• A reader’s response on Medicare Advantage payment rate changes

    Responding to my post on Medicare Advantage payment rate changes, Edwin Park wrote me with some important corrections, for which I am grateful:

    We don’t think it is quite correct to characterize the Administration as failing to uphold the scheduled payment cuts. The changes to the county benchmarks for 2015 required under the ACA as well as the required coding intensity adjustment for purposes of risk adjustment required under the ACA (as modified by the 2012 budget agreement) all took effect as scheduled.

    What the Administration did do was delay or modify fixes to make the risk adjustment system more accurate, which CMS periodically puts in place and would likely have considered and implemented with or without health reform (as they were not mandated by the ACA). Because Medicare Advantage plans tend to enroll healthier-than-average beneficiaries than those in traditional Medicare, a less accurate risk adjustment system doesn’t do as good a job of accounting for these health differences, so it will result in higher payments to Medicare Advantage plans in 2015 than would otherwise be the case.

    The three major changes from the February preliminary announcement to the final announcement were: delaying/reversing the transition to a new risk adjustment model, not prohibiting insurers’ use of home assessments to determine diagnoses for purposes of risk adjustment for another year — which CMS believes insurers are using to inappropriately increase risk scores — and modifying how to take into account the influx of healthier 65 year olds as a result of the retirement of the baby boom generation. (In our view, the preliminary announcement’s proposals to continue the transition to the new risk adjustment model and to prohibit the use of home assessments were sound policies and thus should be instituted as part of next year’s payment announcement for 2016. We are not sure about the merits of the third change related to accounting for the enrollment of baby boomers turning age 65; CMS is now instituting a non-linear adjustment and adding an additional base year.)

    These changes all had the effect of increasing the total payments plans would have otherwise received under the original preliminary announcement in February. While the Administration states that this would produce an overall payment increase of 0.4 percent compared to 2014, industry analysts claim there will still be a net reduction in payments in 2015. And it’s important to remember that much of the county benchmark reductions have already been phased in (the only county benchmarks still phasing in for 2015 were those in counties given a six year transition). We know that Medicare Advantage overpayments are being reduced as intended by the ACA, going from about 114 percent of traditional Medicare costs for comparable beneficiaries in traditional Medicare in 2009, on average, to 106 percent in 2014, according to MedPAC in its recent March 2014 report.

    This is probably why, as our blog post from last week notes, some leading Senate and House Republicans welcomed the Administration’s policy changes in the final payment announcement but then immediately demanded repeal or scaling back the ACA’s MA provisions as well.

    For all that, money is fungible. Though the ACA-mandated cuts are being implemented on schedule, it’s also true that they further motivate the industry to push back on Medicare Advantage cost cutting. There is an appearance that the changes CMS did make were to somewhat cushion that blow. But, I have to admit, the counterfactual is unknown. Maybe CMS would have made these changes anyway. 

    @afrakt

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