CMS’s deadline for publishing its final rate announcement was April 3, 2023; in the end, it was able to release the information a little early on March 31st. Many of the worst fears of carriers were alleviated with the press release, where CMS expected the average change in revenue to increase by 3.32%, up 2.3% from the advance notice. With much higher reimbursement, it’s doubtful that carriers are thinking about new premium increases or benefit reductions. As Deft discussed in its previous blog post, just under 15% of full-pay MA plans increased premiums. Despite inflation, benefit cuts or premium increases remain useful only in strategic situations where carriers can handle the backlash and switching from plan members.
So, what happened? The juiciest details are hidden inside the full rate announcement. Roughly 105 pages of the 200-page rate announcement are dedicated to CMS responses to comments, which provide a glimpse into the agency’s perspective going forward. However, much of the change in expected average change in revenue came from CMS updating how they would handle the shift to the new Hierarchical Conditions Categories (HCC) Risk Adjustment Model. This was a major pain point for carriers frustrated about low reimbursement. While the new HCC will still be introduced this year, CMS has decided to blend the reimbursement amounts generated by the 2024 model with the old 2020 model. One-third of the weight will come from the 2024 model this year, with that increasing to two-thirds in 2025 and the model being fully used in 2026. Essentially, this spreads the impact of the HCC change out over three years — a huge win for those who were worried about its impact on senior’s plans.
Were carriers just complaining, or was there a real threat to seniors on Medicare Advantage?
In the last blog post, we examined an interesting hypothetical: what if plans had to cut $45 a month? But that impact was hotly debated, and many continue to say that MA plans deserve reimbursement cuts after being overpaid relative to MedSupp and OMO for years. But regardless of whether reimbursement cuts to MA are deserved, it’s hard to imagine how a senior in MA could feel that impact as anything other than a cut to Medicare itself — an impossibility for both sides of the political aisle. That made the threat of cuts real.
At Deft we try not to dive into politics, but it’s also important to understand the backdrop of policy. Whether done as part of a CMS update or through an act of Congress, policy changes will always find more resistance than policy that’s already been enacted. Much like what was seen here, those opposed to the change can rally their troops and sound the alarm. In venues like Congress, that can influence key representatives and put a stop to new policy. Stopping policy is more difficult when there are fewer people who can be convinced to stop a policy from being enacted. An office like CMS can make the changes with the power it’s already been granted, which makes stopping changes to CMS policy difficult. However, President Biden directly mentioned vetoing any cut to Medicare in his State of the Union address, and the impact of going through with a change that carriers perceived as a cut to Medicare Advantage may have been enough to shift changes in reimbursement. Carriers raising noise about the change likely eliminated the threat to seniors on Medicare Advantage.
The dynamics of negotiating over changes to the CMS HCC Risk Adjustment Model have been seen in other policies. Before 1975, any Social Security benefit increases were required to be approved by Congress. While this was designed to keep program costs down, the reality was that inflation would eat away at the checks seniors would receive until Congress stepped in and provided a large boost. Debates were lengthy and increases were sloppy, often resulting in new programs being added and excess spending. In 1975, everyone had finally had enough: Social Security was pegged to inflation, allowing for cost-of-living adjustments that kept seniors’ paychecks at steady levels.
Medicare Advantage reimbursements already increase with inflation through the Growth Rate portion of the rate announcement. These adjustments are based on Medicare Fee-For-Service per capita cost growth. However, the HCC Risk Adjustment Model also uses Medicare Fee-For-Service to price the cost of conditions. This is a sloppy way of measuring the real cost of care for conditions of individuals in MA. Carriers have an incentive to document conditions that Medicare Fee-For-Service does not, leading to reimbursements higher than the cost of care for carriers when patients who are no sicker than their OMO counterparts have more documented conditions. Until the HCC model is fixed to provide a more accurate representation of costs, carrier overpayment will be an issue.
Much like Social Security cost of living increases were prior to 1975, the HCC Risk Adjustment Model will continue to be haggled over every four years. As financial pressures build on Medicare, so will the pressure to cut back on any apparent excess in Medicare Advantage. At the same time, lawmakers on both sides appear unwilling to stomach cuts anywhere. When the time for change arrives, CMS holds the power to change the model and force carriers to accept lower reimbursements. But carriers still hold the major advantage that is the past: without changes, carriers continue to be in a winning position with higher reimbursements. Change will be painful, and costs will get passed on to consumers. Even though the current risk adjustment model is often inaccurate, no one is currently willing to convince the public that cuts to MA reimbursements aren’t cuts to Medicare itself. We may be a long time out before any real policy changes take place. This year was the first of many battles over the HCC, and while carriers won, expect similar fights to play out in the future.
Reimbursement 2024: From Benefit Cuts to Benefit Growth
While $45 in cuts per member per month was the dire picture carriers provided before the rate announcement, it remains to be seen what their plans are for the next year. Competition forcing carriers to compete for market share was always a positive force for increased benefits and lower premiums. We won’t know what carriers decide until after bids are submitted and new plan offerings are made, but reimbursement remains favorable. With competition, that may mean that carriers continue to shrink the cost of MA plans while expanding benefits.
Last time, Deft mentioned the need for understanding the preferences of members if plans were to engage in cuts. It’s true that cutting benefits and increasing premiums would put carriers in a perilous position that would require detailed insight before engaging in decision-making. However, being eaten away by competition poses another threat to long-term growth. Those with the best knowledge of their members and the landscape surrounding their service areas will be best prepared to face competition.
Growth can often be shocking when you don’t have the right information. Strong companies demand a constant eye on their competitors so that there are no surprises — and so no one gets to eat their market share. For example, many already have their eyes on United, the largest carrier out there. United has a lot of plans in full-pay MA: roughly 800 different plan segments provide coverage across HMO, HMO-POS, PPO, and PFFS plan types. D-SNP is also a large category for United and represents just over 25% of enrollment when combined with full-pay MA. But D-SNP growth was the big story for United: over 50% of United’s overall enrollment growth in these categories was attributable to D-SNP. If that’s news to you, you might be lacking critical information. And United isn’t the only carrier going big on D-SNP: find the rest in the recently released Dual Eligible Acquisition Study.
If the Medicare landscape and the consumers that rely on it are changing, carriers will need to understand what seniors want out of their plans. Sometimes, changing CMS rules and reimbursements can drastically shift the Medicare landscape — many had feared the 2024 rate announcement would. While competition and the desires of an ever-changing Medicare eligible population shift more slowly, they are still powerful forces that can knock unwary carriers off their feet. Deft has the insight to prepare carriers for both.
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