Plans not ready to abandon MA just yet

Federal officials have changed a 1.9% benchmark cut into a 0.4% increase for Medicare Advantage plans. While the April 7 notice from the Centers for Medicare and Medicaid Services (CMS) did mitigate the cuts originally proposed in February, plans still face a number of financial pressures in coming years.

Before the Affordable Care Act (ACA), Medicare Advantage plans were paid 10% more compared to traditional Medicare, or about $1,000 per-person per-year. CMS believes quality and health outcomes were similar to those enrolled in traditional Medicare, so provisions in ACA aim to bring MA payment down to fee-for-service levels.

“The bottom line will vary by plan because plan payment rates vary by geographic location, by plan star rating, by coding practice. We’re trying to give the average net change,” said Jonathan Blum, CMS deputy administrator, in a press call announcing the final notice.

According to Karen Ignagni, president and CEO of America’s Health Insurance Plans, 170 stakeholder organizations have raised concerns about the compounded impact of CMS policies on health plans.

“The changes CMS included in the final rate notice will help mitigate the impact on seniors, but the Medicare Advantage program is still facing a reduction in payment rates next year on top of the 6% cut to payments in 2014,” Ignagni said in a statement.

MA plans will submit bids to CMS in June for the 2015 plan year. Blum believes CMS has been "pretty spot-on" in the last four years with its benchmarks.

Epstein Becker Green projects in a recent Client Alert that the cumulative impact of the policies and factors affecting 2015 MA plan payments will result in an approximate 2% to 2.5% reduction in average payments as compared to 2014 levels, with variation from plan to plan.

Costs decreasing

But insurers that are concerned about rates don’t need to abandon the program just yet.

“Some of the plans are seeing some cost decreases in Medicare Advantage,” says Patrick Dunks, principal, consulting actuary for Milliman. “Quality efforts have reduced costs, particularly inpatient hospital costs.”

He says providers have made efforts to reduce readmissions, for example, which has put them on a track toward improving quality, which reduces costs for plans.

Another positive point in the Medicare Advantage forecast is the enrollment growth from the baby boom generation. Those just turning 65 are typically healthier than the older-generation Medicare enrollee that has been in the program for a while.

“They’re a bigger share, so they’re changing averages,” Dunks says. “That’s part of why rates are going down.”

And more seniors are choosing Medicare Advantage-about 30% of total beneficiaries-because it’s a good deal.

According to a study from HealthPocket, a health research organization, when combining insurance premiums and out-of-pocket costs, the Medicare Advantage annualized cost estimate was 19% less than fee-for-service Medicare Parts A and B combined with a prescription drug plan. Also, Medicare Advantage costs were estimated to be 45% less than the estimate for Medigap Plan F, combined with Medicare Parts A and B, and a prescription drug plan.

While the Plan F option leaves the Medicare enrollee with no medical out-of-pocket costs, it still shows drug-coverage out-of-pocket expenses. Additionally, the Plan F option’s lower out-of-pocket costs did not compensate for its higher overall expenses for monthly premiums, according to the study.