We're going to have manufacturers pay 50% of brand drugs, and then we are going to have CMS pick up over a different portion over 10 years to ultimately close the donut hole.
And as the manufacturers were picking up 50%, more and more drugs were being utilized because you didn't have that big donut hole. And in 2019, they actually changed that 50 percent to 70 percent. And so as manufacturers picked up more of the cost of the drugs and people were utilizing more drugs, more costs got catapulted out into what was known as catastrophic.
And eventually, the catastrophic became so large that that's why the Inflation Reduction, that's part of why the Inflation Reduction Act changed the benefit design. It just wasn't really covering catastrophic anymore. It was covering a large portion of the claims. So they redesigned the whole program. There were also some other reasons that there were incentives from who were the manufacturers in the donut hole, what used to be the donut hole that were covering drugs, to go ahead, raise the cost of the drugs, pay it,
catapult them out into catastrophic and let Medicare pick up the other 80%. So there were some incentives to continue to raise prices. So the redesign of the program was to get rid of some of those incentives and to restructure the program so that catastrophic wasn't the majority of the claims. It was really a catastrophic portion of the claims, a smaller percentage of the population. In doing that, you know, if you think about how the Part D program is set up, it's not set up like the medical side where a portion is funded through taxes and a portion is funded through general revenues.
It's actually set up to work on a private market. So the entire Part D program is based on all these carriers coming in. And so that gets into this bid that goes in in June. They are bidding on the individual market how much they expect they're going to need to cover those claims. And since they're just the carriers, they don't have any funding going in.
It's all funded through CMS, either through direct subsidy and catastrophic, the manufacturer's portion of it, and then member premiums. so those are the four revenue components that come into the program um so they've restructured the program that they have since since the catastrophic's gone down there has to be another portion that picks up the remainder of it and that is the direct subsidy so now when the plans
are bidding they're not bidding so low because all those claims that were going into catastrophic are now coming into the plan and that's why it's so much higher and by definition the national when when the plans bid in june and so we the information will get released in august what's the national average bid what's the national average premium and the way that the direct subsidy is funded is the national average bid times the risk score less the national average
premium so just because they restructured the whole program as a zero-sum game in the individual market that portion that was getting paid per claim has come into come back to be funded by the plans and they're bidding
Speaker 36
26:28
what that's going to cost them and it's much much higher okay senator petty
Senator Jim Petty
Unverified
26:38
yes thank you kirsten one more follow-up question i think it's probably the the the meat of what everybody uh uh is is interested in obviously some significant
changes in in the structure through the uh the investment or the uh inflation reduction act are you seeing in in in trending is this going to translate into more cost for our members because of the way they are shuffled or more cost to the state or what what are you seeing in terms of because of this more globally not necessarily specific to Arkansas but what are you seeing the trend or what are they expecting the trend to do in terms of cost to the member
or cost to the state with
Speaker 42
27:26
this change? It significantly reduced the cost to the member so it used
Speaker 21
27:33
to be so so when they set it up in 2025 they are limiting the amount that a member pays to two thousand dollars so that's the out-of-pocket maximum but there is a standard plan design and because your members are in a richer plan design meaning they're not a standard
plan design has a deductible and then they're paying 25 until they hit the out of the out-of-pocket maximum but in your plan design that has co-pays and it's much richer plan their co-pays count toward their out-of-pocket max but anything your plans paying in addition to their co-pays that would get them up to that standard plan design also counts so we're generally speaking where we saw before members paying much more what we see now in our employer group waiver plans is that
two thousand out-of-pocket max has it greatly reduced what your members are paying because they're hitting it so quickly when it includes the plan payments they're probably paying anywhere on average between six and eight hundred dollars to get to the max so definitely the the uh members are seeing less cost sharing but that cost sharing is being picked up by the plan um so it does increase a little bit of the cost there but the market is bidding right this is happening across
the country and so far what we see is them keeping up with you know they're going to bid it every year and so they're going to have to have enough money to cover the cost of their plans you know the big difference is this is all set up for the individual market so there this is a little bit gets into a little bit more technical, but the risk models that we're talking about are based on physician diagnoses coding. So if you have a Medicare Advantage plan that's covering medical,
they can set up contracts with providers, they can do, you know, they have armies of people out there making sure that the coding is correct from the physicians, from the providers. But, so if you're in an MAPD like you currently are, that's great because you have all the coding there, the risk score is going to be correct. If you are in a standalone Part D plan and you have no entry into any of the providers on the medical side, your risk score is based on whatever's coded.
And so CMS recognizes there's a big difference between those. So when they put this in 2025, when they looked at all this and they studied what do our risk scores look like on the MAPD side versus the Part D side, and specifically what we project they were going to be versus what were they actually and how close are we. And they see a divergence in those two populations because of that phenomenon.
So in 2025, they said, we're going to have different adjustment factors on the Part D risk models based on whether you have a medical portion in your plan, an MAPD, or whether you're a standalone Part D plan. And the first year, 2025, the divergence was about 12%. Last year, when it came out last year for 2026, this year, there was even more divergence, which was about 34.5%.
This year, and those were just adjustment factors to the same model, this year when they put the advance notice out, they said, we're going to continue to see this divergence. Now we're actually pulling the models apart. So we, Siegel, don't have a CMS risk model to run, you know, and it will vary depending on different clients, states, geographies, etc. But what we're hearing from the market so far is the divergence that they are looking at when they're running their risk models is even more than it was last year, which was the 34.5%.
And that's why we get back to what Grant was talking about with the decoupling. Then let's have two separate plans. Instead of having an MAPD, we need an MA only and a Part D plan so that we can take advantage of that differential on the Part D side so that we get more payment from the risk model that exists on that side. And what it means for the members is you'll simply have two different ID cards. but that's no different than we have on the commercial side where you know we have a medical
card we have a pvm card so that'll be the big difference there but it
Speaker 44
32:45
takes advantage of that differential in funding for a standalone party plan okay thank
Representative Robin Lundstrum
Unverified
32:52
you this will give us a lot of information going into when we hear back from you and you'll be back in this committee probably April or June when we hear all this information will be coming back and
Speaker 19
33:09
we'll have the reports the yes the final notice will be out first
Speaker 42
33:13
first Monday in April and then like I said that they'll probably need a little bit of time to digest everything there and
Representative Robin Lundstrum
Unverified
33:24
get the get the renewal offer together so the word of the day is stay tuned okay all right any questions from the committee okay everybody knows everything and they feel comfortable with this I'm seeing heads nod oh sure oh sure okay I'm sure there'll be questions later we'll let
them digest okay certainly thank you all right any other business to come and thank you so much for being here any other business to come before this committee all right seeing no other business
Speaker 50
33:59
We will be back May 13th. We are adjourned.
Agenda
A. Call to Order
B. Update on UnitedHealthcare Rebid
C. Presentation on Medicare Advantage Prescription Drug Contracts and Related Market Trends
D. Other Business
E. Adjournment
Documents
| Title | Type | Pages | Source |
|---|---|---|---|
| Agenda — ALC - STATE INSURANCE PROGRAMS OVERSIGHT SUBCOMMITTEE, Mar 18, 2026 | Agenda | 1 | Official source ↗ |
Speakers
Representative Robin Lundstrum
Unverified
Speaker 10
Representative Dwight Tosh
Unverified
Speaker 15
Speaker 21
Speaker 23
Speaker 27
Speaker 19
Senator Jim Petty
Unverified
Speaker 36
Speaker 42
Speaker 44
Speaker 50