April 7, 2006
DPHHS Takes First Step toward CHIP Self-Administration
The Montana Department of Public Health and Human Services (DPHHS) plans to issue a request for proposals this month to determine the cost of hiring a third-party administrator for the Children's Health Insurance Plan (CHIP).
The move is part of an effort to find a more cost-effective way to run the popular program, which currently provides no-cost or low-cost health insurance to about 12,500 Montana children. The 2005 Legislature gave the department the option to administer the program directly or contract with an insurance company or other entity for administrative services.
“We believe it's important to be open to options that could allow us to extend health coverage to more of Montana's children,” said Joan Miles, DPHHS director. “This program is all about giving our kids a healthy start in life. We hope that, by pursuing this option, we'll be able to insure more kids for fewer dollars.”
DPHHS has contracted with Blue Cross Blue Shield of Montana (BCBS) since CHIP was created in 1999. BCBS has been the only company to show interest in contracting to provide a fully insured plan for CHIP enrollees.
Under its contract with BCBS, the state pays BCBS a monthly premium to insure each child enrolled in CHIP. BCBS assumes the financial risk if health-care costs are greater than the premiums paid by DPHHS. BCBS also provides administrative services, including medical claims processing, customer service, and contracts with health-care providers.
Advocates of low-income Montanans have questioned whether the department might be able to administer the program at a lower cost than purchasing a fully insured plan from BCBS. The savings, they said, could be used to provide health insurance to more children.
According to Miles, the department spent the past few months taking a close look at the fiscal and programmatic impacts of the following options:
• Self-administering CHIP and contracting with a third-party administrator;
• Self-administering CHIP and contracting with a fiscal agent; or
• Continuing to purchase a fully insured medical benefit, as DPHHS currently does through BCBS.
DPHHS plans to pursue the third-party administrator option, Miles said. The department plans to hire a third-party administrator to develop and maintain a network of health-care providers and provide claims processing and customer services. The state would pay the actual medical costs rather than premiums for CHIP enrollees and assume the financial risk associated with the coverage. The state and the third-party administrator would be responsible for administrative services provided now by BCBS.
CHIP is funded with about 80 percent federal funds and 20 percent state funds. In order to qualify for federal funds, the state must limit administrative costs of the program to no more than 10 percent of the program's total cost.
Federal regulations treat administrative costs differently depending on how the program is administered. Administrative costs of a fully insured program are considered “benefits” and are not calculated in the 10 percent cap. But if the state assumes or contracts for those same services, they are instead considered “administrative” and significantly impact the 10 percent cap.
“Ironically, we found self-administration of CHIP may be a less expensive way to provide health coverage for children, but it could cost the state more because federal matching funds are not available for costs above the administrative cap,” Miles said.
A number of companies have expressed interest in contracting for CHIP administrative services.
“Our intent is to allow interested companies the opportunity to compete for state business and the department to negotiate the most cost-effective contract,” Miles said.Page last updated: 06/13/2006
