When the federal government last updated the rules for private health plans that provide services to  Medicaid patients, some 15 million people got care from those managed care insurers. With about 46 million beneficiaries expected to get their health coverage through private plans by the end of this year, the federal government is changing the rules.

The Centers for Medicare and Medicaid Services (CMS) issued a sweeping update last week in an attempt to make Medicaid managed care plans more like traditional Medicaid plans that are run by the government.

States are increasingly relying on private insurers, known as managed care organizations (MCOs), to provide services to their Medicaid beneficiaries. The organizations -- which range from major commercial insurers to small nonprofits -- get a fixed amount of money per patient from a state in return for managing their care. It’s that greater sense of budgetary certainty that’s helped make managed care so popular with states, and in turn made privatized Medicaid so profitable for the private organizations. Managed care plans generated $2.4 billion in profits last year, according to an analysis by Mark Farah Associates and Kaiser Health News.

The impetus for greater regulation of managed care is threefold. One, the rapid expansion of patients to private plans. Two, findings from federal watchdogs have revealed that some MCOs have inadequate networks of doctors that either can't offer appointments at all or have months-long wait times. And three, states vary greatly in their standards for access to care.

While health-care consultants and state officials are still pouring over the details of the nearly 500-page proposal (which won’t be finalized for a year), here’s a look at some of the major changes.

Quality Ratings

Many states have quality ratings for managed care plans, but there’s currently no national standard. Medicare has a five-star system evaluating private plans, and private plans offered through the Affordable Care Act’s health exchanges will begin publishing quality ratings in 2016. Ratings for the Medicaid managed care plans would look similar to the exchange plan ratings.

“CMS’ rationale was to more closely align the ratings system for managed care plans with [exchange plans], because a lot of those plans in the marketplace are also Medicaid managed care providers,” said Lisa Shugarman, a consultant at Health Management Associates.

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The exchange plans will begin testing a ratings system this year that includes three broad categories (clinical quality, patient satisfaction, and plan management/affordability) that would also be part of the managed care ratings. The exchange plans' ratings system will also have dozens of sub-categories -- the specifics of which will be determined by state officials and health experts. It's taking about three to five years for the exchange plans to have their ratings system up and running and would likely be the same timeframe for managed care, according to Matt Roan, another consultant at Health Management Associates.

States would have the option to include additional measures, but the process for doing that isn’t clear yet and many MCOs are wary of too much variation between state quality reporting systems. They’ll be pushing CMS to ensure a high level of standardization to ease compliance.

Non-profit Medicaid plans support quality ratings, but they also think the rule should apply to traditional, state-run Medicaid and other arrangements, such as accountable-care organizations. "It’s important to have these standards, but we think the other delivery systems should be subject to the same standards," said Meg Murray, the CEO of the Association for Community Affiliated Plans.

Medical-Loss Ratio

A medical-loss ratio refers to how much of insurers' revenue ends up going to the medical costs of patients versus administrative expenses and profits. CMS would set an 85-percent standard, meaning 85 percent of insurers' revenue has to go to medical costs. Exchange plans and private Medicare plans operate under the same ratio. In the case of exchange plans, insurers who don’t meet the threshold have to directly rebate customers. That wouldn’t happen for Medicaid managed care patients, but states could penalize plans that don’t meet their ratio when they set payment rates.

MCOs are lining up against the 85-percent threshold, but patient advocates and even Wall Street investors have argued that it would be easy for private Medicaid plans to meet. In 2013, the average medical-loss ratio was 85 percent or higher in 28 of the 38 states that used Medicaid managed care at that time, according to the Kaiser Family Foundation. And a report from the actuarial firm Milliman looked at managed care plans with at least $10 million in annual revenue across 35 states from 2009 to 2013 and found that they posted average medical-loss ratios of at least 85 percent each year.

Relatively few states -- 10 as of 2012 -- actually mandate medical-loss ratios, and most of those let MCOs include care coordination in their medical costs rather than administrative expenses. But the trade group Medicaid Health Plans of America worries that a nationwide policy would ultimately discourage innovation in care coordination and management techniques that don’t clearly qualify as medical claims. Jeff Myers, the group’s president and CEO, offers the example of giving patients cell phones to help ensure they get to appointments.

“It’s not clear to me where the cost of the phone and that data would go," he said. "And it’s not clear to me every state will do it the exact same way."

Network Adequacy 

Right now, states have to ensure the private plans they contract with are providing timely access to doctors, but there are few specifics about how they accomplish that. CMS' new proposed regulations would force states to set standards for waiting time to see a doctor and distance a patient has to travel in seven different areas of medicine and long-term care, according to Sarah Somers, an attorney with the National Health Law Program, which advocates for low-income people.

But CMS appears to be leaving the specifics in those two areas to the states, Somers added.

“It appears they were attempting to balance between advocates asking for hard-and-fast network adequacy standards versus the states and plans wanting a wider open field,” she said.

Long-Term Care

When CMS last issued a major set of regulations for managed care in 2002, many of the people who receive long-term care were still under traditional Medicaid programs. But now more states are including these often expensive and challenging populations into managed care, so CMS directly addressed long-term care in its proposed regulations.

The regulations mandate that managed care comply with federal law and court decisions that require plans to provide care in the least restrictive setting possible. That means moving people out of institutions like nursing homes and instead providing support at home for daily living through things like home health workers.

Plans would also have to make sure network adequacy standards applied to long-term services, and if a plan changes its network, patients in long-term care would now have the option of changing to another plan or shifting to traditional Medicaid. Previously, insurers were allowed to place more restrictions on leaving a plan.

Accreditation and Monitoring

States were always expected to monitor plans, but CMS hadn’t provided much specificity. The proposed regulations set out at least 14 areas -- from claims management to marketing -- that states would have to collect data on to provide baselines and comparisons. States are currently required to review plans annually but would now have to more actively test certain components -- including network adequacy and the availability of services -- through the third-party reviewers they hire, according Roan, the consultant at Health Management Associates.

“They may have previously looked at the policies and procedures around that, but they never actually tested whether the network was adequate and the services were available,” he said. “That review will now be more intense.”

That could take the form of phone calls to providers to inquire about appointment availability.

Lastly, it will be easier for states to certify managed care plans that are accredited through organizations recognized by CMS. States are required to approve and review plans before they contract with them.