Health Care

Want to cut Rhode Island Medicaid costs? Stop ignoring the elephant in the room: MCOs

Rhode Island’s Office of Health and Human Services seems to forget that MCOs make money from restricting health care providers and coverage for patients, not by providing actual health care.
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COVID-19 has made it even clearer that we must make healthcare available to all because we are all at greater risk when anyone is not able to receive proper care. Unfortunately, one major target of state budget cuts, even pre-COVID-19, has been our Medicaid program, which provides healthcare coverage for about 1 in 4 Rhode Islanders and on which Rhode Island spends over 20% of its revenue

This essay proposes that significant savings in the Rhode Island Medicaid program could come from a closer look at the private health insurance companies (Managed Care Organizations or MCOs) that “manage” Medicaid for about 280,000 eligible Rhode Islanders and are paid about $1.7 billion per year to do so.

Years of Rhode Island Auditor General warnings, a 2015 overpayment to MCOs of $200 million, the experiences of other states, and the fact that private insurance companies are thriving while health care providers are financially strapped all support the simple prudent step of auditing Rhode Island MCOs.

We urge you to contact your legislators and support Rhode Island legislation that seeks an MCO audit (H6046 and S0049) and Medicaid de-privatization (H5449 and S0379). Please use this form to contact your legislators.


Although states administer Medicaid according to federal requirements, in Rhode Island, Medicaid is mainly “privatized;” run by private contractors known as “Managed Care Organizations” (MCOs). Currently, over 90% of all Rhode Island Medicaid recipients are in a “managed care program” – meaning that the state pays private health insurance companies (Neighborhood Health Plan of Rhode Island, Tufts Health Plan and United Healthcare Community Plan) to “manage” Medicaid benefits for over 280,000 Medicaid eligible individuals. The Rhode Island Medicaid budget is currently about $2.6 billion (with the state paying approximately 40% and the federal government 60%) and MCOs get about 60 percent of Medicaid benefit expenditures (about $1.7 billion).

Are the MCOs actually saving the state money compared to having Medicaid run as a state single payer program? Incredibly, we don’t know.

RI Auditor General: MCOs are a black box with red flags

Since 2009, the Rhode Island Auditor General has reported problems with Department of Human Services (DHS) oversight of MCOs. Every subsequent annual report since 2009 has also noted problems with MCO oversight and monitoring and recent reports have become increasingly critical. (See below for links to the reports) In its SFY2009 Single Audit Report, the Rhode Island Auditor General reported, “Due to the growing use of managed care contracts within the Medicaid program, DHS needs to increase its oversight and monitoring procedures to improve controls over managed care contract expenditures.” The SFY2015 noted: “More stringent audit and financial monitoring procedures should be employed.The Rhode Island Auditor General in the SFY2017, SFY2018 and SFY2019 Single Audit Reports bluntly concludes, “The State lacks effective auditing and monitoring of MCO financial activity.” In sum, MCOs are a black box.

The SFY2015 Single Audit Report also raised a red flag when it noted Rhode Island Medicaid MCOs wereoverpaid more than $200 million due to overstated capitation rates for the Medicaid expansion population.”

“Reinventing Medicaid” and ignoring the MCO elephant in the room

In 2015, about the time the $200 million MCO overpayment was getting noticed, Governor Raimondo launched her “Reinventing Medicaid” initiative because Medicaid accounted for about 25% of RI’s budget – $2.4 billion (with the federal government paying about 57% of that and the state 43%).

The Governor and influential health policy “experts” focused on controlling costs by better controlling how healthcare was provided and reining in care providers. The result? Severe cuts to Medicaid that hurt the most vulnerable and forced our hospitals and care providers to the brink of financial collapse.

NONE of the health policy “experts” considered what part multiple private health insurance company MCOs played in increasing Medicaid costs. None considered auditing MCOs much less de-privatization. This is especially odd given that in addition to ignoring its own Auditor General’s reports, Rhode Island leaders were ignoring what had just happened in a neighboring state.

Connecticut audits its MCOs, throws them out, saves 100s of millions of dollars & improves Medicaid services

In 2009, Connecticut conducted an audit which found that it was overpaying its three MCOs (United Healthcare Group, Aetna, and Community Health Network of Connecticut) nearly $50 million per year.

In 2012, Connecticut removed private MCOs from its Medicaid program, and subsequently saved hundreds of millions of dollars and experienced the lowest Medicaid cost increases in the country and improved access to care.

As goes Iowa and Kansas – so goes RI?

Other states, such as Iowa and Kansas, have recently privatized Medicaid by hiring MCOs and suffered significant problems. Specifically, “both Kansas and Iowa have suffered cuts in care, reduced far less costs than expected, and sacrificed oversight and transparency by handing their programs over to private entities. These changes have been devastating for many Medicaid recipients that once could depend on public provision for life-sustaining care.”

Rhode Island assumes MCOs benefit patients

In April 2017, Rhode Island entered into a 5-year contract with three MCO companies, Neighborhood Health Plan of RI, Tufts Health Plan, and United Healthcare Community Plan, to administer the Rhode Island Medicaid program for about 250,000 Rhode Islanders. While the Rhode Island Executive Office of Health and Human Services (EOHHS) has attempted to argue that MCOs have achieved “high performance in a cost-effective way,” this conclusion is not based on critical financial information flagged by the Rhode Island Auditor General. Moreover, although Rhode Island EOHHS has described MCOs as “provid[ing] comprehensive health care services for Rhode Island’s Medicaid population,” MCOs are not actually health care providers. Rather, they are inadequately monitored middlemen “payers” who take money from patients and tax payers and pay some of that money to actual health care providers (hospitals, physicians, etc). EOHHS seems to forget that MCOs make money from restricting health care providers and coverage for patients, not by providing actual health care.

Health insurance companies are raking in record profits – especially during COVID-19. Health care providers, on the other hand, are so financially strapped they are closing (Memorial Hospital) or merging (Lifespan). For health insurers to be doing so well while health care providers are collapsing shows that there is a fundamental problem with the way we have structured our health insurance system.

MCO 5-year contracts are up for renewal in 2022

With the constant drumbeat from the State House that budget cuts are inevitable, at the very least, it is imperative to conduct an MCO audit prior to signing another contract to renew the ones that expire in the spring of 2022.

Support Rhode Island legislation to audit MCOs and de-privatize Medicaid

In 2021, the Rhode Island State Legislature has the opportunity to correct the years of inadequate Rhode Island MCO oversight and pass legislation that will finally implement effective auditing and monitoring of MCO financial activity. Please ask your legislators to pass H6046 and S0049 (asking for an audit) and H5449 and S0379 (requiring an audit and de-privatization). You can use this form to ask all your state and federal legislators to support this and other legislation seeking universal, affordable, comprehensive healthcare that only a single payer program can achieve.

Rhode Island Auditor General Reports:

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