(Story updated at 6:48 p.m. ET)
The federal government has lowered average pay raises for 2017 Medicare Advantage plans, and it also modified several of the program's policies after weeks of unremitting lobbying from the health insurance industry.
Overall, the Obama administration showed a commitment to proposals the powerful industry vehemently opposed. One of the most notable policy changes within the CMS' 250-page policy document was the decision to phase in cuts to employer-sponsored Medicare Advantage plans over two years instead of instituting the cuts in 2017. That policy was not nixed altogether, much to the chagrin of insurers.
Payment rates for insurers that sell Medicare Advantage plans will rise by 0.85% on average for 2017, the CMS said in its final rate notice Monday, which came out after the stock markets closed. That compares to a 1.35% proposed rate increase from February, although many insurers argued the average proposed rate adjustment was misleading and likely closer to break-even after factoring in other payment policies.
The average Medicare Advantage payment rate will increase by 3.05% after taking into account the way health plans code their members' diagnoses, the CMS said. That's down from February's estimate of 3.55%.
Medicare Advantage payment rates are based on trends and utilization in fee-for-service Medicare as well as adjustments to beneficiaries' risk scores, among other variables. The final rate for Medicare Advantage revenue was lower than proposed because of a bigger change in the program's “normalization factor,” said Sean Cavanaugh, CMS' deputy administrator and director of the Center for Medicare.
Under the Medicare Advantage program, the private managed-care version of Medicare, the government pays health plans monthly amounts for every member they cover, and those taxpayer-funded payments are adjusted based on how sick someone is. Members who have more chronic conditions have higher risk scores, and plans that cover them therefore receive higher payments. Risk scores were created to incentivize plans to cover all seniors regardless of their health status, but the program has faced accusations of foul play and manipulation of those risk scores.
In a partial win for the industry, the CMS decided not to immediately enforce all of the cuts to employer-based Medicare Advantage plans, but those plans will still receive much lower revenue by 2018. In February, the CMS proposed terminating the bidding process for employers and unions that offer Medicare Advantage plans to their retirees, also known as “employer group waiver plans” or EGWPs. Instead, those plans would receive a lump sum payment based on county-level individual bids.
The CMS decided to phase that policy in over two years instead of making the entire shift next year. In 2017, half of employer Advantage plan payments will be based on their own bids, and the other half will be based on county benchmarks. By 2018, the policy will be in full force. Some financial analysts said the policy could reduce employer plan payments by 2.5%.
Employers and health plans were upset the CMS proposed that policy, arguing the cuts would force employers and unions to drop their Medicare Advantage policies, which cover more than 3 million people. Insurers, however, didn't mention how profitable those plans are: In 2012, the average employer group Medicare Advantage plan had a 7.2% profit margin, whereas individual Medicare Advantage plans had a 4.4% margin, according to the Medicare Advisory Payment Commission, which originally urged the CMS to cut employer payment rates.
Although “a significant majority” of insurers, employers and others in the industry asked the federal government to withdraw the EGWP proposal entirely, the CMS said the modified two-year schedule will help plans brace for the transition while saving the program billions of dollars in potential overpayments.
“By removing the bidding requirements, (Medicare Advantage insurers) will now need to compete for employer contracts primarily on access, quality, customer service and wrap-around benefits,” the CMS said.
The CMS also said it will scale back its proposed shift to so-called encounter data to determine risk scores, but it laid out a timeline for when all Medicare Advantage risk scores will be based completely on that type of data. For 2017, 75% of Medicare Advantage risk scores will be based on traditional fee-for-service data, and 25% will be based on encounter data that more closely track with medical claims. The CMS proposed a 50/50 split in February.
By 2020, all Medicare Advantage risk scores will be based 100% on encounter data, the CMS said. Insurers have fought vigorously against the implementation of encounter data for risk scores, saying it leads to lower payments. However, analysts and consultants note that all data used to evaluate risk scores should hypothetically be the same.
Other finalized policies include higher payments to plans that enroll large amounts of poor seniors, known as dual eligible because they are eligible for Medicare and Medicaid. The CMS said the decision will especially help Medicare Advantage plans that do business in Puerto Rico.
One of the industry's biggest Medicare Advantage victories came well before Monday's rate notice and right after February's proposal. Last month, the CMS bailed out Cigna's Medicare plans from massive cuts to bonus payments in a controversial policy change. Going forward, all Medicare Advantage plans that face sanctions for poor compliance will not immediately face reductions to their star ratings.
America's Health Insurance Plans and the Better Medicare Alliance, the Medicare Advantage industry's primary lobbying groups, spent millions of dollars on lobbying over the past several weeks. Their digital ads have been everywhere from Sports Illustrated to broader news organization sites.
AHIP CEO Marilyn Tavenner, the former chief of CMS, said in a statement that the CMS “took steps to mitigate the negative impact of policy changes related to risk adjustment and encounter data,” but “more can be done.”
The final rate notice heavily impacts the four largest Medicare Advantage insurers in the country: UnitedHealth Group, Humana, Kaiser Foundation Health Plan and Aetna. Together, those insurers cover almost 9.72 million Medicare Advantage members, or 53% of the 18.2 million people in the program. If federal and state antitrust authorities approve Aetna's acquisition of Humana and Anthem's deal for Cigna Corp., the top four companies would control 60% of the Medicare Advantage market.
Companies will now spend the next several months designing 2017 Medicare Advantage plans and benefits before Medicare's annual enrollment window opens in October.
