Uncovering Medicare Advantage Cuts' Brighter Side

With several years of reimbursement rate cuts expected, large Medicare Advantage insurance carriers have distinct advantages over their smaller counterparts. For one thing, the cuts are driving efficiency gains and zapping waste.

For Medicare Advantage carriers, size matters.

Over the past two weeks, Moody's Investor Service, Aetna, and a House Ways and Means subcommittee hearing have illuminated the prospects for payer success in the MA realm.

The program is feeling the pinch of reimbursement cuts linked to a decade-long, $300 billion reduction in Medicare funding to help finance the implementation of the Patient Protection and Affordable Care Act.

Last week, Moody's released a report focused on large MA carriers titled "Medicare Advantage Cuts: Prognosis Not Bad for Most Health Insurers." The report's key findings speak volumes about the big players in the MA business. Four out of five of the top MA carriers have a "manageable" MA risk exposure because they operate several other insurance lines, Moody's says.

And MA products are "sustainable" despite the reimbursement cuts and potential for lower membership growth rates, and the "track record" and "adaptability" of large MA carriers indicate they can weather the reimbursement cut storm.

After reading the Moody's report, I spoke with an official at Aetna, one of the large MA carriers the investor service had analyzed. The Hartford-based insurance giant does indeed appear to have a manageable and sustainable MA business with a track record of adaptability.

Nancy Cocozza, president of Medicare business at Aetna, says the MA reimbursement cuts have driven the company to boost efficiency and root out waste.

"It's forced us and others in the industry to make progress," she told me, noting Aetna's strategy to maintain its MA products includes strengthening provider partnerships to reduce wasteful spending and maximizing gain-sharing from the MA star rating system for quality. "These are things that we've been hard at work trying to accelerate. The results have been positive."

Aetna has established accountable care contracts with more than 800 healthcare providers nationwide: "They are, in essence, moving toward payment for outcomes," Cocozza told me.

The insurer is also embedding case managers at healthcare facilities to help providers perform at a higher level in the areas of care coordination and transitions of care, she told me: "We are vigilant any time there is a transition, it's an opportunity for things not to go right."

Realizing efficiency gains through MA providers is far preferable to hiking premiums or slashing benefits, Cocozza told me. "We try to understand our member population. We know they like things to be stable," she said.

One of the positive consequences of the financial pressure being applied to MA is the promotion of cooperation between insurers and providers, according to Cocozza. "The ACA has caused all of us to get out there and act more like partners than adversaries… We still haven't cracked the code, but there's a change in intent. Changing behavior is hard. It takes a lot. It takes more than a contract … to effect change," she told me. "It really takes sitting down with clinical leaders and seeing what works."

Banking gain-sharing from the MA five-star rating system for quality is a critically important part of Aetna's business strategy, Cocozza told me, noting that 64% of the company's MA beneficiaries are enrolled in 4-star plans. "Aetna has the highest star rating compared to our national counterparts," she said. "We take it really seriously. It is very much industry-leading."

Medicare Advantage Carriers See 'No Choice' But to Accept Cuts

One of the ways Aetna is achieving high quality ratings is through in-home risk assessments with MA members. "We do pretty extensive visits with home nurse practitioners," Cocozza told me. "It's a way for us to make sure members get preventive care training. Members feel like their health plan is trying to do something good for them."

The prospects for smaller insurance carriers offering MA products are less rosy.

The CEO of SCAN Health Plan, which offers MA prescription drug plans to about 170,000 people in California and Arizona, provided the smaller-player perspective two weeks ago at a House Ways and Means subcommittee hearing. "We are evolving to these cuts. We have no choice," Chris Wing told the lawmakers.

Unlike the much larger Aetna, which has MA plans in counties across the country and a diverse array of insurance products, SCAN and other smaller MA carriers are being forced to make changes that will be destabilizing for members, Wing testified.

"There will be withdrawals from markets. There is one geography where SCAN is withdrawing entirely in 2015," Wing said in response to questioning from a congressman. "There will also be a slight trimming of the networks in California and Arizona. We're a nonprofit, but we have to have a margin."

Wing testified that SCAN is struggling to find ways to maintain "special needs plans" for 30,000 MA prescription drug plan members who suffer from multiple chronic conditions such as heart disease and diabetes. "We love to do the special need plans, but they are underfunded," he said.

If federal officials want to ease the pain of big MA cuts, they'll need to focus on the smaller carriers.