DEPARTMENT OF HEALTH & HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26-12 
Baltimore, Maryland   21244-1850 
CMCS Informational Bulletin 
DATE:  May 14, 2020 
FROM:  Calder Lynch, Deputy Administrator and Director 
Center for Medicaid and CHIP Services (CMCS) 
SUBJECT:    Medicaid Managed Care Options in Responding to COVID-19 
The COVID-19 public health emergency is causing dramatic shifts in utilization across the 
healthcare industry, causing financial uncertainty for both healthcare providers and managed care 
plans. While some providers are experiencing surges in COVID-19 related utilization, other 
providers are experiencing dramatic declines in utilization and revenue. The Centers for 
Medicare & Medicaid Services (CMS) understands that many states are now seeking ways to 
temporarily modify provider payment methodologies and capitation rates under their Medicaid 
managed care contracts to address the impacts of the public health emergency while preserving 
systems of care and access to services for Medicaid beneficiaries. This guidance provides several 
options that states can consider under their Medicaid managed care contracts, including the 
following: 
1. Adjusting managed care capitation rates exclusively to reflect temporary increases in
Medicaid fee-for-service (FFS) provider payment rates where an approved state directed
payment requires plans to pay FFS rates;
2. Requiring managed care plans to make certain retainer payments allowable under
existing authorities to certain habilitation and personal care providers to maintain
provider capacity and access to services; and
3. Utilizing state directed payments to require managed care plans to temporarily enhance
provider payment under the contract.
To appropriately respond to COVID-19, we understand that states are interested in a variety of 
mechanisms to modify their managed care contracts and rates. In this guidance, CMS is 
announcing temporary flexibilities to help states address the public health emergency. The 
options in this guidance align with statutory and regulatory requirements, such as the 
requirements in 42 CFR Part 438, including that managed care capitation rates must be 
actuarially sound and that state directed payments under managed care contracts must be based 
on utilization and delivery of services covered under the contract. 
In addition to the options described in this guidance, CMS will consider, where appropriate, state 
requests to retroactively amend or implement risk mitigation strategies only for the purposes of 
 
1  responding to the COVID-19 pandemic. In the Notice of Proposed Rulemaking (NPRM), 
Medicaid Program: Medicaid and CHIP Managed Care (CMS-2408-P) published in November 
2018,1 CMS proposed to prohibit states from implementing retroactive risk mitigation strategies. 
CMS continues to support the identification of all risk mitigation strategies in contracts 
prospectively. However, given that this NPRM has not been finalized, CMS recognizes that these 
are unique and unanticipated circumstances under which approving retroactive risk mitigation 
strategies may be appropriate when other methods for making retroactive adjustments to 
capitation rates may be extraordinarily difficult for states to implement at this time. Such risk 
mitigation strategies could include a 2-sided risk corridor on all medical costs. CMS provides an 
example in the appendix of this guidance that relies on a managed care plans medical loss ratio 
(MLR) reporting, outlined in 42 CFR 438.8, and includes a required MLR remittance. This 
approach would provide prudent financial protections and limit financial risks to both state and 
federal governments and managed care plans during this period of uncertainty caused by the 
public health emergency regardless of any other changes the state wishes to consider in 
responding to the public health emergency.  
1. Adjusting Managed Care Capitation Rates Exclusively to Reflect
Temporary Increases in Medicaid FFS Provider Payments
Many states have implemented, or are in the process of implementing, temporary increases in 
Medicaid FFS provider payment rates as part of a disaster state plan amendment (SPA) in 
response to COVID-19. Such temporary rate increases in FFS fee schedules may have a 
corresponding impact on a states managed care capitation rates where states have existing 
contractual requirements that require managed care plans to adopt the Medicaid FFS provider 
rates for specific provider types or services.  
In order to revise a states managed care capitation rates to reflect temporary increases in FFS fee 
schedules where an approved state directed payment requires plans to pay FFS rates, states may 
have the following options: 
 De minimis rate adjustments: States currently have the authority to make de minimis rate
adjustments to their managed care capitation rates under 42 CFR 438.7(c)(3) if these
adjustments result in an increase or decrease to the capitation rate per rate cell of less than
1.5 percent. For such de minimis rate changes, a revised actuarial rate certification does
not need to be submitted; only a contract amendment needs to be submitted to CMS. If
the states actions to implement temporary rate increases result in a less than 1.5 percent
adjustment to the capitation rates, states may use this option, and they are not required to
submit a new actuarial rate certification to CMS.2
 Rate amendment: For states that implement capitation rate adjustments that result in an
increase or decrease of more than 1.5 percent per rate cell, states will need to submit a
1 https://www.federalregister.gov/documents/2018/11/14/2018-24626/medicaid-program-medicaid-and-childrens-
health-insurance-plan-chip-managed-care. 
2 The state could not submit two separate contract amendments to increase rates 1.5 percent per amendment (for a 
total increase of 3 percent from the original certified rates) without submitting a revised actuarial rate certification. 
2  revised actuarial rate certification and contract amendment to address implementation of 
these temporary rate increases. To expedite review and approval of such amendments, 
states and actuaries may develop a revised actuarial rate certification and contract 
amendment that contains only the information needed to incorporate the temporary 
payment rate increases. For example, where appropriate, states and actuaries would be 
permitted to address only the pricing assumptions in the revised actuarial rate 
certification and rate amendment without having to address the underlying assumptions 
around utilization. To the extent states and actuaries believe it would be necessary or 
reasonable to also revise utilization assumptions for a state directed payment at this time, 
CMS would accept revised actuarial rate certifications and contract amendments to 
reflect the proposed changes as well.  
In addition to these two options, CMS remains committed to reviewing COVID-19 related 
contract and rate amendments as our top priority related to managed care rates and reiterates our 
commitment to a more expedited review and approval process. 
2. Requiring Managed Care Plans to Make Retainer Payments to Certain
Habilitation and Personal Care Providers to Maintain Provider Capacity
and Access to Services
As discussed in existing CMS guidance,3 states are authorized to make retainer payments under 
section 1915(c)(4)(B) of the Social Security Act to allow certain providers to continue to bill for 
individuals enrolled in a Medicaid program, and individuals receiving personal care or 
habilitation services that include personal care specified in their person-centered service plan 
when circumstances prevent such individuals from receiving these services. Such circumstances 
could include self-quarantining activities during the COVID-19 public health emergency, which 
may lead to the temporary closure of a provider or limit a providers ability to furnish the type of 
in-person services that are typically included in the service plan. These retainer payments have 
been used historically in 1915(c) HCBS waivers since 2000. States should review the guidance 
relevant to when and how retainer payments may be authorized, as having authorization for those 
payments is necessary before states can direct their managed care plans to make such payments.  
Since retainer payments are specifically linked to the delivery of services specified in an 
individuals person-centered service plan, and are made only when qualifying circumstances 
prevent an individual from receiving those services identified in the person-centered service 
plan, these payments meet the requirement in 42 CFR 438.6(c)(2) that state directed payments be 
based on the utilization and delivery of services. Therefore, we believe that states may 
implement state directed payments under 42 CFR 438.6(c) that contractually require managed 
care plans to make these retainer payments to providers where the authorized service is covered 
under the contract. The state directed retainer payments must meet all requirements and criteria 
for retainer payments to be permissible, as well as the requirements in  438.6(c), and this 
3 See, for example Olmstead Update No 3, published July 25, 2000: 
https://www.medicaid.gov/sites/default/files/Federal-Policy-Guidance/downloads/smd072500b.pdf. 
3  guidance does not address all of those requirements. We strongly recommend that states review 
the applicable guidance cited above, as well as the COVID-19 FAQs published by CMS for 
future guidance on retainer payments.  
In order for states to seek approval under 42 CFR 438.6(c), the retainer payments must be 
authorized as part of the 1915(c) HCBS waiver, section 1115(a) demonstration waiver for 
1915(c) HCBS services, or other Medicaid authority. Once the retainer payments are authorized 
under one of these authorities, a state directed payment preprint must be submitted to effectuate 
the state directed retainer payments under a states contract with its managed care plans. In order 
to facilitate our expedited review and approval of these payments, CMS is making a 
prepopulated template available to states for minimum fee schedule requirements tied to 
approved retainer payments. The next section of this guidance includes applicable requirements 
related to state directed payments developed in response to COVID-19. 
3. State Directed Payments to Temporarily Enhance Provider Payment in
Managed Care
Medicaid managed care regulations at 42 CFR 438.6(c) include requirements for how states may 
direct plan expenditures in connection with implementing delivery system and provider payment 
initiatives under Medicaid managed care contracts. These types of payment arrangements permit 
states to direct specific payments made by managed care plans to providers under certain 
circumstances and can assist states in furthering the goals and priorities of their Medicaid 
programs, including a states response to COVID-19.  
In November 2017, CMS published guidance, a related appendix with examples, and a preprint 
for states to obtain approval of state directed payments under 42 CFR 438.6(c).4 Under  
438.6(c)(2), state directed payments must be developed in accordance with actuarial soundness 
standards in  438.4, the rate development standards specified in  438.5, generally accepted 
actuarial principles and practices, and have written CMS approval prior to implementation. 
States must demonstrate in writing that the directed payment arrangement5: 
(A) Links to utilization and delivery of services under the current contract rating period;
(B) Directs expenditures equally, and using the same terms of performance, for a class of
providers providing the service under the contract;
(C) Advances at least one of the goals and objectives in the states managed care quality
strategy (42 CFR 438.340);
(D) Has an evaluation plan that measures the degree to which the arrangement advances
at least one of the goals and objectives in the quality strategy;
(E) Does not require or condition provider participation on entering into or adhering to
intergovernmental transfer agreements; and
(F) Does not renew automatically.
4 https://www.medicaid.gov/medicaid/managed-care/guidance/state-directed-payments/index.html. 
5 In addition to these requirements, the regulation specifies additional standards for value-based service payment 
models and delivery system reform initiatives.   
 4  Additionally, state directed payments must be incorporated into both contract(s) and rate 
certification(s). 
In responding to COVID-19, we understand that states may be interested in ways to contractually 
require their managed care plans to make specific payments to providers to help mitigate the 
impacts of the public health emergency. To help states comply with 42 CFR 438.6(c) in 
designing state directed payments in response to the COVID-19 pandemic, we provide the 
following framework. Using this framework will facilitate CMS review and approval process.  
1. Connection to Utilization: The regulations at 42 CFR 438.6(c)(2)(i)(A) require that all
state directed payments be based on the utilization and delivery of services under the
contract in the current managed care contract rating period. As such, states cannot use a
state directed payment to require their plans to make advance payments. However, we
note that managed care plans have the discretion to voluntarily implement a number of
techniques, which may include advance payments, in order to fulfill their contractual
requirements to ensure access to care and network adequacy.
For states that would like to implement temporary increases in provider payments to
address declines in utilization and other impacts due to the public health emergency
through their managed care contracts, there are mechanisms states may use to accomplish
this goal in a manner consistent with regulatory requirements. For example, states could
require plans to provide a uniform (even if temporary) increase in per-service payment
amounts for furnishing covered services to enrollees covered under the contract in order
to affect total (or overall) payments to providers. States could also consider some
combination of different state directed payments to address temporary increases in
provider payments.
2. Quality: The regulations at 42 CFR 438.6(c)(2)(i)(C) and 42 CFR 438.6(c)(2)(i)(D)
require that all state directed payments advance a goal and objective in the states
managed care quality strategy and have an evaluation plan that measures the degree to
which the arrangement advances such goal and objective. Ensuring the continued
availability and accessibility of covered services for Medicaid managed care enrollees
may be a goal of the states managed care quality strategy, which would be served by the
state instituting ways to address temporary increases in provider payments in order to
respond to providers who may be experiencing dramatic declines in utilization and
revenue or incurring additional costs due to this public health emergency. It is an
appropriate goal of the managed care quality strategy for states to use state directed
payments to increase payment for actual utilization of services as a method to preserve
and retain the availability of services for Medicaid managed care enrollees. It is also an
appropriate goal of the managed care quality strategy for states to use state directed
payments to address the increased use of telehealth or other approaches to maintain
access to care, whether for all beneficiaries or for specific subgroups with specialized
needs, during the public health emergency. States may use any of these purposes as
quality goals and objectives as part of the managed care quality strategy under 438.340
 5  to comply with the quality strategy requirements in  438.6(c)(2) during this public health 
emergency.  
If a state would like to continue a state directed payment arrangement in future rating 
periods after the end of the public health emergency, CMS will work with states to 
identify expectations for a more detailed approach to specifying goals and objectives in 
the quality strategy and for ensuring the evaluation plan measures the degree to which the 
arrangement advances those goals and objectives. 
3. Targeted Providers: The regulations at 42 CFR 438.6(c)(2) permit states to direct
expenditures for a class of providers providing services under the contract. Historically,
CMS has deferred to states in defining the provider class for purposes of state directed
payment arrangements, as long as the provider class is reasonable and identifiable, such
as the provider class being defined in the states Medicaid State Plan. For purposes of
responding to this public health emergency, we have heard from states that are concerned
about providers that serve a high proportion of Medicaid beneficiaries. Examples of state
directed payments for a target class or classes of providers providing services under the
contract could include dental, behavioral health, home health and personal care, pediatric,
federally-qualified health centers, and safety-net hospitals. These payments must be
directed equally, using the same terms of performance across a class of providers, and
provider participation in these state directed payments cannot be conditioned upon the
provider entering into or adhering to intergovernmental transfer agreements.
4. Risk Mitigation: Under 42 CFR 438.6(c)(2), all state directed payments must be
developed in accordance with generally accepted actuarial principles and practices. Since
there is significant uncertainty related to costs and utilization due to this public health
emergency and state directed payments may limit plans available capitation revenue to
devote to responding to the public health emergency, CMS will carefully evaluate state
directed payment proposals to inform review of the actuarial soundness of the capitation
rates. CMS will also require implementation of a 2-sided risk mitigation strategy (e.g.,
risk corridor) when states implement new state directed payments intended to mitigate the
impacts of the public health emergency. For example, states could institute a 2-sided risk
corridor based on a target MLR. Under such an approach, the state could establish
thresholds under which a plan and the state would be required to share in the gains or
losses if the plan did not meet the target MLR. An example of this strategy is included in
the attached appendix.
CMS believes 2-sided risk mitigation strategies are necessary to ensure actuarial
soundness given the many uncertainties associated with the public health emergency,
including issues related to increased costs because of local COVID-19 surges, potential
pent-up demand after the public health emergency ends, and other potential solvency or
cash flow issues. As noted earlier in this guidance, states could consider a 2-sided risk
mitigation strategy on all medical costs absent implementing a new state directed
payment intended to mitigate the impacts of the public health emergency.
6  States should describe the risk mitigation arrangements in their contract(s), and they must 
be developed in accordance with all applicable requirements in 42 CFR Part 438, 
including  438.4 and 438.5, and generally accepted actuarial principles and practices. 
The actuarial rate certification and supporting documentation should also describe any 
risk mitigation arrangement and how it may affect the rates or the final net payments to 
the health plan(s) under the applicable contract as part of complying with  438.7. States 
submitting new or amended state directed payment proposals to address the public health 
emergency that do not currently have 2-sided risk mitigation in place or that are seeking 
to make an existing risk mitigation arrangement comply with these requirements, should 
submit both a contract amendment and a revised actuarial rate certification. If there are 
no other material impacts on the capitation rates, the revised actuarial rate certification 
can be limited to just incorporating the risk mitigation arrangement into the rate 
certification. States should follow the guidance in the Medicaid Managed Care Rate 
Development Guide for documentation of risk-sharing mechanisms.  
As noted in previously published FAQs and earlier in this CIB, CMS will consider, where 
appropriate, state requests to retroactively amend or implement risk mitigation strategies 
for the purposes of responding to the COVID-19 pandemic.  
5. Payment Levels: The regulations at 42 CFR 438.6(c)(2) require that all state directed
payments be developed in accordance with 42 CFR 438.4, the standards at  438.5, and
generally accepted actuarial principles and practices; therefore, as part of CMS approval
process, we require states to demonstrate that the state directed payments result in
provider payment rates that are reasonable, appropriate, and attainable. CMS has
generally asked states to demonstrate that proposed state directed payments meet these
requirements through a comparison of the effective payment level before and after the
state directed payment to a benchmark like Medicare or commercial rates. States will be
required to document a rationale or justification and provide supporting documentation
that demonstrates how the directed payments are appropriate and reasonable compared to
the total payments the provider would have received absent the public health emergency.
States will also be required to document a rationale or justification and provide
supporting documentation that demonstrates the addition of the directed payment does
not result in total payments that would exceed what was or would have been assumed in
the capitation rate certification absent the public health emergency. If states request
approval to maintain these payment arrangements in future rating periods, we will require
the comprehensive provider payment rate analysis.
6. Rating Period: As part of CMS review and approval process for state directed payments
under 42 CFR 438.6(c), we require that the states actuarial rate certification for the
applicable rating period address how each state directed payment is reflected in the
capitation payments to managed care plans. CMS has not permitted states to add new
state directed payments for rating periods that have ended. The regulation at  438.6(c)
requires prior approval of state directed payments.
CMS interprets the prior approval requirement in this part of the regulations in line with
practices documented in the State Medicaid Manual for prior approval of MCO contracts.
7  CMS will permit states to develop and implement these specific state directed payments 
retrospectively to the start of the current contract rating period. States are required to 
submit the state directed payment preprint for approval before the end of the rating 
period; for states operating on a State Fiscal Year basis, this would mean submissions for 
the SFY 2019-2020 rating period would need to be submitted before July 1, 2020. As 
noted above, states will be required to document a rationale or justification and provide 
supporting documentation that demonstrates the directed payments are appropriate and 
reasonable compared to the total payments the provider would have received absent the 
public health emergency. States will also be required to document a rationale or 
justification and provide supporting documentation that demonstrates the addition of the 
state directed payment arrangement does not result in total payments that would exceed 
what was or would have been assumed in the capitation rate certification absent the 
public health emergency. If states request approval to maintain these state directed 
payments in future rating periods, we will work with states to obtain approval prior to the 
start of the rating period.  
7. Rate Certification Documentation: The regulation at 42 CFR 438.7(b)(6) requires that
state rate certifications document all special contract payment arrangements in  438.6,
including documentation of state directed payments. While CMS would generally require
states to submit an amendment to their rate certifications to include these specific state
directed payments, in light of the public health emergency, CMS is using our
enforcement discretion as to these documentation requirements. Therefore, CMS will not
require rate certification amendments for new state directed payments if the amounts are
within the +/- 1.5 percent per rate cell de minimis amount in accordance with 42 CFR
438.7(c)(3). As noted above, states will be required to document a rationale or
justification and provide supporting documentation that demonstrates the directed
payments are appropriate and reasonable compared to the total payments the provider
would have received absent the public health emergency. States will also be required to
document a rationale or justification and provide supporting documentation that
demonstrates the addition of the state directed payment arrangement does not result in
total provider payments that would exceed what was or would have been assumed in the
original capitation rate certification absent the public health emergency. For a state that
plans to maintain these payment arrangements in future rating periods, we will require the
rate certification to document all state directed payments of all sizes, whether the
arrangement is within the de minimis range or not.
8. Preprint Template: The regulation at 42 CFR 438.6(c)(2) requires that states have
written approval from CMS prior to implementation of the state directed payments. CMS
currently utilizes a preprint to implement the prior approval process that states must
complete and submit to CMS for approval of the state directed payments. For states
seeking to implement state directed payments to respond to this public health emergency,
we are publishing a prepopulated version of this preprint to facilitate a more streamlined
submission and review process.
In addition to these guiding principles and publication of the prepopulated template, CMS is also 
publishing an appendix of example state directed payment arrangements that would be 
 
8  approvable for this public health emergency. If states incorporate all of these guiding principles 
into their state directed payment arrangements, or choose to implement one of the example state 
directed payment arrangements from the published appendix, we can commit to an expedited 
review and approval process. If states include additional elements not contemplated as part of 
this guidance, our review and approval process may take more time. 
Technical Assistance 
CMS is continuing to prioritize and expedite reviews of COVID-19 related managed care 
actions. All managed care actions (contract amendments, rate amendments, state directed 
payment preprints) needed to respond to COVID-19 should be submitted as soon as possible to 
CMCSManagedCareCOVID19@cms.hhs.gov. If states have questions about this informational 
bulletin or need technical assistance regarding this guidance, please contact John Giles, Director 
of the Division of Managed Care Policy, at john.giles1@cms.hhs.gov.
 9  Appendix A: Example State Proposals 
State Proposal A  State Proposal B 
The state is directing and contractually requiring their  The state is directing and contractually requiring their 
managed care plans to pay an enhanced minimum fee  managed care plans to pay a uniform dollar or percentage 
schedule for pediatric primary care providers.  increase per service rendered by behavioral health 
providers. The uniform dollar or percentage increase 
would be determined by dividing a portion of the total 
Proposal 
dollars the state has dedicated to this payment 
Overview 
arrangement by the number of outpatient behavioral 
health visits rendered during the quarter based on 
encounter or claims data and then directing plans to pay 
$x or x% per service rendered during that quarter in 
addition to negotiated rates. 
Effective Date  May 1, 2020  July 1, 2019 
Rating Period  Jan 1, 2020  Dec 31, 2020  July 1, 2019  June 30, 2020 
Preprint 
Submission  May 15, 2020  May 15, 2020 
Date6 
The payment arrangement requires plans to pay an  The payment arrangement requires plans to pay a uniform 
enhanced fee per service rendered during the contract  dollar or percentage increase per service rendered during 
period.  the contract period. 
Tie to Utilization 
and Outcomes  The amount the state directs the plan to pay per service 
could vary quarter to quarter based on the utilization 
rendered (e.g. Q1 could be $110 per service while Q2 
could be $100 per service if utilization increased). 
Targeted  Pediatric Primary Care Providers  Behavioral Health Providers 
Provider Class 
6 Preprints must be submitted before the end of the rating period that they would be applicable to. For example, states operating on a SFY rating period must 
submit preprints prior to July 1, 2020 to implement during the SFY 2019-2020 rating period. 
 10  State Proposal A  State Proposal B 
The state is directing this payment arrangement to ensure access to care for Medicaid managed care enrollees in light of 
the COVID-19 emergency. 
The state is contractually requiring the plans to pay providers in this manner to ensure access to care for Medicaid 
Quality Goals  managed care enrollees in light of the COVID-19 emergency; the state will ensure routine monitoring of access to care 
and Objectives  as required under 42 CFR 438.66, 438.206, and 438.207. 
and Evaluation 
If the state requests approval to maintain these payment arrangement(s) in future rating periods after the end of the 
public health emergency, CMS will work with states to identify expectations for a more detailed approach to setting 
goals and objectives defined in the quality strategy and for ensuring the evaluation plan measures the degree to which 
the arrangement advances those goals and objectives. 
Document a rationale or justification and provide supporting documentation that demonstrates the payments are 
appropriate and reasonable compared to the total payments the provider would have received absent the public health 
emergency. Document a rationale or justification and provide supporting documentation that demonstrates the addition 
of the state directed payment arrangement does not result in total payments that would exceed what was or would have 
Payment Levels 
been assumed in the capitation rate certification absent the public health emergency. If states request approval to 
maintain these payment levels in future rating periods after the end of the public health emergency, CMS will require 
the comprehensive provider reimbursement rate analysis in order to provide a subsequent approval and include this as a 
condition in the approval letter. 
If the effect on the approved capitation rates is expected to be a de minimis amount (+/- 1.5% per rate cell)*: A 
contract amendment will be required; states will not be required to revise their approved rate certification to account for 
the directed payment arrangement for the active rating period under the authority of  438.7(c)(3).  
Rate 
Certification 
If the effect on the approved capitation rates is expected to be more than a de minimis amount*: States will need 
Documentation 
to submit both a contract and rate certification amendment to account for the effect of the directed payment. 
For New State 
Directed 
*Note that as part of the preprint review, states will be required to document a rationale or justification and provide
Payments to 
supporting documentation that demonstrates the directed payments are appropriate and reasonable compared to the total
Address 
payments the provider would have received absent the public health emergency. States will also be asked as part of the
COVID-19 
preprint review to document a rationale or justification and provide supporting documentation that demonstrates the
addition of the state directed payment arrangement does not result in total payments that would exceed what was or
would have been assumed in the capitation rate certification absent the public health emergency.
 11  State Proposal A  State Proposal B 
CMS requires that states implementing state directed payments intended to mitigate the impacts of the COVID-19 
public health emergency under this guidance must also implement a 2-sided risk mitigation strategy (such as a 2-sided 
risk corridor across all medical expenses) to provide protection for state and federal governments, as well as managed 
care plans. 
For example, the state could set a target MLR of 85% or greater consistent with definitions outlined in 42 CFR 438.8 
and related policy guidance. CMS recommends the state consider setting this target MLR consistent with initial rate 
development assumptions for the MLR standards as outlined in 42 CFR 438.8 and related policy guidance. The state 
would then limit MCO gains and losses if the actual MLR is different than the target MLR within a specified margin, 
such as those laid out below: 
MCO Share of Gain/Loss  State/Federal Government Share 
Medical Loss Ratio Corridor 
in the Corridor  of Gain/Loss in the Corridor 
Less than Target MLR - 2.5%  0%  100% 
Target MLR - 2.5% to Target MLR - 1%  50%  50% 
Target MLR - 1% to Target MLR + 1%  100%  0% 
Risk Mitigation  Target MLR + 1% to Target MLR + 2.5%  50%  50% 
Greater than or equal to Target MLR + 2.5%  0%  100% 
As a specific example, if a state and its actuary assumed a target MLR of 88% in initial rate development for SFY 2020, 
the 2-sided risk corridor would be: 
MCO Share of Gain/Loss  State/Federal Government Share 
Medical Loss Ratio Corridor 
in the Corridor  of Gain/Loss in the Corridor 
MLR of less than 85.5%  0%  100% 
MLR of 85.5% to less than 87%  50%  50% 
MLR of 87% to less than 89%  100%  0% 
MLR of 89% to less than 90.5%  50%  50% 
MLR greater than or equal to 90.5%  0%  100% 
The above example is standard language that CMS would accept. States may wish to consider other 2-sided risk corridor 
or risk mitigation designs that they believe may better address the risks specific to each state and program. CMS is 
happy to provide technical assistance to states and evaluate alternative approaches in advance of state implementation. 
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