(Story updated at 6:23 p.m. ET)
Baseline Medicare Advantage payment rates for 2017 will rise by 1.35% on average, an early win for health insurance companies in what is the final Medicare rate battle of the Obama administration.
When factoring in the risk coding tendencies, the average change in Medicare Advantage insurers' revenue will climb 3.55% next year, according to a CMS release posted late Friday. The proposal is a major shift from last February, when initial benchmark rates were cut by an average of 0.95% before factoring in risk score trends.
In addition to pay bumps, several major policies are embedded within the CMS' advance rate notice, including changes that will help insurers with many low-income seniors, known as dual-eligibles because they qualify for Medicare and Medicaid. The CMS included changes to the Medicare Advantage risk-adjustment model and quality ratings system that will, in essence, boost taxpayer funding for plans that enroll higher amounts of poor seniors.
The Affordable Care Act phased in cuts to the program's benchmark rates over six years, and 2017 will be the last year of those payment reductions. Previously, the government heavily overpaid Medicare Advantage plans, and the ACA sought to bring the capitated payments in line with traditional Medicare spending.
Insurers warned those cuts would drastically lower enrollment, but those concerns never came to pass. More than 18 million people, a third of all Medicare beneficiaries, are enrolled in a Medicare Advantage plan as of this month. That's a sizable increase from the roughly 11 million seniors who had a Medicare Advantage plan before the ACA took effect.
Yet, despite the final ACA-mandated cuts, average payments will remain positive for 2017, according to the CMS. The amounts will vary for each health plan, but many industry observers believe 2017 is “the best rate environment we've seen in years,” said John Gorman, a consultant for Medicare Advantage insurers and a former CMS official.
Medicare Advantage plans received roughly $170 billion in 2015. The CMS pays Medicare Advantage insurers a monthly amount for each member, based partly on risk scores. The median monthly capitated payment in 2014 was $754, or about $9,000 per year for the average beneficiary, according to CMS data. Insurers are salivating over the growing membership and revenue base because even a small margin of 2% to 5% reaps billions of dollars in profit for the industry, assuming plans have high quality marks.
The 2017 proposal again makes changes to the program's risk-adjustment model. Medicare Advantage insurers document the health status of their members by using risk scores that adjust for different demographics and conditions, known as hierarchical condition categories. A higher risk score indicates a person is sicker or has complicated chronic health conditions, which leads to a higher payment.
The CMS decided last year to move toward a new, conceivably more accurate risk-adjustment model. Many have raised concerns, and filed lawsuits, over insurers that are fraudulently raising those risk scores to receive higher payments, a practice known as upcoding.
The CMS' latest proposal slightly modifies the model for 2017 by creating several new risk-adjustment subcategories for dual-eligibles. The agency based its research “in response to new Medicare products that focus on enrolling exclusively dual-eligible beneficiaries, along with concerns raised about the accuracy of the current model for predicting costs for dual-eligible beneficiaries,” the notice reads.
That wasn't the only win for insurers such as WellCare Health Plans, that have a lot of low-income Medicare members. The CMS suggested tinkering with the star ratings system.
Medicare Advantage star ratings show how well insurers care for their members by weighing several clinical measures, such as whether plans help seniors manage their osteoporosis and adhere to their medications. Kaiser Permanente and many other provider-owned plans routinely nab high grades, which come with highly coveted bonus payments.
Starting in 2017, some quality measures tied to Medicare's star ratings would be adjusted to account for the socioeconomic characteristics of a plan's enrollees. Insurers with dual-eligibles argue the star-rating system is stacked against them. They say it prevents them from getting bonus money because their members have several complex conditions and face other barriers to obtaining care.
Interestingly, the proposal made no mention of the controversial health-risk assessments. Many insurers send providers or nurses to members' homes to assess their health and determine diagnoses. Those assessments have often been perceived as the origin site of upcoding, but plans have backed them as a way to care for patients in their own homes.
The industry can also celebrate another victory; the CMS did not lower Medicare Advantage payments due to the one-year moratorium of the ACA's health insurer tax. Due to heavy lobbying, Congress suspended that tax for 2017 in its most recent budget. The agency instead hopes plans will use the tax break to beef up their products.
“Wherever possible, we would expect (insurers) to reflect these lower costs through lower bids, higher rebates and more supplemental benefits for Medicare Advantage enrollees,” the CMS said.
UnitedHealth Group and Humana dominate Medicare Advantage with a combined 38% market share. UnitedHealth has 3.81 million members as of Feb. 1, and Humana has 3.18 million. Kaiser and Aetna, which is in the process of acquiring Humana for its lucrative Medicare business, are among the other large players.
Those big insurers, America's Health Insurance Plans and the Better Medicare Alliance have already poured money into advertising campaigns to stymie rate cuts and unpopular policies, which they mostly avoided in Friday's notice. Now those groups will lobby Washington over the next six weeks to refine the proposal.
This week, 369 members from the House and Senate signed letters urging CMS acting Administrator Andy Slavitt to protect Medicare Advantage by “maintaining payment levels and avoiding harmful policy proposals for 2017.” Congress rarely shows bipartisan support for any initiative these days, but it's become an annual tradition for legislators of all political stripes to rally behind seniors who have Medicare Advantage plans and the health insurance industry that funds their campaigns.
Sens. Mike Crapo (R-Idaho) and Chuck Schumer (D-N.Y.) and Reps. Brett Guthrie (R-Ky.) and Patrick Murphy (D-Fla.) led the bipartisan letter-writing charge. The insurance and HMO industries have given hundreds of thousands of dollars to Crapo and Schumer during the 2016 cycle campaigns, according to data from political money tracker OpenSecrets.org. Guthrie and Murphy have also received funds from insurers, though to a lesser extent.
Other industry stakeholders also responded positively to the changes.
“Today's proposal includes fair and sustainable rates to help ensure patient access to vital health care services, including important supplemental benefits,” said Ashley Thompson, the American Hospital Association's senior vice president of public policy analysis and development, in a statement.
Comments on the 2017 notice are due by March 4. The CMS will release final policies on April 4.
