Puerto Rico: The ‘canary in the coal mine’ for Medicare Advantage growth

Medicare Advantage enrollment expands each year, with 2.3 million new people covered in 2022. As the program grows, however, its payment system could need a significant reboot.

Puerto Rico, which has the highest proportion of Medicare Advantage enrollees among all states and territories, offers a glimpse of what insurers in other jurisdictions may face. The territory’s low rates of traditional fee-for-service Medicare enrollment—on which Medicare Advantage payments are based—present challenges for insurance companies trying to run effective programs there.

Puerto Rico’s unique position as a territory means it doesn’t provide an exact road map for companies in the states. But insurers and policymakers can learn from their Puerto Rican counterparts’ experiences.

“We always say Puerto Rico is sort of the canary in the coal mine, because at some point when some jurisdiction gets to very highly penetrated (Medicare Advantage) … they’re going to face the same issue,” said Orlando González Rivera, president of Puerto Rican insurance company MMM Healthcare and Elevance Health’s Medicare East Region.

Medicare Advantage is growing quickly nearly everywhere, driven in part by the benefits insurance companies can offer enrollees beyond traditional, fee-for-service Medicare. Half of Medicare beneficiaries are expected to be enrolled in Medicare Advantage by 2025, according to the Commonwealth Fund, a healthcare think tank.

 Through the program, the government pays private insurers a set rate to provide coverage to Medicare enrollees with Part A, which largely consists of inpatient services, and Part B, which comprises mostly outpatient benefits. The program’s goals include reducing federal costs through the managed-care model.

Puerto Rico’s conundrum

The Centers for Medicare and Medicaid Services calculates Medicare Advantage benchmarks, or the maximum amount the government will pay insurers per person, based in part on county-level spending rates for traditional fee-for-service beneficiaries. The benchmarks allow for higher payments to insurers in low fee-for-service spending areas, and lower payments for those in higher-spending places. Other factors also play a role: Payments are risk-adjusted based on diagnostic coding and enrollees’ likely medical costs, and plans with high star ratings receive bonus dollars.

In Puerto Rico, insurers argue the methodology for calculating benchmarks breaks down because of the high Medicare Advantage penetration rate. About 775,000 people are eligible for Medicare in the territory, according to CMS data from June. Roughly 94% of beneficiaries with Part A and B coverage are enrolled in Medicare Advantage. Nearly all dual-eligible beneficiaries, who tend to need more costly services, are enrolled in the program. The remaining traditional Medicare population doesn’t represent the Medicare Advantage population, said Roberto García Rodríguez, president and CEO of Triple-S Management, a Puerto Rican health insurance company.

“You end up in an inequitable situation, which is what Puerto Rico is facing,” he said.

Puerto Rico’s high Medicare Advantage penetration and specific difficulties have unique causes, but the considerations for stateside insurance companies and policymakers are the same, said Philo Hall, a lawyer at law firm Epstein Becker Green who represents the Puerto Rican insurer MCS Advantage.

“When you have an ever-diminishing, small fee-for-service population that is being used to set the rates for 60, 70, 80, 90% of the Medicare population under MA, any anomalies in that small population are going to be disproportionately distortive,” Hall said.

The Medicare Advantage program’s popularity on the island traces back to Puerto Rico’s socioeconomic makeup and its status as a territory. The patchwork system of federal healthcare law means traditional Medicare in Puerto Rico can’t provide the same access to care available to enrollees in the states. For example, Puerto Rico residents aren’t eligible for Medicare prescription drug low-income subsidies, or for lowered premiums through the Medicare Savings Program.

“When Medicare Advantage started … it was like the perfect thing,” said Roberto Pando Cintrón, president of the Medicaid and Medicare Advantage Products Association of Puerto Rico, MCS Advantage and MCS Life Insurance Company. “It paid for the gaps in traditional Medicare.”

Medicare Advantage’s supplemental benefits have also been able to provide wrap-around services for dually eligible beneficiaries, Pando Cintrón said. Statutorily low Medicaid funding for the territory has meant the program doesn’t offer some coverage, including for long-term care, to the 46% of Puerto Ricans who use it.

As a result, about 45% of Medicare beneficiaries in Puerto Rico are enrolled in dual-eligible Medicare Advantage plans. In comparison, dual-eligible plan enrollment made up about 19% of the Medicare population in the states in 2019, according to data published by the Medicare Payment Advisory Commission in February.

Insurance companies say the dynamic has led to an unfair payment system.

As of 2022, average benchmark rates for Medicare Advantage plans in Puerto Rico are 41% below the national average. Although the rates have been growing since 2017, it’s been at a slower pace than in the states.

“It’s hard to put blame on anyone; it’s the way the system has evolved. But it catches up and it gets (to) … where you truly are at a critical stage, losing physicians and seeing patients not (able to) access the care they need,” García Rodríguez said.

Costs for prescription drugs and other supplies are the same in Puerto Rico as in the states. But insurers have less money to buy them, García Rodríguez and other industry leaders said. Medicare beneficiaries in Puerto Rico also face weighty economic pressures.

“In some instances, (enrollees) have to decide whether they use their money to pay the electricity bill or buy medications or pay any copayment for any surgical procedure,” MMM’s González Rivera said.

Insurers said they try to spend extra rebate dollars on supplemental benefits, such as debit cards for groceries, to try and lower health-related costs for beneficiaries.

But all this often comes at the expense of provider reimbursement rates.

The smaller payment, combined with broader health disparities and infrastructure issues like frequent power outages, makes care difficult to deliver. The environment is ripe for the exodus of healthcare providers, said Dr. Dante Rodríguez González, who recently graduated from a health administration master’s program in Michigan.

“The discrepancy in benchmark estimates directly impacts (Medicare Advantage) payments to providers and, ultimately, jump-starts their decision to seek better-paying jobs and more profitable opportunities on the mainland, even when most of them would have genuinely preferred staying home with their families on the island,” said Rodríguez González, who attended medical school in Puerto Rico. He plans to open a provider group organization in the territory that will deliver integrated care to Medicare enrollees.

Policy fixes

CMS has tweaked policy throughout the years in an attempt to make Puerto Rico’s Medicare Advantage payment more equitable. Starting in 2012, the agency based benchmarks for the island’s insurers only on expenditures of people enrolled in Medicare Parts A and B. Beneficiaries in Puerto Rico need to opt in to Part B coverage—which can be cost-prohibitive without Medicare Savings Program benefits in the territory—in contrast to the states’ opt-out system. As a result, the agency reasoned, the disproportionately high number of Part A-only enrollees may not adequately represent the costs of the Medicare Advantage population.

CMS in 2017 also began adjusting Puerto Rico’s benchmarks to account for the higher proportion of beneficiaries with no claims during a given time period. Between 2015 and 2019, an average of 15% of Puerto Rican beneficiaries with both Part A and B coverage logged no Medicare claims in a year, compared with a non-territory proportion of 6.1% of beneficiaries, according to the most recent data available from CMS.

Insurers hoped that CMS would set a permanent floor on Puerto Rico’s Medicare Advantage benchmark in the 2023 Medicare Advantage rate announcement, and argued the agency has the authority to do so. But CMS said it couldn’t find justification for overhauling Puerto Rico’s benchmarks.

“The law requires that MA benchmarks be based on a county’s average Medicare FFS per capita costs, and there is no evidence that FFS costs in Puerto Rico are higher than the costs observed in the FFS claims data and thus no basis for overhauling Puerto Rico’s MA benchmarks,” CMS wrote in the rate announcement in April.

CMS does not have a specific threshold for a county’s Medicare Advantage penetration when it comes to calculating rates, a CMS spokesperson said. The agency does use a “credibility adjustment” for counties with fewer than 1,000 beneficiaries in the traditional program to make the estimate more accurate, she said.

Some in the industry are hoping Congress can step in and change the law for Puerto Rico outright.

A bipartisan group of lawmakers in the House of Representatives, including Puerto Rico’s Resident Commissioner Jenniffer González-Colón (R), introduced a bill in June that would create a system in which Puerto Rico’s benchmarks could never fall below a certain level, which is higher than what results from the current system. The legislation would also allow the territory to implement the Medicare Savings Program for 2024.

Under the bill, insurers would have to spend at least half of any additional funds on increased provider payment.

“We’re not asking for parity. We’re not asking you to take us up to the national average. Just give us a minimum—what our neighboring island, also a territory of the United States, receives,” García Rodríguez said, referring to the Virgin Islands.

Edwin Park, a research professor at the Georgetown University McCourt School of Public Policy, is skeptical of the argument that Puerto Rico insurers need large increases in Medicare Advantage payments. He believes Medicaid reform, for which the Medicaid and Medicare Advantage Products Association of Puerto Rico also advocates, could have more of an impact on the island’s healthcare system.

“It’s not the most efficient use of a limited amount of federal dollars,” he said. “If you want to help Puerto Rico’s healthcare system and in turn have all these ripple effects in terms of the safety net, attracting providers, Medicaid is really the ballgame.”

Bigger implications

Insurers based in the states could face their own complications as Medicare Advantage expands. Nicholas Johnson, a principal and consulting actuary at the consulting firm Milliman, said problems with underpayment can occur when the fee-for-service population no longer represents the health and demographic status of the Medicare Advantage population.

Theoretically, CMS’ risk adjustment should capture differences between fee-for-service and Medicare Advantage populations, Johnson added.

“Having a different relative morbidity or poor health status (among) the fee-for-service population (compared to)the MA population, in and of itself, is not problematic. It’s whether or not the risk model accurately captures that difference,” Johnson said.

The tipping point for when the fee-for-service population is too small or unrepresentative of the Medicare Advantage population will vary from county to county, Johnson said.

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“When you take these beneficiaries and put them in a managed-care environment in a different healthcare delivery system, there are all sorts of other things that confound any sort of analysis,” Johnson said. “It can be studied, but it’s not as if it’s a clear black-and-white answer.”

The benchmarking system seems to be working fine as is for Blue Cross and Blue Shield of Minnesota, said Angela Zeterlu, actuarial director for government markets for the insurance company. The highest Medicare Advantage penetration in the company’s MA service area is 62.65%, in Anoka County, about 30 miles north of Minneapolis.

The insurer will continue working within current Medicare Advantage policies set out by Congress and CMS, and it will monitor benchmark changes as time goes on, Zeterlu said.

Some policy experts, including those at the Medicare Payment Advisory Commission, say that Medicare Advantage insurers are actually overpaid relative to the fee-for-service program. CMS paid Medicare Advantage plans 104% of fee-for-service Medicare spending in 2021, according to MedPAC.

Benchmarks are just one element in the complex formula that dictates payment, and just one part of a larger conversation on Medicare Advantage reform, said Gretchen Jacobson, vice president of Medicare at the Commonwealth Fund.

“I think it’s a distinction between: ‘Are we currently meeting the goal of paying them appropriately,’ versus ‘In the future, will continuing to use traditional Medicare as the basis of payments … be an appropriate way to pay plans?’ ” Jacobson said.

If the current benchmarking system does fail to accurately predict Medicare Advantage costs, there are ways for policymakers to manage the fallout, said Mark Miller, executive vice president of healthcare at philanthropy organization Arnold Ventures and a former executive director of MedPAC. Technical changes, like basing benchmarks on more years of data or expanding the geographic unit measured, could help, he said.

Dr. J. Michael McWilliams, a healthcare policy professor at Harvard Medical School, proposed two possible congressional fixes in a March article for Health Affairs.

Congress could embrace the trend toward the majority of Medicare enrollees turning to privatized coverage, and switch to using an external index to set payment benchmarks. Gross domestic product growth, for example, could be a good substitute that would tie Medicare spending to general spending growth. Lawmakers could also try to set an internal benchmark based on spending in the Medicare Advantage program, though that could lead to excessive spending restriction, McWilliams wrote.

Alternatively, Congress could make an effort to keep traditional Medicare robust enough to compete with Medicare Advantage and once again become a reasonable spending proxy, McWilliams wrote. Some Democratic lawmakers attempted to expand Medicare coverage in 2021 to include dental, hearing and vision benefits—commonly offered through Medicare Advantage—but the policies have not yet passed.

Dwindling fee-for-service enrollment could have broader implications for the entire program, Miller said. The aim of managed care through Medicaid Advantage is to deliver services more efficiently—and less expensively—than traditional Medicare, which acts as a yardstick for costs in the county. If traditional Medicare disappears, Medicare Advantage spending could start to look more like the commercial program: a big problem for a Medicare trust fund that’s already nearing insolvency, Miller said.

“It gets tangled up in larger reform questions,” Miller said. “If this program were to become all managed care tomorrow, and somehow the benchmark continued to be imputed under the way it works under current law, the program would become more expensive, because managed care is more expensive.”

While many questions persist, the crux of the issue is that Medicare wasn’t designed to support a managed-care program this large, McWilliams said.

“However we envision the future of Medicare, we need to get started on implementing that vision now. The longer we wait, the harder optimal reform will be as traditional Medicare withers,” he told Modern Healthcare. “If benchmarks get distorted upward, we overpay MA more and bankrupt the trust fund faster. If benchmarks get distorted downward, we risk trapping millions of beneficiaries in MA plans that become skimpy.”

A test case

In Puerto Rico, insurers have decades of experience doing more with less, and state-based companies could learn from the island’s experiences if the need arises, insurance leaders said.

Insurers have directed primary-care providers to help bolster Medicare Advantage plan capabilities through community outreach, risk assessments and other work related to social needs, MCS’ Pando Cintrón said. The strategy aims to address health concerns early, which could mean fewer expensive cases later.

“The primary-care physician has taken center stage, trying to do the most with scarce resources and help the beneficiary navigate the system efficiently,” he said.

Providing supplemental benefits targeted at social determinants of health can help keep care costs down in the long run too, said MMM’s González Rivera. MMM covers hundreds of thousands of nonemergency trips via transportation benefits for enrollees each year, he said, allowing them to access doctor’s appointments they may otherwise miss.

Insurers have communicated the importance of diagnostic coding and risk adjustment to providers, said Rodíguez González, the Puerto Rican doctor opening a practice on the island. The information can allow companies to receive extra federal dollars to compensate for caring for sicker patients.

Insurance companies may also give providers financial incentives for performing health risk assessments in the first six months of the year, so the diagnostic information can be used to prepare bids for the next year, he said.

“(Providers) have to understand how this game is played and the importance of the risk-adjustment factor and everything else, and how it relates to their compensation,” Rodríguez González said.

“There’s many things that Medicare Advantage organizations in Puerto Rico have had to do … just to try to get that money that we’ve been missing out (on),” he said.

Puerto Rico’s major Medicare Advantage players have recently been acquired by insurance companies or private equity groups based in the mainland U.S., which may offer some more immediate solutions to problems created by low benchmarks and payment.

Elevance purchased MMM, GuideWell acquired Triple-S—making it part of the same parent company as Florida Blue, which runs Medicare Advantage plans in that state—and private equity company Kinderhook Industries acquired MCS.

“This relationship may help us have different conversations with providers in Florida. Maybe they want to provide care in Puerto Rico,” said Camille Harrison, executive vice president of Medicare and chief innovation and experience officer at GuideWell. “There’s so many different ways that we can think about this opportunity.

“But the biggest is us sharing from our perspective and Triple-S’s perspective why it’s important to level the playing field in terms of reimbursement,” she said. “If they’re doing well with what they have, imagine if they had equitable reimbursement and compensation.”

Puerto Rico insurance companies and GuideWell also point to the leverage that large states-based healthcare companies can bring to lobbying efforts. GuideWell supports the policy goals of the González-Colón bill and believes it’s a step in the right direction for Puerto Rico’s Medicare Advantage program but needs to more fully review the legislation before taking an official position, a spokesperson said.

Ultimately, Puerto Rico’s Medicare Advantage insurers believe they can lead the way for companies all over the country—both by asking for policy changes and showing how to manage if those changes aren’t approved.

“If we do it in Puerto Rico, (they) can also learn from it,” Triple-S’s García Rodríguez said. “As other jurisdictions face some similar issues with Medicare, we believe that we can be a good example of how to manage these programs with a lower budget.”