Medicare Advantage is facing financial firestorms on two fronts, with insurers resisting a 2016 payment cut and beneficiary advocates fighting risk-adjustment of star ratings for socio-economic status.
Where you stand depends on where you sit.
That maxim of bureaucratic politics, known as Miles' Law, covers a lot of ground in deciphering the proposed 2016 Medicare Advantage payment rate for insurance carriers.
The perspective of the Centers for Medicare & Medicaid Services represents the rosiest payment rate scenario. Upon release of the MA proposed payment rate and rule changes Feb. 20, Sean Cavanaugh, director of CMS's Center for Medicare, declared that CMS had set "stable rate policies" for the value-based alternative to traditional fee-for-service Medicare.
CMS Puts the Squeeze on Medicare Advantage Plans
CMS is forecasting a -0.95% cut in next year's MA payment rate. With a relatively complicated formula applied county-to-county nationwide, MA payment rates can vary widely plan to plan and geographically. Built-in variables include a "growth rate" reflecting expected expenditures on MA beneficiary services and funding cuts mandated under the Patient Protection and Affordable Care Act.
CMS has added a positive spin to the proposed 2016 MA payment rate, contending that most insurance carriers should post 2016 revenue in the black after their beneficiaries are risk-adjusted for chronic illnesses. Cavanaugh says risk-adjustment "coding" of beneficiaries should boost 2016 MA health plan revenue 2% next year, resulting in a 1.05% total revenue impact from the proposed MA payment rate and rules.
The view from insurance carrier boardrooms is dark.
In a Form 8-K filing with the Security and Exchange Commission on Feb. 20, Lexington, KY-based Humana Inc. pegs its expected revenue impact from the proposed 2016 MA payment rate at -2.45%. Humana reports that the insurance carrier's gloomier forecast is "primarily driven" by proposed changes in CMS risk modeling, which would result in a "larger-than-average decline… given the company's geographic and member diagnosis mix."
America's Health Insurance Plans, the industry's trade association, is making dire MA predictions. AHIP commissioned an actuarial report on the proposed 2016 MA payment rate that was released Feb. 25. Prepared by New York-based Oliver Wyman, it pegs the expected revenue impact of the proposed MA payment rate at -1.2% and includes a warning about the cumulative impact of revenue declines at MA health plans, which took a -4.0% hit in 2014 and -5.2% haircut this year, according to the management consultancy.
The cutbacks "could result in a high degree of disruption in the MA market," the report states. "This includes the potential for plan exits, reductions in service areas, reduced benefits, provider network changes, and MA plan disenrollment due to declines in plan value from 2014 to 2016."
The view from Wall Street is neither as positive as the CMS perspective nor as negative as the health plan vantage point.
"Overall, when you look at the Medicare Advantage numbers, they're very good," says Stephen Zaharuk, senior vice president at Moody's Investors Service. He notes that MA premiums have been stable for several years, with enrollment growing steadily to more than 16 million seniors this year, accounting for about one-third of the total Medicare beneficiary population.
Zaharuk estimates the revenue impact of the proposed 2016 MA payment rate at -1.45%. He arrived at this figure by subtracting a 0.5% revenue increase CMS is anticipating from payment bonuses linked to MA quality-star ratings. The five-star program gives insurance carriers financial bonuses for crossing the four-star threshold. Zaharuk says he tried to set a "pure rate" forecast: "Let's just look at it without all the bells and whistles."
Consecutive years of MA payment rate cuts are forcing insurance carriers to perform "a balancing act," he says, which pits continued growth in beneficiary enrollment against unpopular changes in plan design such as reduced benefits or increased premiums. "It's been a series of cuts year after year after year."
Price inflation for medical services has also been cutting MA health plan bottom lines, Zaharuk says. "Insurance carriers are getting more conservative in how they price their plans… There's a constant erosion of reimbursement that's going to be hard to maintain."
In a "credit outlook" report published by Moody's Investors Service Feb. 26, Zaharuk wrote that the MA payment rate squeeze has reached a pivotal phase.
"Although the proposed [2016] reduction is less than the 3%–5% reduction that companies had to absorb this year, the proposed rate decrease will challenge insurers to provide products that continue to attract seniors. Over the past several years, MA membership has grown despite the decline in rates to the insurers. However, we believe that at some point continued reimbursement cuts will reverse this trend. The proposed reduction for 2016 may not tip the scales, but every cut makes it more difficult for insurers to maintain the level of benefits they have provided to their members.In 2015, insurers used a combination of increased premiums, lower benefits and narrower provider networks to compensate for lower reimbursement rates. Although overall MA membership increased, insurers have exited some markets and some have recorded decreases in their membership."
Accounting for Socio-Economic Status in Star Ratings
Miles' Law also applies to the simmering controversy over risk-adjusting MA star ratings to reflect the impact of beneficiary socio-economic status (SES).
Under the proposed 2016 MA payment rate and rules, CMS plans to down-weight six MA star ratings to account for the impact of SES.
MA health plans with many economically disadvantaged beneficiaries, particularly members who are dual-eligible for Medicare and Medicaid, have been pressing CMS to risk-adjust MA star ratings to reflect downward pressures on quality performance that insurers attribute to SES.
"Multiple MA organizations and [Medicare Prescription Drug Plan] sponsors believe that plans with a high percentage of dual-eligible (Dual) and/or low-income subsidy (LIS) enrollees are disadvantaged in the current Star Ratings Program. Similar claims have been made about other Medicare quality measurement programs such as readmission rates," according to the MA 2016 Draft Call Letter released on Feb. 20.
CMS is conducting an ongoing research effort to determine the impact of beneficiary SES on MA star ratings performance. The early results of the research prompted the agency to act, according to the letter.
The Willimantic, CT-based Center for Medicare Advocacy (CMA), a non-profit group that provides education, advocacy, and legal services for beneficiaries, has a negative view of risk-adjusting MA star ratings for SES.
Kata Kertesz, a CMA attorney who has authored a multi-pronged critique of risk-adjusting quality stars for SES, says the change to the ratings program is misguided. "Decreasing the weight of measures that CMS has found to disproportionately impact dual-eligible beneficiaries will in essence increase the star ratings for plans, without actually improving care for dual-eligible beneficiaries in these areas."
She believes the rule change risks institutionalizing disparities in care. "We are concerned that risk adjustment will mask these disparities and disincentivize healthcare [organizations] from making the changes that could equalize care, making quality analysis and quality ratings useless. The root of the disparities in care is not likely to be addressed if the differences are concealed through the automatic and inaccurate inflation of performance scores, and will only perpetuate these real differences in care."
Christopher Cheney is the CMO editor at HealthLeaders.