Did the Obama administration indulge health insurance companies with friendly changes to Medicare Advantage rate policies for 2017? Or did CMS officials stick to their guns on proposals the industry aggressively lobbied to kill? Experts say it was a little of both.
“It embodies the definition of compromise,” said John Gorman, a Washington-based Medicare Advantage consultant and former CMS official. “Everybody goes home pissed.”
David Windley, an equities analyst at Jefferies who tracks insurers, said it wasn't a loss for the industry, but he wouldn't call it a win either. “Maybe it's a save,” he said.
And the lengthy April 4 policy document doesn't even tell the entire story. Medicare Advantage insurers still scored two substantial wins in the past few weeks that aren't reflected in the rate notice.
Many who work or consult with the Medicare Advantage industry were paying close attention to this year's notice, a complex policy bible that affects plans sold for the coming year. Insurers and politicians urged the Obama administration not to rock the boat at the risk of alienating a powerful lobby and elderly voting bloc during a contentious presidential election cycle.
Among the many policies proposed in the draft notice, cuts to Medicare Advantage employer plans for retirees, also known as “employer group waiver plans” or EGWPs, drew the most lobbying and chatter.
The CMS surprised everyone in February by proposing to end the bidding process for employers and unions that sponsor Advantage plans and instead pay those plans lower lump sums. Many people, including those on the independent Medicare Payment Advisory Commission, supported the policy as a way to end blatant overpayments. But it wasn't on most people's radar heading into February.
America's Health Insurance Plans and the Better Medicare Alliance, both backed by big insurers and employers, railed against the proposal, arguing it would force insurers to overhaul plans that seniors love. In the final notice, the CMS still moved forward with the EGWP cuts, which could save Medicare up to $5 billion over five years. However, it will phase in the change over two years to help employers and plans transition.
“CMS' calculation is that EGWPs don't impact every single plan,” said Ipsita Smolinski, managing director of healthcare policy consulting firm Capitol Street. “It's not like it's a shot across the bow to everyone.”
However, for the few insurers that cover the more than 3 million Advantage group retirees, profits likely will drop on the highly lucrative plans.
“This is a real hit on companies like Aetna that have upwards of half of their membership in group,” Gorman said.
The Better Medicare Alliance was one of the most outspoken groups criticizing the EGWP cuts and called the CMS' decision a “disappointment.” Republicans also vowed to “fight to protect this popular program.”
“This ill-advised move will have a direct effect on our nation's retirees and their healthcare choices,” Senate Finance Committee Chairman Orrin Hatch (R-Utah) said in a statement.
The final payment rates tell a more complicated story. The CMS said next year's average Advantage rates will go up by 0.85%, down from the proposed 1.35%. The rate surpasses 3% after factoring in how plans code their members' diagnoses. The reason for the downturn in the pay bump? The CMS made an error of the “normalization rate” in February's draft and therefore had to backpedal in the final notice.
Tom Kornfield, vice president at Avalere Health and a former CMS official, explained that the normalization rate is a mathematical exercise to “rebalance” the average risk score according to fee-for-service spending and coding changes from year to year.
Insurers submitted comments showing their average capitated rates appeared to be much lower than what the agency was forecasting, due partially to differences in that normalization rate. Whether insurers knew it or not, they were correcting the CMS' technical error. The end result on paper looked like a drop in next year's payment raise, but it ultimately met expectations, or was a slight improvement, compared with what companies had calculated.
“It reinforces the fact: Why get all up in arms before the rates are in stone?” Windley said. “It is an exercise in futility.”
The CMS moved forward with several other proposals, such as paying more to Advantage plans that have high numbers of dual-eligibles and patients with special needs. The feds have made it clear that socio-economic characteristics have to be taken into account when caring for people, and the policy partially serves as another firewall to prevent plans from cherry-picking the healthiest seniors.
However, some of the most influential decisions the CMS made about Medicare Advantage were delivered outside of the final rate notice, and those decisions maintained or improved the status quo for the industry.
“The stunner of this entire cycle was that they didn't do anything on home visits,” said Gorman, adding that the government “didn't want to throw the baby out with the bathwater.”
Home visits, also called health-risk assessments, have been a source of controversy. Many people have argued insurers use them as a way to inflate patient diagnoses and, therefore, their payments. Smolinski believes the gradual move to encounter data to judge risk scores alleviates some of those concerns.
Giving a pass to home assessments wasn't the only big victory notched by Advantage plans. A quietly released CMS memo dated March 8 scrapped a well-known policy that lowered a plan's star ratings for facing “intermediate sanctions.” The automatic drop in star ratings also meant a loss in bonus payments, which has become the lifeblood of many Advantage plans.
The change immediately benefited Cigna Corp., which had its Advantage plans sanctioned this past January. The company will save from $180 million to $350 million in taxpayer-funded bonus money.
Analysts expect the final rate policies will lead to more generous Advantage products for 2017, resulting in larger annual growth than what was recorded this past year. Approximately 18.2 million people are enrolled in Medicare Advantage, up 59% from 2010, when the Affordable Care Act took effect.
