The verdict on the 2015 rates, and what it will mean for both large commercial insurers and health systems that operate Advantage plans, remains murky.
The final rate guidelines will be issued on April 7 for the Advantage program, which now serves approximately 30% of all Medicare beneficiaries. Insurers are heavily lobbying the Obama administration to bump up the rates.
There is confusion about the CMS proposal because Advantage rates hinge on a complex array of factors that aren't easily distilled down to a single number. The most basic element is the reduction in benchmark rates for Advantage plans, but even that is not simple.
Under the Patient Protection and Affordable Care Act, the CMS has been transitioning to a new system for calculating Advantage rates. Under the old methodology, the rate reduction would have been 3.6%. But under the new system, based on the cost of traditional fee-for-service Medicare, the reduction would have been 1.7%. When the two are blended together, it produces a drop in the benchmark of 1.9% for 2015.
Further depressing rates is the end of a three-year program that provided quality bonuses to plans that received at least three stars on a five-star scale. Under that program, 58% of plans were eligible for bonuses. But starting in 2015, only plans that receive at least four stars will be eligible for additional payments. That's expected to cut about 1.7% from overall payment rates.
“This is now open season on inferior species in Medicare Advantage,” said Washington-based insurance consultant John Gorman.
Another drag on rates is the implementation of cuts under the ACA, which help fund the law's insurance premium subsidies. Most analysts figure that those reductions will result in plans getting paid about 2% less in 2015.
“We believe smaller and weaker health plans will likely exit the market or seek buyers, whereas larger players will reduce benefits, cut providers and eliminate membership in weak-margin geographies to compensate for these rates,” Wells Fargo analysts wrote.
But the CMS' proposal wasn't all bad news for insurers. They could see a significant spike in rates from a re-calculation of the risk adjustment scores that the CMS uses to determine payments. It's anticipated to give an average boost of 3% in rates.
Despite rate cuts in recent years, Advantage rolls have continued to swell. In 2014, the number of enrollees grew by 8.9%, totaling nearly 16 million.