The federal government bumped up average pay raises for 2018 Medicare Advantage plans and modified several of the program's policies in favor of the health insurance industry.
Payment rates for insurers that sell Medicare Advantage plans will rise by 0.45% on average for 2018, the CMS said in its final rate notice Monday. That's a slight bump from the 0.25% rate increase proposed in February.
The average Medicare Advantage payment rate will increase by 2.95% after taking into account the way health plans code their members' diagnoses, the CMS said. That's up from February's estimate of 2.75%.
In 2017, payment rates rose by 0.85% on average. The Medicare Advantage payment rate increased by 3.05% in 2017 after taking into account the way health plans code their members' diagnoses.
The better-than-expected final rates are “a big sigh of relief” for the insurance industry, said John Gorman, a former CMS official who is now a healthcare consultant in Washington. The rates are “further proof that (Medicare Advantage) is the only safe game in all of health insurance these days.”
In a statement, Ceci Connolly, CEO of the Alliance of Community Health Plans, said her organization is pleased that Medicare Advantage revenue will increase slightly.
But she criticized the CMS' failure to address an unintended glitch in the ACA that shortchanges some Medicare Advantage plans on the incentive payments they earned for providing high-quality healthcare. ACHP said the CMS should use new authority granted in President Donald Trump's Jan. 20 executive order to fix the glitch from implementation of the benchmark cap.
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.
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 fraud and manipulation of those risk scores.
The CMS is also putting the brakes on plans to increase the use of encounter data, or information about the care an enrollee received from a provider, to determine risk scores for plans. In the proposed notice it had suggested again using the ratio set up in 2017. In that, 75% of Medicare Advantage risk scores are based on traditional fee-for-service data and 25% are based on encounter data.
But after stakeholders such as the American Hospital Association argued that encounter data should not be used at all following a January 2017 report from the Government Accountability Office that found such data is often not accurate, the CMS changed course. The agency will now use a risk score blend of 85% of fee-for-service data and 15% of the encounter data in 2018.
The insurance industry also won another battle. Last year, the CMS had proposed terminating the bidding process for employers and unions that offer Medicare Advantage plans to their retirees, also known as “employer group waiver plans.” Instead, those plans would have received a lump sum payment based on county-level individual bids, which would have lowered plan revenue.
In the 2017 final notice, it instead decided to phase that policy in over two years. Half of employer Advantage plan payments will be based on their own bids, while the other half will be based on county benchmarks. The CMS at the time said it planned to have this change for all such plans in 2018.
Trade group America's Health Insurance Plans has said the policy had the potential to disrupt care for the more than 3.6 million beneficiaries enrolled in these plans. In the 2018 proposed notice, the CMS is asking the industry to comment if it should maintain the split it had in place in 2017. Following comment from industry, the CMS finalized that decision.
Medicare Advantage plans were projected to receive $198 billion in 2016, accounting for 27% of total Medicare spending, according to a report by the Congressional Budget Office. Since 2004, the number of beneficiaries enrolled in private Medicare plans has more than tripled from 5.3 million to 17.6 million in 2016, according to the Kaiser Family Foundation.