The Centers for Medicare and Medicaid Services announced a revamp of the system used to pay Medicare Advantage plans on Friday.
CMS projects that health insurance companies covering Medicare Advantage enrollees will see a 3.32% net increase in revenue from the program in 2024, higher than the 1% projected in a draft version of the rate notice, thanks to a three-year phase-in risk-adjustment program modifications. The base rate will decline 1.12%, excluding how insurers code for members’ health conditions. Insurers characterized the earlier iteration of the policy as a blow to the increasingly popular program that would force them to reduce benefits.
The health insurance industry's primary concern is CMS' approach to the risk adjustment program, which carriers use to measure and report members' health status to the agency. Insurers that cover sicker policyholders receive higher payments. Critics say this creates an incentive for Medicare Advantage plans to exaggerate their policyholders' health conditions and log as many risk codes as possible to inflate payment.
Some insurers further argue the risk-adjustment alterations exceed CMS' statutory reach. CMS Administrator Chiquita Brooks-LaSure asserted that the agency is within its legal authority and denied the new Medicare Advantage policies would result in benefit cuts. “We expect that premiums and plan benefits will be consistent with what they have been,” Brooks-LaSure said during a news conference Friday. “Anything that differs are choices that plans are making."
Despite CMS describing the 2024 rates as a net increase, the insurance industry sees things differently. When combined with the consequences of a separate move to make star rating bonuses harder to earn, Medicare Advantage carriers face a net reduction in payments next year, according to the industry. CMS is tightening the star ratings program after a record number of insurers received bonuses during the COVID-19 pandemic last year, a trend that reversed this year.
CMS will eliminate more than 2,200 risk codes it contends are most responsible for upcoding. The agency will use a blend of the current risk adjustment model and one-third of the new model next year, then phase in the remainder of the modified risk coding process over the next two years. Additionally, CMS will consolidate codes associated with certain medical conditions, such as diabetes and depression, and only retain those that reliably predict future spending.
“To be clear, CMS will still be making higher payments to MA plans for beneficiaries who are sicker and have more complex conditions,” Center for Medicare Director Dr. Meena Seshamani said during Friday's news conference.
Insurers oppose the risk-adjustment provisions and will lobby Congress to reverse them, said Wesley Sanders of EvenSun Consulting, who formerly was chief financial officer at Alliant Health Plans. But the health industry industry may encounter skeptical lawmakers amid ongoing Justice Department cases accusing Medicare Advantage carriers of collecting overpayments and regulatory efforts to rein in inappropriate marketing tactics, he said. “Plans don’t have the kind of support on [Capitol] Hill that they used to have,” he said.
Giving insurers three years to adapt to the revised risk adjustment policy gives them time to adjust their operations to maximize profitability, Sanders said.
The health insurance trade group AHIP did not offer comment on the substance of the rate notice. “We remain committed to working collaboratively with the administration, as well as with members of Congress, to continue to build on the strengths of this program and ensure that it continues to deliver better services, better access to care and better value for seniors and taxpayers," President and CEO Matt Eyles said in a news release. The Better Medicare Alliance also is wary of the risk adjustment policy, the coalition of insurers, providers and patient advocates said in a news release.
The Blue Cross Blue Shield Association expressed concern about insurers getting a “modest” benchmark payment increase and about the risk adjustment provisions. “Adequate growth rates and measured risk adjustment model changes are essential to ensure a strong MA program,” David Merritt, senior vice president of policy and advocacy, said in a news release.
The Alliance of Community Health Plans, which represents nonprofit insurers, characterized the new risk adjustment policy as a positive development and called on CMS to be more transparent about its actuarial assumptions of how insurers will code patient risk. "This information is critical to showcase the significant differences between MA plans to target aggressive behavior,” the trade group said in a news release.
Medicare Advantage insurers generated an estimated $17 billion in overpayments in 2021, according to the most recent data from the Medicare Payment Advisory Commission, which makes policy recommendations to Congress. CMS announced last month it would recoup $4.7 billion over 10 years from Medicare Advantage insurers the agency concluded were overpaid. CMS also reduced the benchmark payment Medicare Advantage insurers receive by ending payment for indirect medical education expenses.