Several states soon may see an exodus of managed Medicaid plan insurers if they don’t update their rate-setting processes and bake in additional funds to companies can pay administrative costs, according to a new report.

More than 50 million Medicaid beneficiaries in 39 states receive healthcare through managed care programs, but many states aren’t paying insurers enough money to generate an adequate margin on that business. Unless states increase Medicaid insurance companies’ margins, they may have to rethink managed care altogether, according to a report from The Society of Actuaries.

Nationally, managed Medicaid margins — the difference between revenue and expense — average around 2%, according to the report. Although there’s a temptation to call that 2% the insurers’ profit, that’s not the case according to Sara Teppema, the report’s co-author and an actuary for at Blue Cross and Blue Shield of Illinois, Montana, New Mexico, Oklahoma & Texas.

“It’s about a lot more than just profit,” Teppema said, “There are other things that has to be factored in when we’re talking about margins.”

A managed care plan’s margin also includes income taxes and funds to cover unexpected expenses, such as a public health crises. Companies also have had to dip into their margins for IT investment to comply with new alternative pay models or Medicaid requirements, the report said.

“States need to understand that insurance companies or footing the bill for extra costs,” said Dr. Don McCanne, a physician and senior health policy fellow at Physicians for a National Health Program, an advocacy organization.

The report, which got plan data from annual The National Association of Insurance Commissioners filings, did not break down actual profit numbers since that information isn’t disclosed on those reports.

“Without providing an opportunity for sustainable margins, states would not attract and retain managed care organizations in their programs and would be forced to forgo the [savings] that the model promises to deliver,” the report said.

Some states are already seeing the impact of those unsustainable rates. Minnesota faced a setback late last year when Medica announced it would not continue its managed plan in 2017. Medica’s cancelled plan had more than 300,000 beneficiaries enrolled.

Officials at Medica said in a statement they felt they had no choice but to exit the market. It lost $187 million in 2016 over inadequate rates in 2016 and estimated it would have lost another $100 million had it stuck around in 2017.

“If we accepted the state’s final offer would put the organization’s solvency at risk,” Greg Bury, a spokesman for the company said in a statement. “While serving Medicaid enrollees is an important part of who Medica is, we cannot risk our ability to serve one million non-Medicaid members if the entire organization at risk.”

The Society of Actuaries’ findings come at a critical time when Republican lawmakers are mulling ways to limit Medicaid funding for states.

“This document may designed in part be to provide a little bit of a defense against potential cost cutting measures,” Katherine Hempstead, a senior adviser at the Robert Wood Johnson Foundation said.

Insurers have lauded the study as the first deep dive into what’s actually covered by Medicaid rate margins.

“This ends the erroneous assumption that managed Medicaid plans are making money hands over fist,” said Alexander Shekhdar, vice president, federal and state policy at Medicaid Health Plans of America.

The report found some outliers that had higher margins than the national average.Trilogy Health Insurance, a Medicaid plan in Wisconsin, had a margin of more than 17% in 2015. However, the report indicates the margin is the result of an increased payment from the state after the plan had a negative margin of negative 32% in 2014. The plan had entered into several new markets that year and the rates paid by the state didn’t adequately cover costs the plan ended up facing that year.

What happened with Trilogy is a common occurrence, experts say.

“There is room for improvement on actuarial soundness in Managed Medicaid,” Leerink Partners analyst Ana Gupte said. “Plans typically lose money in the guest one to two years of new contract implementation and seek rate increases as they gain medical claims experience.”

The need to ensure managed care rates include adequate margins is only growing as states increasingly place new populations in managed care. Many of these new populations historically have been carved out of managed care because of their complex health needs, according to Michael McCue, a professor of public health at Virginia Commonwealth University.

This includes people who need long term support and services and dual eligibles, which are individuals eligible for both Medicare and Medicaid and often face multiple severe chronic conditions.

It’s unclear if the report will cause states to become more proactive as they now feel that have an adequate rate setting process that will ensure a margin according to Matt Salo, executive director of the National Association of Medicaid Directors.

“There’s no value in an undercapitalized partner in this,” Salo said.