Are Medicare Advantage Plans Threatened by Reform?

It was an urgent plea by an insurance company that I had to act now to save Medicare Advantage Plans. At issue were proposed reforms by the Centers for Medicare and Medicaid (CMS) that could reduce the insurance carrier’s monthly reimbursement for each Medicare Advantage enrolled member. While I was asked to send a letter demanding no cuts or changes to Medicare Advantage Plans, there were few details on exactly what was to be cut or why.

Bringing Medicare Advantage closer to Original Medicare

The email from Anthem Blue Cross was sounding the alarm over the new methodology for establishing Medicare Advantage county rates outlined by the Affordable Care Act for 2014. In short, CMS is trying to reimburse Medicare Advantage Plans at close to the same levels that it costs to administer Medicare benefits to beneficiaries in Original Medicare or also known as Fee-For-Service plan (FFS). This means tinkering with complicated formulas for establishing the county “benchmark” costs and bonus payments for quality improvements to Medicare Advantage plans.

Anthem sounds the fire alarm

All of this new methodology and quest to cut expenses makes health insurance companies that offer Medicare Advantage plans like Anthem Blue Cross very nervous. Anthem wrote:

Medicare Advantage is being threatened. Recently proposed payment changes from the Centers for Medicare & Medicaid Services (CMS), including one to lower payment rates for Medicare Advantage, have the potential to cause widespread disruption to this vulnerable category of beneficiaries.

When combined with other cuts imposed by the Affordable Care Act (ACA), we believe these proposed payment changes may not only mean reduced benefits and fewer health care choices, but could also result in higher out-of-pocket costs for beneficiaries.

Some projections*  estimate that beneficiaries could see higher premiums of $50 to $90 per member per month.

*I am always suspicious of the AHIP conclusions because they are an insurance company advocacy organization.

Medicare Advantage is doing a fine job

A recent Medicare Payment Advisory Commission (MedPAC) report to Congress suggested that the Medicare Advantage plans were achieving higher levels of efficiency and quality because of the tighter rules governing reimbursement. Notably, Medicare Advantage plans were receiving bonus payments for quality improvements and higher star ratings for their plans.

Recent legislation has reduced the inequity between MA and FFS. As a result, we see evidence of improved efficiency in MA: As plan bids have come down in relation to FFS, enrollment in MA continues to grow. The improved efficiency of MA plans enables them to continue to increase MA enrollment by offering packages that beneficiaries find attractive.

Strategically bidding by Medicare Advantage

Medicare Advantage plans have actually been bidding less than the county benchmark reimbursement rates. This kind of flies in the face of the claim that cuts to Medicare Advantage monthly capitation or reimbursement rates will hurt their members by raising costs and/or reducing benefits.

The MedPAC report determined

Despite the fact that the plan bids average less than FFS spending, payments for enrollees in these plans usually exceed FFS spending because the benchmarks are high relative to FFS spending. For example, HMOs as a group bid an average of 92 percent of FFS spending, yet 2013 payments for HMO enrollees are estimated to average 103 percent of FFS spending because the benchmarks (including the quality bonuses) average 110 percent of FFS spending.

Bonuses, icing on the cupcake

As I read through the MedPAC report I got the feeling that the Medicare Advantage plans were “gaming” the system. They are purposely bidding under the maximum allowable county benchmark amount knowing they will get bonus payments. These bonus payments, MedPAC assumes, are used to offer enhanced benefits that beneficiaries can’t get in Original Medicare, as a marketing tool to drive enrollment.

From the MedPAC report:

On the other hand, nonemployer plans have an incentive to bid below the benchmark to obtain rebates they can use to finance extra benefits that, in turn, are used to attract increased enrollment.

CMS isn’t so clean either

Further evidence that Medicare Advantage plans understand the reimbursement game and its inherent weaknesses were also revealed in the MedPAC report.

The Commission supports the concept of the quality bonus program as called for in the statute. Such a pay-for-performance system, combined with continuing fiscal pressure, will help ensure that a strong MA program will do its part in the urgent need to ensure the continued financial viability of the Medicare program. However, CMS has implemented the quality bonus program in a flawed manner at very high program costs not contemplated in the statute, using demonstration authority to pay bonuses to plans with low ratings and increasing bonus amounts for other plans above the level authorized in the statute.

Medicare Advantage  isn’t on fire yet

It seems rather premature for Anthem Blue Cross to be pulling the fire alarm that new payment methodologies will burn Medicare Advantage plans down to the ground. They know the system, they actively lobby CMS over the rules and they know how to profit from the system. Some extra benefits included in Medicare Advantage plans could go away, but it is sound fiscal management to at least try to institute changes that contain the cost of Medicare Advantage plans.

The full “call to action” email from Anthem Blue Cross