Medicare Advantage carriers are counting down to April 3rd, and Deft Research is watching with them.
April 3, 2023, is the date that CMS will publish its final rate announcement. These rates have already been previewed in the 2024 Medicare Advantage Prescription Drug (MAPD) Advance Notice, and not everyone is happy. The strongest debate and frustration have surrounded a rule change affecting the Centers for Medicare and Medicaid Services (CMS) Hierarchical Condition Categories (HCC) Risk-Adjustment Model — a change that CMS estimates will reduce payments by 3.12%. Along with other adjustments, CMS expects payments to carriers to increase by 1.03% overall in 2024. Proponents of the risk-adjustment change argue Medicare Advantage (MA) has been overpaid for years, expanding benefits and profits due to risk adjustments that were unfair compared to the rest of Medicare.
But some carriers have made clear that payments are too low. An analysis produced by Avalere Health and funded by the Better Medicare Alliance (a pro-MA and carrier-funded group) displayed that this rule change could lead to a net reduction in benefits by $45 per member per month. If the government’s Medicare reimbursements are lower than inflating costs of care, carriers will make the same decision any other business would: pass on costs where they can. If strong MA competition doesn’t get in the way, seniors could experience increased premiums or reduced benefits. There’s been plenty of debate over this number, over-estimation of MA plans’ risk scores, and whether MA plans will see payments increase or decrease under the changes. But it also raises an interesting question:
If plans had to cut $45 per member per month, what would that look like? How would seniors react?
Consumers have shared their opinions of what parts of plans are the most important to them with Deft. Deft research combines its vast experience researching consumers in Medicare, Medicaid, and health insurance markets alongside the latest and most-effective methodology to analyze the benefits consumers want out of their health plan. With this insight, we’d like to share what consumers might think of increased premiums or reducing benefits. The answer, of course, is that carriers are facing an ugly choice. Any combination of cutting benefits or raising premiums is going to make seniors unhappy. Even if inflation has made price increases more normal, it certainly hasn’t made them more bearable, especially for those on fixed income.
When seniors in MA believe their plan has a premium or maximum out of pocket (MOOP) that’s too high, it’s always a problem for a carrier. Deft Research’s 2023 Medicare Shopping and Switching Study reviews a wide variety of experiences that led to switching. This year, the consumers Deft surveyed who experienced a high premium or MOOP switched at rates over 25%.
It’s difficult to imagine the backlash that would occur if a plan raised premiums by $45 per month. Premium may be the single most-visible part of a MA plan. It’s one of the first things listed in a summary of benefits, and it’s also first when comparing plans online using Medicare.gov or other online tools. The same can be said for MOOP, and a similar raise in MOOP to account for a lost $45 per month would also be catastrophic for plans. In 2023, not a single plan in full-pay MA raised their monthly premium $40 during 2022. Just under 15% of these plans increased premiums, and slightly over 10% of the plans increased their MOOP. Carriers would likely spread the pain of a $45 reduction in benefits across multiple areas, but even a little impact on premium or MOOP could cause backlash. Even though carriers have cut premiums and MOOP for years, rolling these back may be off the table if carriers want to preserve their market share.
Instead of cutting premiums or MOOP, carriers were expanding supplementary benefits, including Part B givebacks. 16.5% of MA plans offer a Part B giveback in 2023 compared to 11.9% last year. The average MA plan offering a Part B giveback last year had its giveback at nearly $70. But there is no free lunch; givebacks are added to plans at the cost of other benefits. While cutting givebacks might be less visible on the front page of a summary of benefits, Seniors will certainly feel the cut on their Social Security checks. Now that plans have offered Part B givebacks, they may have a hard time pulling them back.
Flex spending allowances are another huge addition to MA. Carriers have added numerous flexible spending benefits across a variety of categories, ranging from groceries and home safety to eyewear and prescriptions. Some members can use a flex card to access these benefits when they need them, and some carriers allow their insurance card to act as a flex card. The amount of these allowances is poorly tracked by CMS, but many plans offer hundreds of dollars in flexible spending per year. Not every senior spends their entire allowance, so these allowances show higher spending budgets than their true cost per member to plans. Cutting back or removing some of these allowances is another way plans may look to save, but they remain an important part of MA plans; carriers will need to proceed with caution.
In the end, any part of a health insurance plan can be boiled down to a cost. Premium, MOOP, and supplementary benefits are all widely discussed areas where plans may need to cut back spending after years of expanding benefits and lowering costs. But the reality is that any part of a MA plan has costs, from generic prescription copays and the doctors included in-network to the call center and service lines for members. Carriers know these costs well and can calculate thousands of different ways to cut $45 per member per month from plan benefits if they have to. Carriers will want to keep members with a low cost of care relative to their risk adjustment. In the past, that’s often been consumers with several health conditions as carriers could better document conditions and receive higher risk adjustments. With the changes to the HCC model, it remains unknown how much these adjustments will be affected. While the game of risk adjustments, cost of care, and favorable selection will likely continue, fights over market share and brand loyalty may be more significant. If carriers face lower reimbursement from risk adjustments, they still need to create plans that people will love. When people love their plan, they’re likely to circle back and renew, lowering marketing costs and expanding market share.
At Deft, we like to show these secondary data trends first to provide our clients with a better understanding of the market landscape. However, understanding the market landscape is only the first step of our analysis. Identifying trends in plan offerings brings insight into where the market currently is and points to where it may be going, but it doesn’t provide a complete picture.
If plans had to cut $45 per member per month, nothing would be more important than understanding the preferences of members. Deft Research is the industry-leading expert on what health insurance consumers want from their plans, and we can identify which cuts might lead members to switch.
Deft uses a variety of industry-leading methodologies to understand the voice of the consumer in the health insurance market. For example, Deft uses conjoint analysis to identify how members rank benefits across a wide range of options and price levels. Using this analysis, Deft is able to create plan simulations where carriers can test different benefits and pricing to see what works best for them. In addition, Deft tracks how positive and negative member experiences lead to switching, visualizing which experiences occurred the most and how frequently switching occurred for those who had the experience. Deft is able to collect this information nationally, such as in the 2023 Medicare Shopping and Switching Study, or on specific markets and members in Tier II studies or custom projects.
Deft also provides insight on members in specific markets, and there are likely few carriers more worried about the effects of the HCC risk-adjustment changes than those in the Duals market. Carriers with Duals are already reeling from the effects of look-alike plan changes imposed by CMS for 2023, with many scrambling last year to keep their members and plans. With lower risk-adjustment payments, these carriers face lower reimbursement from Duals with physical disabilities who might need additional care. At the same time, plans will find it tough to cut benefits for low-income Duals who rely on expanded benefits, including groceries and utilities, for support. Faced with lower payments and members attached to benefits, Duals plans would have a tough time stomaching any changes to benefits or premiums. Whether cuts are approved or not, Deft will be able to help these plans prepare for the upcoming year with its 2023 Dual Eligible Retention Study in late June.
It’s no wonder why many carriers are complaining: if HCC risk-adjustment changes have the effect of cutting $45 per member per month, carriers will face an awful choice in either cutting benefits or raising costs to members. While there are plenty of benefits that the MA overpayment crowd likes to single out, carriers already know how much each aspect of a plan costs them. Smart carriers will cut the parts of plans that members are most willing to part with. Any cut will likely make members unhappy. However, some cuts and the negative experiences caused by them lead members to switch at a higher rate. Deft research provides the consumer insight expertise needed to ensure carriers know how their members will react to plan changes. At Deft, we’re prepared to help answer your questions about what members want as the MA landscape shifts and Medicare evolves.
The best way to stay informed about how consumers might react to changes you’re considering is to learn from our insight. If you are curious about what Deft has to offer, want to learn more about our methodology, or are interested in purchasing a study, fill out the form below.