SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Medicaid Managed Care Responsibility 
and Equity Act''.

SEC. 2. MINIMUM MEDICAL LOSS RATIO REQUIREMENTS FOR MEDICAID AND CHIP 
              MANAGED CARE PLANS.

    (a) Minimum Medical Loss Ratio Requirements for Medicaid and CHIP 
Managed Care Plans.--Section 1903(m) of the Social Security Act (42 
U.S.C. 1396b(m)) is amended--
            (1) in paragraph (2)(A)--
                    (A) by striking ``and'' at the end of clause (xii);
                    (B) by realigning the left margin of clause (xiii) 
                so as to align with the left margin of clause (xii) and 
                by striking the period at the end of clause (xiii) and 
                inserting ``; and''; and
                    (C) by adding at the end the following new clause:
            ``(xiv) such contract provides that if the Secretary 
        determines for a contract year (beginning on or after October 
        1, 2017) that the entity has failed to have a medical loss 
        ratio, as determined in accordance with paragraph (3), of at 
        least .85 (.80 in the case of an entity in which at least 10 
        percent of the individuals enrolled in the plan are optional 
        targeted low-income children described in section 
        1905(u)(2)(B))--
                    ``(I) the entity shall remit (not later than 
                January 1 of the first calendar year that begins on or 
                after the first day of the contract year) to the State 
                an amount equal to the product of the total revenue of 
                the entity under the State plan under this title (or 
                under a waiver of such plan) for the contract year and 
                the difference between .85 (or .80, if applicable) and 
                the medical loss ratio (as so determined) and that any 
                such remittances paid by an entity shall be treated as 
                an overpayment under section 1903(d)(3)(A);
                    ``(II) for 3 consecutive contract years, the State 
                shall not permit the enrollment of new enrollees with 
                the entity for coverage during the second succeeding 
                contract year; and
                    ``(III) the State shall terminate the contract if 
                the entity fails to have such a medical loss ratio for 
                5 consecutive contract years.''; and
            (2) by inserting after paragraph (2), the following:
    ``(3)(A) For purposes of paragraph (2)(A)(xiv), the medical loss 
ratio for an entity with a contract under this subsection shall be 
equal to the ratio of--
            ``(i) the sum of the amount of contract revenue (as 
        determined in accordance with subparagraph (B)) expended by the 
        entity--
                    ``(I) for providing medical assistance to 
                individuals who are eligible under the State plan under 
                this title or under a waiver of such plan and who are 
                enrolled with the entity; and
                    ``(II) for quality improvement activities (as 
                determined in accordance with subparagraph (C)); to
            ``(ii) the total amount of contract revenue (as determined 
        in accordance with subparagraph (B)).
    ``(B) For purposes of subparagraph (A), the Secretary shall by 
regulation specify how contract revenue shall be determined with 
respect to an entity with a contract with the State under this 
subsection and a contract year. The regulations shall provide that the 
following shall be disregarded from the determination of contract 
revenue for a contract year:
            ``(i)(I) Only in the case of an entity that is exempt from 
        Federal income tax, community benefit expenditures made by the 
        entity (not to exceed the limit described in subclause (II)) 
        and reserve funds (not to exceed the limit described in 
        subclause (IV)).
            ``(II) The limit described in this subclause is the amount 
        equal to 3 percent of the contract revenue for the contract 
        year or the amount equal to the product of the highest premium 
        tax rate in the State and the contract revenue, whichever is 
        greater.
            ``(III) In this clause, the term `community benefit 
        expenditures' means expenditures for activities or programs 
        that seek to achieve the objectives of improving access to 
        health services, enhancing public health, and relieving 
        government burden.
            ``(IV) The limit described in this subclause is the amount 
        equal to 3 percent of the contract revenue for the contract 
        year except that an entity that is exempt from Federal income 
        tax may increase the amount of reserve funds to be disregarded 
        for a contract year up to a limit that does not exceed the 
        amount equal to the sum of 3 percent of the contract revenue 
        for the contract year and the total amount of the reserve funds 
        disregarded for the 2 preceding contract years or 9 percent of 
        the contract revenues during such 3-year period, whichever is 
        greater.
            ``(ii) Expenditures for providing medical assistance to a 
        new beneficiary population enrolled with the entity for the 
        first 2 contract years of such population's enrollment.
    ``(C)(i) For purposes of subparagraph (A), quality improvement 
activities are activities designed to do any of the following:
            ``(I) To improve health outcomes by implementing activities 
        such as effective case management, care coordination, quality 
        reporting, chronic disease management or medication and care 
        compliance activities.
            ``(II) To prevent hospital readmissions, including a 
        comprehensive program for hospital discharge that includes 
        patient education and counseling, discharge planning, and post-
        discharge follow-up by an appropriate health care professional.
            ``(III) To improve patient safety and reduce medical errors 
        through the use of best clinical practices, evidence-based 
        medicine, and health information technology.
            ``(IV) To implement a significant investment (as defined by 
        the Secretary and based on a 2-year average of expenditures) in 
        technology improvements such as through electronic medical 
        records, telemedicine, and smart phone or tablet technology.
            ``(V) To implement wellness and health promotion 
        activities, including programs designed to address the social 
        determinants of health (as defined in clause (iii)(I)) or to 
        promote patient engagement (as defined in clause (iii)(II)).
    ``(ii) For purposes of subparagraph (A), an expenditure only shall 
be considered to be an expenditure for a quality improvement activity 
if the expenditure satisfies 1 or more of the following requirements:
            ``(I) The expenditure is designed to improve healthcare 
        quality.
            ``(II) The expenditure is designed to increase the 
        likelihood of desired health outcomes in ways that can be 
        objectively measured, and that can produce verifiable results 
        and achievements.
            ``(III) The expenditure is directed toward individual 
        enrollees, incurred for specific segments of enrollees, or 
        provides health improvements to a population beyond the 
        population enrolled in coverage with the entity so long as no 
        additional costs are incurred due to the non-enrollees.
            ``(IV) The expenditure is grounded in evidence based 
        medicine (including promising practices which, with documented 
        justification, go beyond the existing evidence base), or widely 
        accepted best clinical practice, or criteria issued by 
        recognized professional medical associations, accreditation 
        bodies, government agencies, or other nationally recognized 
        health care quality or health improvement organizations.
    ``(iii)(I) For purposes of clause (i)(IV), the term `social 
determinants of health' means conditions in the environments in which 
people are born, live, learn, work, play, worship, and age; that affect 
a wide range of health, functioning, and quality-of-life outcomes, 
risks, patterns of social engagement and sense of security and well-
being, and have a significant influence on population health outcomes. 
These conditions include, but are not limited to, safe and affordable 
housing, access to education, public safety, availability of healthy 
foods, local emergency and local health services, and environments free 
of life-threatening toxins.
    ``(II) For purposes of clause (i)(IV), the term `patient 
engagement' means actions individuals must take to obtain the greatest 
benefit for the health care services available to them, and through 
which process an individual harmonizes robust information and 
professional advice with the individual's own needs, preferences and 
abilities in order to prevent, manage and cure disease.
    ``(D) The Secretary may waive the application of a requirement of 
this paragraph or of paragraph (2)(A)(xiv) to a Medicaid managed care 
organization for not more than 2 years, based on the following:
            ``(i) The extent to which the organization is likely to 
        cease offering coverage without the waiver.
            ``(ii) The number of individuals in the plan likely to be 
        affected by loss of coverage.
            ``(iii) The impact of the loss of coverage on the ability 
        of the beneficiaries to receive coverage under another plan and 
        to have continuity of care.
            ``(iv) The impact on the rates calculated for other 
        Medicaid managed care organizations that would provide coverage 
        for the beneficiaries that would be affected by the termination 
        of coverage.
            ``(v) Upon the request of a Medicaid managed care 
        organization, to permit implementation of major plan changes 
        (but only for 1 contract year).
            ``(vi) Any other relevant information submitted by the 
        Medicaid managed care organization or the State.''.
    (b) Application to Managed Care Plans Under CHIP.--Section 
2103(f)(3) of such Act (42 U.S.C. 1397cc(f)(3)) is amended--
            (1) by inserting ``subsection (m)(2)(A)(xiv) of section 
        1903 (relating to minimum medical loss ratio requirements, 
        except that the minimum medical loss ratio applicable to 
        managed care organizations under this title shall be .80) and'' 
        after ``application of''; and
            (2) by inserting ``other'' before ``requirements for''.
    (c) Regulations.--Not later than October 1, 2015, the Secretary of 
Health and Human Services shall promulgate regulations implementing the 
amendments made by this section. The regulations shall require that 
initial test reporting of medical loss ratios by Medicaid managed care 
organizations be made not later than October 1, 2016.
Medicaid Managed Care Responsibility and Equity Act - Amends titles XIX (Medicaid) and XXI (Children's Health Insurance) (CHIP) of the Social Security Act (SSA) with respect to managed care requirements. Requires a minimum medical loss ratio of at least 85% for Medicaid and CHIP managed care plans under contracts between a state and a managed medical care entity (health maintenance organization), but a minimum ratio of only 80% for an entity in which at least 10% of the enrollees are optional targeted low-income children. Prescribes administrative penalties for failure to maintain such ratios. Applies the same minimum medical loss ratios to a state child health (CHIP) plan, except for a medical loss ratio of at least 80% for managed care organizations.
Medicaid Managed Care Responsibility and Equity Act