The selection and implementation of a risk adjustment payment methodology must be done in an actuarially sound manner.  The over-arching principle of risk-adjusted capitation rating is to better match payment to risk.  Practically, what this means is that health plans’ capitation payments would be adjusted to reflect the relative health risk burden of their enrollees, while the total capitation payments across all health plans would remain budget neutral.

Risk adjustment payment methodologies allow the capitation to be divided up among health plans differently than traditional capitation rates (e.g., set by geographic area, age, gender, program, and rating class).

The Optumas team has worked with diagnoses-driven, questionaires-driven, and pharmacy-driven risk adjustment tools.  All have their strengths and weaknesses and we have helped our clients understand these and use them to their advantage.  For example, we have tied diagnoses-driven tool implementations with pay-for-performance incentive programs that utilize the same diagnosis data coupled with recognized best practices for certain diagnoses.

Part of our process includes a review to ensure that the risk adjustment payment methodology and capitation rate range development are working appropriately together.

The actuarial team at CBIZ Optumas works with clients to determine the best plan design for their program goals.  We calculate insurance premiums that are built on specific plan designs and specific populations.   We have built an automated model that calculates the premium when various changes are made to the plan design, for example:

• Benefits switching from being covered to non-covered or vice versa (in whole or in part),
• Cost sharing (copayments, coinsurance) is increased or decreased,
• Overall benefit structure (deductible, out-of-pocket maximums) is adjusted,
• or Plan management (HMO, PPO, EPO) is changed.

The CBIZ Optumas team calculates the impact of programmatic changes on budgets and premiums.  These programmatic changes can impact

• The population (i.e., who will enroll and show up for services due to the change?),
• The benefits (i.e., what types of benefits will enrollees receive?), and
• The reimbursement (i.e., mandating use of certain fee schedule as the floor).

We work closely with our clients to understand the programmatic change in order to determine all of the impacts on all of the various programs since there are typically ripple effects of the change.  For example, increasing pharmacy benefit coverage for a particular program will typically bring in additional enrollees who are riskier than those originally enrolled.

Federal Medicaid policy is placing new limits on State Directed Payments (SDPs), and states now need actuarial partners who can move quickly and defensibly. Section 71116 of HR1 requires that total payments to qualifying hospitals, nursing facilities, and practitioners under SDP arrangements be phased down to no more than 100% of the Medicare rate in expansion states and 110% in non-expansion states. CMS’s proposed rule adds a new requirement: an actuarial certification showing exactly where current SDP payment levels fall relative to Medicare. States with grandfathered SDP arrangements face a related requirement to certify that those arrangements comply with federal payment limits by benchmarking total payment rates against Medicare (or an approved State Plan rate where no Medicare rate exists). CBIZ Optumas helps state Medicaid agencies meet both requirements with a proven, transparent methodology.

How We Approach the Work

• Engagement & Planning – A structured kickoff with agency staff establishes goals, timelines, and data needs, followed by ongoing check-ins to work through data nuances and validate results together.
• Data Collection & Validation – We work with the state and its managed care organizations to gather claims, cost reports, and base-rate data, then validate that submissions are complete and consistent before any calculations begin.
• Provider & Service Categorization – Providers are mapped to Medicare IDs and grouped by reimbursement type — DRG, APC, Critical Access Hospital, per diem, rehabilitation, long-term care, and physician/professional services — since each requires a distinct Medicare repricing approach.
• Medicare Repricing – Using licensed grouper software and CMS payment rules, we reprice historical Medicaid claims to the applicable Medicare methodology (IPPS, OPPS, physician fee schedule, and specialty hospital rules), including outlier payments, wage index and geographic adjustments, and technology add-ons where applicable.
• Reasonableness Review – Outlier claims and unexpected variances are reviewed line by line, distinguishing true data issues from legitimate differences between Medicaid and Medicare payment policy, with results shared openly with the state and stakeholders before results are finalized.
• Trending & Projection – Historical experience and repriced results are trended forward to the applicable rating or contract period, using assumptions consistent with the state’s capitation rate development.
• Documentation & Certification – We prepare narrative and actuarial certification packages — methodology, data sources, validation steps, and results — built to the level of detail an independent actuary or CMS reviewer needs to follow and approve the analysis, consistent with applicable Actuarial Standards of Practice.
• CMS Support – Where questions arise during CMS review, we provide written responses, supporting exhibits, and direct discussion with CMS reviewers to keep the certification process moving.

Why It Matters

The phase-down requirements under HR1 mean SDP funding levels will keep changing over the next several years, and shifting provider tax rules add another layer of complexity to what states can sustain. Getting the Medicare equivalence calculation right — the first time, and every year after — protects provider payments, keeps programs in compliance, and reduces the risk of delays or rework during CMS review.

CBIZ Optumas brings deep institutional knowledge of Medicaid capitation rate-setting, grouper-based pricing, and CMS actuarial certification to this work, so states get a defensible, well-documented result on a timeline that keeps pace with regulatory deadlines.

Ready to talk about your state’s SDPs? Let’s connect.