CQ HealthBeat News. Published April 8, 2014. Written by John Reichard, CQ HealthBeat Editor


At first glance, the 0.4 percent increase in 2015 payment rates to Medicare Advantage plans that was announced on Monday appeared to be a clean win for the insurance industry after a fierce lobbying campaign that won over many Democrats in Congress.
Health plans just wanted to keep rates even with their 2014 payments, and the Centers for Medicare and Medicaid Services backed off a preliminary rate announcement in late February that forecast a cut.

But if the architect of the lobbying campaign was declaring victory, the celebration was muted.
What CMS calls a rate hike, America’s Health Insurance Plans still calls a de facto cut. The lobby now may focus on trying to delay the fees insurers must pay under the health law (PL 111-148, PL 111-152), premium taxes that will add to the costs of Medicare Advantage as well as commercial coverage.

AHIP President Karen Ignagni praised CMS to a point, saying the final rate notice on 2015 payments “will help mitigate the impact on seniors.” But she added, “the Medicare Advantage program is still facing a reduction in payment rates next year on top of the 6 percent cut to payments in 2014. We remain concerned about the impact year-over-year cuts” on the quality and costs of coverage.

Consultants and Wall Street analysts agreed that the 2015 rates represent a cut, not an increase. They put the reductions in the range of 3 to 6 percent when all aspects of the payment policy are factored.

The 0.4 percent increase reflects the average CMS says plans will receive over this year’s payment rates. However, there are other factors at work. The plans are paid according to benchmark payment rates that the government sets to reflect the cost of delivering Medicare Advantage benefits. Those rates are subject to cuts in the health law that will bring payments down an average of 8 percent next year, some analysts said.
The benchmark rates aren’t the final word on what a plan gets, however. CMS also weighs other factors in setting an individual plan’s rates, such as the health status of its unique mix of enrollees. The way CMS calcuates “risk scores” mitigates the effect of the lower benchmark for many plans.

“It’s not as rosy a picture as the initial reports, there’s some hooks in the pie here,” said John Gorman, chairman of the Washington, D.C.-based Gorman Health Group.
CMS in the final rate announcement decided against adopting a proposal to refuse to reimburse health plans for medical conditions that were diagnosed during a home care visit but not affirmed by a clinician.

“It’s further confirmation of the lobbying might of this industry with the Hill and CMS now that Medicare Advantage enrolls one-third of the elderly,” Gorman said. “There will still be some benefit cuts and increased out of pocket costs, just much less than expected. And the reversal on home visits was huge,” he said.

Potomac Research analyst Paul Heldman estimated that while the preliminary notice in February was tantamount to a 6 percent rate cut, Monday’s announcement will bring a reduction of 3 percent to the industry.

The final rates are “definitely an improvement” but they are definitely a cut, he said, noting that reductions are dictated by the health law (PL 111-148, PL 111-152) to bring Medicare Advantage rates closer to payments to providers in the traditional Medicare fee- for-service program.
Heldman isn’t yet predicting the cuts will bring about a corresponding reduction in benefits, however. “The plans are very good at making sure the health profile of each patient reflects any condition that would raise the risk score,” he said.

A managed care industry source who declined to be identified in order to speak more freely said “the major cuts will probably take place in high cost urban areas, which are being phased down to 95 percent of fee-for-service, paradoxically Democratic strongholds.”

“The logical plan response will be a combination of increased out-of-pocket charges and premium increases which should not be very large this year,” the industry source said.
The source added however that CMS’s forecast increase doesn’t factor the effects of a tax on health insurance, as well as increased hospital and physician charges.

The source predicted an insurance industry campaign to delay the taxes, possibly during a post-election session of Congress.

Heldman said that the outlook for Medicare Advantage rates in 2016 is more optimistic. The industry is on “the back nine” of the yearly annual cuts under the health law, he said, meaning that by the year after next it will have taken many of the reductions it is scheduled to take under the overhaul. Rates will then improve, Heldman said.


Release Date: 04/08/2014