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It’s Time To Fix The Incorrect Funding Formula For Medicare Advantage Plans

posted by Tom Kornfield, Vice President, Medicare Policy, & Greg Berger, Executive Director, Medicare Policy

on March 15, 2018

More older Americans than ever are picking a Medicare Advantage health plan, which provides additional services and coverage that traditional Medicare does not. In fact, nearly 22 million people receive coverage from a Medicare Advantage plan. Seniors and individuals with disabilities nationwide recognize that Medicare Advantage provides better services, better care, and better value.

However, as the Medicare Advantage program continues to grow, it’s clear changes need to be made to ensure stable funding. A new legal analysis suggests the Centers for Medicare & Medicaid Services (CMS) need to fix how it calculates payment rates for Medicare Advantage plans. In particular, the analysis demonstrates that, under the Social Security Act, CMS should calculate benchmarks using claims experience only for Americans who are eligible for Medicare Advantage.

CMS currently calculates payment rates using county benchmarks, which represent the maximum amount CMS will pay a Medicare Advantage plan. These benchmarks are based on average spending for enrollees in traditional Medicare (or fee-for-service Medicare). More specifically, these benchmarks reflect spending for enrollees with only Medicare Part A (which covers care delivered in hospitals and other facilities), enrollees with only Medicare Part B (which covers care delivered by physicians and medical supplies), and enrollees with both Medicare Parts A and B.

This calculation, therefore, includes all Medicare beneficiaries, but only people with both Parts A and B can enroll in Medicare Advantage plans. In a nutshell, current benchmarks rates reflect individuals who are ineligible for Medicare Advantage, which leads to the wrong payment rate for Medicare Advantage plans.

This is not how the law intended for CMS to calculate the benchmarks. More accurate payment rates would help health plans improve benefits and services for seniors.

The Medicare Payment Advisory Commission (MedPAC) has recommended that CMS revise the calculation of benchmarks. MedPAC notes that benchmarks will continue to misrepresent payment rates as the number of Americans with only Medicare Part A continues to grow.

We strongly believe CMS should update its county benchmark calculation in the 2019 Final Notice, which will be published April 2, to exclude claims experience for Part A enrollees.