The insurance industry has claimed that a potential cut to Medicare Advantage (MA) payments in 2024 could lead them to trim benefits or hike premiums for seniors next year.
But some experts say the impact of the rate changes could have a negligible effect on beneficiaries, as plans could absorb any hit to stay competitive in the MA marketplace. Others say that MA plans have faced such reductions before and have chosen to take the financial hit rather than cut back on benefits.
“This market is not perfectly competitive but it is competitive,” said Richard Kronick, Ph.D., a professor at the University of California, San Diego who spoke about MA during a webinar Tuesday held by the Kaiser Family Foundation. “Plans work hard to maintain and increase their enrollment [and they] will be very reluctant to take actions that threaten that enrollment.
Last month, the Centers for Medicare & Medicaid Services (CMS) released a proposed advance notice laying out policies and MA pay rates for 2024, estimating plans would get an average 1% pay hike. But insurers have pushed back that CMS does not fully account for major changes to the MA risk adjustment model and estimate a 2.27% cut to plans, which agency officials have said is false.
CMS must finalize the advance notice by April 3, and insurer groups have been running nationwide advertising campaigns and lobbying efforts to change the rule.
The advocacy group Better Medicare Alliance, which counts major payers and nonprofits among its members, has said the proposed rule could lead to billions of dollars in new expenses for seniors as a result of the possible cuts. The group cites an analysis it commissioned from consulting firm Avalere Health that projects average monthly rebates to plans would be $45 per member lower (29%) compared to 2023.
MA plans get a rebate from CMS if their plan bid is below a benchmark, which is the historical fee-for-service costs in a service area. Plan payments can also change based on risk adjustment or performance in star ratings. Plans can get a rebate, which is the difference between the bid and the benchmark, and use those rebate dollars to fund other benefits to enrollees such as dental or vision.
Avalere’s analysis assumes that a plan would either keep the same level of benefits and increase premiums or cut benefits if the rule’s changes are finalized.
“Across all plans nationwide, the estimated decreases in rebates could result in an average increase in premiums or a decrease in funding for supplemental benefits of nearly $45 per member per month per plan, weighted by enrollment,” the analysis said.
However, the analysis did not factor in whether plans would simply absorb the cost of any payment rate change. Kronick referenced plan years 2014 to 2016 when CMS made other changes to the risk adjustment model that led to a similar possible cut to plans.
“Rebates and enrollments in MA increased a lot after that,” he said. “Those reductions did not seem to have much of any effect or certainly didn’t reduce rebates that plans offered.”
He added that the Medicare Payment Advisory Commission has conducted some studies that show when a plan’s star rating goes down and the plan loses money, they don’t reduce rebates but take it out of profits or provider payments.
However, Avalere Health’s senior consultant Tom Kornfield said during the webinar that other analyses have shown the impacts to plans could vary greatly by area, including Puerto Rico facing a 9% decline.
Kornfield said that plans do have flexibility on how they are addressing any changes. But he cautioned that CMS is also proposing to get rid of more than 2,000 diagnosis codes in the advance notice. The agency has said the goal is to crack down on rampant up-coding by MA plans to game the risk adjustment system to make patients appear sicker than they actually are to get higher payments.
Provider groups have claimed that the changes could inadvertently hurt care for dual-eligible beneficiaries.
“I am concerned that these changes, which are meant to get at the coding intensity question, have the potential to do more harm than good,” Kornfield added.
Losing the edge
Plans could be wary of cutting any supplemental benefits or hiking premiums if it means they lose their edge in an increasingly competitive market.
Humana CEO Bruce Broussard recently said there could be the opportunity to gain market share from any other MA plan that reduces its benefits due to the cuts. He added that the plan’s star ratings performance should be able to help the insurer and dominant MA player withstand any hit from the advance notice.
Kornfield said there will likely be a certain element of game theory where plans have to anticipate how others will respond and act accordingly.
In addition, plans in the MA market could be better able to absorb any hit to payments, said Jeannie Biniek, associate director of the Kaiser Family Foundation’s program on Medicare policy.
MA plans are “doing relatively well compared to their performance in other health insurance markets like the individual or group market,” she said during the webinar. “There is reason to believe they may have more ability to absorb it in the MA market than maybe they would somewhere else.”