Medicare Advantage Rolls On
Monday afternoon, the Centers for Medicare and Medicaid Services (CMS) released the final rates and other reimbursement policies for Medicare Advantage (MA) plans, referred to as the Final Call Letter. Once again, the Administration took pains to ameliorate planned cuts to MA, demonstrating the program’s increasing popularity with seniors and, by extension, its robust political strength. For my money, we’ll look back at this year as the final hurdle the program jumped on its path to dominating the Medicare benefit for a generation to come. It’s already well on its way, covering 30 percent of Medicare beneficiaries and growing. So let’s take a quick tour of the MA program’s initially volatile history and the winning streak it’s been on of late, culminating with the breaks the Administration cut it this go round. The past. First there was the growth and then precipitous decline of managed care in the 90s, a wave that the program – then called Medicare+Choice – rode alongside the commercial sector. In 2003, in a move obscured by the enactment of the Medicare prescription drug program, Congress infused MA with a dose of cash that has driven its meteoric growth over the past decade. MA plans can share a portion of excess funds with enrollees in the form of extra benefits, ranging from coinsurance relief to vision plans, that traditional fee-for-service Medicare does not offer. The marketing materials wrote themselves. But several authoritative sources, including the Medicare Payment Advisory Commission (MedPAC), as well as congressional Democrats – many of whom opposed the 2003 bill – began criticizingperceived MA overpayments. After a few minor nicks, Congress slashed plan reimbursement considerably in the Affordable Care Act, cutting over $130 billion from the program. The cuts spawned predictions by Republicans that seniors would lose some of the extra benefits they’ve enjoyed and access to such a broad array of plans, not to mention fear among many Democrats that those predictions were right. Ever since, the Obama Administration has been using whatever discretion it can muster to soften the blow to the program. Monday’s announcement is the latest in this delicate dance that permits the ACA cuts to proceed while maintaining the MA program’s health and popularity. In 2011, for example, the Administration initiated a three year “bonus demonstration” that allowed plans that otherwise missed quality performance targets set by the ACA to obtain financial rewards. Last year, CMS took the unprecedented step of prospectively assuming Congress would address pending cuts to physician payments, which had the effect of boosting MA rates by almost 5 percent.The present. Then comes this year, which elevates MA to DiMaggio status for its run of favorable outcomes. In the “Advance Notice” released on February 21, CMS outlined a harrowing combination of lingering ACA cuts, new risk adjustment policies, a declining “growth factor,” and a ban on MA plan use of home-based health risk assessments in setting enrollee risk scores. After some debate, the policy sphere and market analysts concluded that these changes amounted to a 4-5 percent cut to plan compensation. Initial estimates were worse, but CMS tucked an adjustment to the so-called “normalization factor” into the Notice, softening the blow at the starting gate. This adjustment reflects the influx of healthier baby boomers who are entering the MA program and improving its risk pool. In the intervening 45 days between the Advance Notice and the Final Call Letter, several Members of Congress of all political stripes raised concernsabout these cuts, accompanied by a barrage of insurance plan critiques, many coming in the form of ads intending to raise the ire of seniors. Apparently the Administration listened. In the Final Call Letter, CMS reduced its calculation of the impact of the codified ACA cuts. It reversed the phase-in of the new, less generous risk adjustment policy, boosting payments by almost two percent. It also enhanced that normalization factor, improving comp by an additional percentage point. Finally, and perhaps of greatest benefit to plans (though its tangible impact is harder to assess), CMS reversed the proposed ban on use of home-based health risk assessments in setting plan risk scores. Of all the changes, this was arguably the insurance industry’s number one request. Ultimately, CMS estimates that amendments under the Call Letter amount to a 2.5 percent improvement in plan comp over what had been initially proposed. The Agency claims this equates to a 0.4 percent increase relative to the previous year, nudging it into the black, though industry and market sources think the net change is still negative. Regardless, taking into account almost 8 percent in embedded statutory cuts, it’s a stretch to describe this outcome as anything short of an outright victory for MA plans. Always vigilant, the plan community and Republican supporters are not popping the champagne just yet. They are consistently toeing the line that any cut to plan compensation is unacceptable. The future. But they can probably rest easy. With enrollment continuing to grow at about 10 percent per year, and disproportionate appeal to the burgeoning baby boomer population, the Medicare Advantage program isn’t going anywhere. The last of the ACA cuts will roll in to the remaining, highest cost regions of the country in the next two years. Analysts foresee smooth sailing through those and beyond. The mercurial debate about the future of Medicare may be moot pretty soon. If you want to know what the future of the program looks like, just take a peek at an MA plan near you. The program’s prevalence is virtually inexorable at this point. You can lay whatever credit or blame you’ve got for that at the feet of Democrats and Republicans alike. Editor’s note: Some of the author’s clients offer Medicare Advantage products, although the views expressed here are his own.
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