The Effect of Medicare Advantage Payment Cuts

Medicare Advantage plans have historically been criticized for costing more than fee-for-service Medicare and for cherry-picking patients.  Beneficiaries, however, like the plans, as they now account for more than a quarter of all Medicare enrollment and they often provide better benefits than traditional Medicare.  In addition, research indicates that the MA plans do a better job of managing care and delivering good outcomes than does traditional Medicare.  The current Administration has a fair amount of hostility toward MA and that may be reflected in the latest proposal for reimbursement for 2014, which would cut most payments.  A report from Oliver Wyman, sponsored by America’s Health Insurance Plans, suggests that these cuts may have negative consequences for beneficiaries.   (AHIP Report)   The authors first note that the reform act’s insurance tax provisions already were effectively raising costs by around 2% of revenue for MA plans.  In addition, the reform act changed MA reimbursement to benchmark it against county-based FFS Medicare spending, with higher reimbursement percentages in low-spending counties and lower percentages in high-spending ones.  The law also reduced the rebates available to plans under the stars quality program.  Overall stars scores have risen recently, so plans will get in aggregate about one-half to one percent more than they otherwise would.  In addition, there is a “coding intensity” downward adjustment that reduces payments because MA patient diagnoses are more prevalent and intensive than in FFS Medicare, which would otherwise cause reimbursement to rise.  This adjustment reduces payments by almost 5%.  On top of all these adjustments, CMS indicated that the basic trend for 2014 payments will be down over 2%.  So in total Oliver Wyman says plans are facing a 6.9% to 7.8% reduction in payments in 2014.  This means plans will need to recoup this by either raising beneficiary premiums by $50 to $90 or by reducing benefits, or a combination of the two.  Oliver Wyman estimates that every one of the 14 million MA enrollees is likely to be affected one way or another.  And CMS is proposing to limit the value of plan changes to $30, so many plans may feel they just have to drop out of the market, which is also disruptive to enrollees and likely worsens their care.