The state thinks it’s paying the three private insurers now caring for its Medicaid population “fair,” “appropriate” and “actuarially sound” rates despite documents that show the managed-care organizations describing the program as “drastically underfunded.”

“We believe that what we offered was actuarially sound,” Department of Human Services Director Charles Palmer said on Wednesday. "We believe that the basis upon which we established those rates made sense."

The state of Iowa handed over its Medicaid program with 600,000 enrollees to AmeriHealth Caritas Iowa, Amerigroup Iowa and UnitedHealthcare of the River Valley on April 1. In early December, two of the three managed care organizations, of MCOs, reported hundreds of millions of dollars in losses, with financial reports filed with the Iowa Insurance Division showing that Amerigroup saw losses of more than $147 million and AmeriHealth had losses of more than $132 million.

UnitedHealthcare does not have to file financial reports with the state of Iowa but did say in the second DHS quarterly report it had a loss of 25 percent.

What’s more, correspondence between the MCO leaders and state officials reveal that the insurers have been lobbying for increased rates since the start of the transition. The documents, first reported by The Des Moines Register, show the MCOs thought the rates were inadequate from the start.

Amerigroup’s Cynthia MacDonald said in early May that the company “has some lingering important areas of concern regarding rate adequacy” because of the “impact of delays in overall program implementation, transition of (fee for service) to managed care experience within the data pharmacy savings opportunities and other issues.”

And despite an additional $33 million the state announced it would pay the MCOs in November, Kim Foltz, chief executive officer of UnitedHealthcare Community Plan of Iowa, said “the program remains drastically underfunded.” She added that “not only have medical claims exceeded premium rates, but deficits reported do not include administrative costs of managing the (Medicaid) program, which are above and beyond what was included in the rates.”

Data provided in the most recent quarterly report put together by the Department of Human Services shows that all three MCOs paid out more in claims than they received in payments from the state and federal government.

• Amerigroup paid at least $288 million in claims in the second quarter while it was paid $238 million.

• AmeriHealth paid at least $500 million in claims in the second quarter and was paid $444 million.

• UnitedHealthcare paid at least $247 million in claims in the second quarter and was paid $209 million.

“We believe there is some differences of opinion on the severity of what they would consider to be the gap between their expenditures and our funding of that,” Palmer said Wednesday. “We are working closely with them and our actuarial firm to identify areas where we can — in our terms — close that gap and get the projections of their loss and our projections of what the actual expenditures should be.”

Palmer suggested that start-up costs are among the reasons for the initial losses, saying the MCOs had to invest in hiring staff, renting facilities and setting up infrastructure.

The state and the insurers will begin negotiating capitation rates for the second rate period — which starts July 1 — in April, Palmer said. State officials project the privatized managed-care contract that runs through June 30 of this year is “roughly $4 billion.”

Palmer added he does not know if they are using dramatic language as a negotiating tactic, and he does not think the state is at risk of seeing an MCO pull out before its contract is up.

“We put out what we were willing to pay,” Palmer said. "They saw that. They saw how we arrived at those payments. They signed a contract.

“What we offered was actuarially acceptable. It has to be OK’d by (the Centers for Medicare and Medicaid Services). ... Also, you have a period of time before your managed-care strategies can really fully go into place, so there is some lag time on their being able to realize some of the benefit that would come from managing the populations.”