Health insurance companies received a gift from the federal government earlier this week. The 2018 Medicare Advantage rate policies included better-than-expected pay bump and industry-friendly policies.
Payment rates for insurers that sell Advantage plans will rise by 0.45% on average for 2018, the CMS said in its final rate notice. That's a slight bump from the 0.25% rate increase proposed in February. The average payment rate will increase by 2.95% after taking into account the way health plans code their members' diagnoses, the CMS said.
The CMS “basically gave the plans everything they asked for,” said John Gorman, a former CMS official who is now a consultant in Washington. He added that the final notice was largely routine with no “earth-shattering” changes from the February proposal.
The rate policies for 2018 were a bit of good news for the insurance industry in the midst of chaos surrounding the proposed repeal of the Affordable Care Act, according to James Sung, an insurance analyst with ratings firm S&P Global. “Insurers like predictability, and Medicare Advantage is probably the most stable (market) right now,” he said.
Medicare Advantage, the private managed care version of the federal health program for seniors, covers nearly 18.7 million people. The market could grow if Republican lawmakers succeed in turning Medicare into a premium support system that would push beneficiaries toward private plans. But low rates and unfavorable policies may lead private insurers to offer skinnier products with higher cost-sharing.
In its new rates, the CMS didn't bend to every insurer request. Health plan and consumer advocate groups criticized the agency for failing to address an unintended glitch in the healthcare law known as the benchmark cap, which shortchanges some Advantage plans on the incentive payments they earned for providing high-quality healthcare.
Ceci Connolly, president and CEO of the Alliance of Community Health Plans, said in a statement that she was disappointed as those payments affect 2.5 million seniors. Since 2012, Advantage plans have received bonuses for providing high-quality healthcare. But the benchmark cap limits Advantage payments to pre-ACA levels. The glitch has eaten away at health plans' revenue. And the CMS has said it doesn't have the administrative authority to fix the benchmark cap.
In a big win for the industry, the agency did walk back plans to increase the use of encounter data, or information about the care a beneficiary received from a healthcare provider, to determine risk scores.
Risk scores, which allow health plans to get higher payments for patients with more chronic conditions, are based on a mix of traditional fee-for-service data and patient encounter data. For 2017, the CMS proposed that 75% of Medicare Advantage risk scores would be based on fee-for-service data, and 25% would be based on encounter data. After intense lobbying from insurers and providers, the agency said it will use a risk score blend of 85% of fee-for-service data and 15% of the encounter data in 2018.
Insurers say the use of encounter data for risk scores leads to lower payments. Two studies by consultants Avalere and Milliman back up those claims. And a January report by the Government Accountability Office called into question the depth and accuracy of encounter data collected by the CMS.
As a whole, the 2018 Medicare Advantage rates should help insurers. Medicare Advantage companies operate on a 2% to 3% margin, Gorman said, and so “any little bit helps.” The raise means plans' margins will improve, and they can offer more generous benefits with less cost sharing for beneficiaries, he said.
The CMS threw another bone to insurers by freezing the current payment structure of Advantage employer plans for retirees, also known as “employer group waiver plans” or EGWPs.
The agency last year proposed ending the bidding process for employers and unions that sponsor Advantage plans and instead paying those plans lower lump sums based on county-level individual plan bids. Many people, including those on the independent Medicare Payment Advisory Commission, supported the policy as a way to end overpayments. But lobbying group America's Health Insurance Plans, which represents big insurers like Anthem and Cigna Corp., has said the policy could disrupt care for the more than 3.6 million beneficiaries enrolled in retiree plans.
In the 2017 final notice, the CMS instead decided to phase the policy in over two years. Now half of employer Advantage plan payments are based on their own bids, while the other half are based on individual plan county benchmarks. The policy was supposed to be in full-force by 2018. But in the 2018 proposed notice, the CMS said it will maintain the 50-50 split next year. The CMS asked for further comments before it fully implements payments based on individual market plan bids for 2019.
Still, not every plan will see the rates as a “win,” because the pay varies widely by county, said JoAnn Bogolin, an associate with the Society of Actuaries.
The CMS shied away from making big changes to the Medicare Advantage program but those may come later if the Trump administration decides to overhaul Medicare. Some Republican lawmakers, including House Speaker Paul Ryan, favor turning Medicare into a premium support system. Beneficiaries would receive vouchers to purchase a private plan or traditional Medicare coverage. Advantage enrollment would likely soar, experts say.
Ana Gupte, an analyst at Leerink Partners, estimates that the Medicare Advantage growth rate will accelerate “to low double-digits and teens” for the leading plans in the next three years, according to a research note. UnitedHealth Group, Humana, Kaiser Permanente and Aetna enroll the most Medicare Advantage plan members.