The CMS last week released the preliminary 2016 payment rates for Advantage plans and will issue final rates April 6. If history is any guide, the CMS likely will issue a more favorable final capitation rate to appease the insurance industry and limit political damage among seniors. John Gorman, whose Gorman Health Group consults with Advantage plans, calls the process the “Potomac two-step.”
Setting capitated payment rates involves a complex combination of several formulas. The primary figure is the benchmark rate. Under the ACA, actuaries tie the benchmark payment level to the projected cost of traditional fee-for-service Medicare spending in each county. Before the ACA, the government paid Advantage plans an average of 14% more per beneficiary than traditional Medicare, prompting widespread calls to equalize spending between the two programs.
The ACA spread county-level benchmark rate cuts over two-, four- and six-year periods. Payment reductions, which officially will be complete by 2017, have been adopted in a vast majority of counties.
“It really depends on what part of the country you're looking at,” said Gretchen Jacobson, associate director at the Kaiser Family Foundation.
Advantage payment rates then are adjusted by enrollees' health-risk scores and by each plan's star rating, which scores the quality of care provided on a 1 to 5 scale. Additional nuances include home-risk assessments, through which Advantage plans determine members' health-risk scores.
These assessments have prompted allegations that plans use upcoding to increase members' severity of illness to receive higher payments, Jacobson said.
Insurers can't succeed in the Advantage business if they don't focus on risk assessment and improving their star ratings, said Tim Courtney, a healthcare actuarial consultant. Gorman agreed, saying the star-rating bonus payments could make or break Advantage plans. Those with at least four stars out of five are receiving an extra 0.5% boost this year.
Advantage plans received an average 0.4% pay bump for 2015. But many analysts said that's misleading because several plans received a net reduction, depending on what county they are in. J.P. Morgan Securities calculated the 2015 rates as a 3.2% reduction.
But insurers still have earned profits on their Advantage plans despite the pressured rate environment of the past several years. On the other hand, some observers say the combination of past cuts and future risk-coding adjustments could lead to a tipping point that would reduce availability and consumer appeal of Advantage plans.
“No program can sustain year-over-year funding cuts,” said Krista Drobac, interim executive director of the Better Medicare Alliance, an insurer-funded advocacy group.
—Michael Sandler contributed to this article.
