Cuts to Medicare Advantage? Not enough, two new studies say
The battle over the size of the increase private plans will get next year now in its final days
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The Inside-the-Beltway battle over next year’s Medicare Advantage plan payments offers a textbook example of the asymmetrical warfare that takes place every day in the nation’s capital.
On one side is a well-heeled lobby. The health insurance industry is fighting to preserve payments for its MA plans that are 6% higher than traditional Medicare. Its weapons of choice: massive lobbying on Capitol Hill; bought-and-paid-for consulting group studies; and a ubiquitous advertising campaign aimed at convincing the nation’s seniors that proposed “cuts” to the reimbursement rate will reduce benefits and harm seniors, especially those who are poor and minority.
Fact check: The Biden administration has offered a 1% increase for the plans, which are already highly profitable for the insurance industry.
On the other side are the advisory Medicare Payment Advisory Commission (MedPAC), former Obama administration officials at the Centers for Medicare and Medicaid Services (CMS), and a handful of foundation-funded patient advocacy groups. Collectively, they have a much smaller footprint on the Hill. Their primary weapons? Comments in the federal register and studies in the health care policy literature.
With just days to go before the final rule arrives (it’s due April 3rd), two new articles in Health Affairs make the case that the administration’s proposal did not go far enough in limiting MA reimbursement.
How it works
Before getting into the particulars, let’s unpack how the government pays MA plans. For every person who joins a MA plan, CMS offer to pay the private insurance company the average cost of a beneficiary in that county – the so-called benchmark. If the plan bids below the benchmark, it receives a rebate from CMS that can be as much as 75% of the difference with the government keeping the rest. However, the plan must use the rebate to reduce out-of-pocket expenses for beneficiaries or add benefits like vision or dental coverage, which are not part of traditional Medicare.
In theory, this encourages competition among the plans. The shared savings model also guarantees lower cost for the government. However, it has never worked out that way.
Why? The plans also receive an increase in its total payment if the people they enroll are sicker than average – the so-called risk adjustment payment. This has been the major source of contention in recent years because many plans scrape patient records or use home visits to identify diagnoses that remain untreated, which they then submit to Medicare to raise their risk adjustment scores without incurring extra costs. (For more on this controversy, see GoozNews articles here and here.)
They also receive additional funds if they score high on a suite of 47 quality measures and thus earn four or five stars on the Medicare Compare website. This smorgasbord of financial sweeteners has forced Medicare to pay MA plans more on average than the traditional fee-for-service program — 6% this year — even though the original reason for allowing private insurers into the program was to save taxpayers money.
Pressing the benchmark
The first study was led by Michael Chernew, professor of health care policy at Harvard University and current chairman of MedPAC. It showed CMS could lower its annual benchmark rate for MA plans by $1,000 or about 7% with only “modest” increases in out-of-pocket expenses and cuts in the extra benefits provided by the plans. The Congressional Budget Office estimated lowering the benchmark rates by 10% would save the federal government and taxpayers $392 billion over the next ten years.
Though the CMS rule proposed in February did not tinker with the benchmark formula, it remains a high priority for MedPAC. Its June 2021 report to Congress noted “over the 35-year history of private plan contracting in Medicare … no iteration of private plan contracting has yielded net aggregate savings for the Medicare program.”
To combat insurance industry claims that reducing the benchmark rate would result in huge increases in costs for beneficiaries and/or cuts in benefits, Chernew and colleagues reviewed the changes in costs and benefits experienced by beneficiaries in 5,338 different plans over a seven-year period. The benchmarks rose steadily between 2012 and 2019.
For every $1,000 increase in the benchmark, the study found, plans received $246 in rebates. Yet premiums and co-pays for beneficiaries fell just $139. While there was some increase in dental and vision coverage, those increases were minor (8.1 and 5.2 percentage points among plans, respectively), and unquantifiable since Medicare has no idea how many beneficiaries in MA plans use the extra benefits their plans offer.
Should CMS lower the benchmark by $1,000, the authors concluded, beneficiaries would experience on average a $60 increase in annual premiums and a $27 increase in annual deductibles. “Policy makers must decide whether the added MA benefits are worth what the government is paying for them,” Chernew and colleagues wrote.
It also bears repeating that if the government took that step, it would save an average of nearly $40 billion a year over the next decade, which will add years of life to the Medicare Trust Fund, now slated to exhaust its surplus by 2028. Estimates for changing the risk adjustment rules range as high as $60 billion a year.
Induced demand
Former CMS administrator Donald Berwick and Richard Gilfillan, former CEO of Trinity Health System and the former director of CMS’ Innovation Center, added their own twist to the benchmarking debate in a Health Affairs article published this week. Responding to insurance industry claims that their profits in MA come from delivering higher quality care while paying for fewer services, the former CMS officials noted that the higher demand by seniors in traditional Medicare is an artifact of the supplemental coverage that 84% of seniors buy.
Supplemental coverage to Medicare (usually called a Medigap plan) eliminates almost all co-pays and deductibles. Studies have consistently shown that Medicare beneficiaries with a Medigap plan consume anywhere from 20% to 33% more services than Medicare beneficiaries without supplemental coverage.
Of course, the people who forego Medigap coverage tend to be poorer. They are most likely to underuse needed medical services. But they are a small portion of the overall group. For the large majority, Medigap lowers barriers to care and serves as an inducement for both providers and patients to use services that do not necessarily improve individual health.
And that, clearly, has an inflationary effect the benchmark. It “gives MA plans a massive head start on financial success, no matter how well or poorly they manage care or costs,” Gilfillan and Berwick wrote. “We are systematically driving people out of traditional Medicare by subsidizing the more expensive Medicare Advantage.”
Quality’s Lake Wobegon effect
Finally, there has been a sharp increase over the past decade in the rated quality of MA plans (see chart). This grade inflation cost Medicare an estimated $10 billion in extra payments in 2022.
Five years ago, Wall Street Journal reporter Anna Wilde Mathews exposed how the MA plan insurers combined poor performing plans into larger, better-performing plans to earn high star ratings for the entire group. MedPAC estimated in its June 2020 report that 37% of Medicare beneficiaries in low-rated MA plans were combined into plans have ratings of 4 stars or higher, thus masking the actual performance of the poorer performers in those plans.
Calls for Congress or CMS to revamp the quality bonus program are growing louder. Congress has also called on MedPAC to report on the quality of dual-eligible special needs plans (a form of Medicare Advantage), where the Managed Care Organizations (MCOs) that run Medicaid in most states also take over the Medicare benefits for impoverished elderly and disabled (under 65) beneficiaries.
“The performance data that MA plans report provide limited insight on how well dual-eligible special needs plans perform compared with other plans that serve dual-eligible beneficiaries,” wrote Joan Teno, a professor of health services at Brown University, and Claire Ankuda, a professor at the Icahn School of Medicine in New York, in a recent JAMA Health Forum article. “The current system for rating the quality of MA plans does not allow consumers to make meaningful comparisons.”
Given the massive lobbying blitz by the insurance industry, I wouldn’t be surprised if CMS scales back some of the changes it proposed in its risk-adjustment model and quality bonus program for next year. But even if it sticks to its guns and implements the 1% increase, these latest articles by critics of the MA program suggest much more needs to be done to bring MA reimbursement levels in line with the traditional program.
There are certainly flaws in the mechanisms of the Med Advantage program, which few candid players dispute. You point them out here, but perhaps unfairly so. One example: untreated conditions for risk adjustment. This description fails to capture the true picture. Remember, this is not a fee for service model: in FFS, you only get paid if you produce a procedure. However, when a member has a chronic condition that merits a diagnosis, it is important to capture that diagnosis even if it is being well-managed with prescription drugs and is just being monitored. That is because the underlying condition poses a potential risk if not brought to the managing physician's attention at least annually and validated.
In an annual wellness visit (covered by Medicare), the annual recounting of all current conditions is important so that it can be determined whether the conditions really are well managed or if they deserve an intervention. This is a mindset shift for physicians.
Yet, if these conditions do not ever go away but the Med Adv plan fails to recapture them every calendar year, the payment levels to the Med Adv plan automatically drop. That is to say that there is no remaining risk residing in these chronic conditions and they are no longer being managed. That is how it works.
Gilfillan and Berwick are trenchant critics of the MA payment gravy train. Their prior HA articles on the plans' risk score gaming shed light on the rapid shrinking of FFS Medicare enrollment. But I question their premise here that MA plans shouldn't bid against FFS costs as increased by Medigap.
The choice between Medigap and MA is, fundamentally, a choice between a) access to care unimpeded by prior authorization and limited provider networks and b) extra services and reduced premiums "paid for" by giving up on those coverage advantages. All else being equal, offering enrollees a choice between FFS + Medigap's almost unlimited choice of providers and freedom from prior authorization vs. MA's extra services and (much) lower monthly costs might make sense -- or would, if you eliminated the advantages afforded MA plans via risk scoring, the current quality bonus system, and perhaps overly generous benchmarks.
For those unlucky 16% of FFS enrollees who have neither supplemental coverage nor dual eligibility, costs from out-of-pocket exposure doubtless inhibit needed as well as unneeded care. We've learned that "skin in the game," as defined in U.S. healthcare-speak, is more like a pound of flesh, leading people to forgo needed care and saddling them with debt. So average costs for naked FFS enrollees don't seem like a fair benchmark for MA.