New Report Shows That Medicare Advantage Payments Won’t Keep Pace With Costs In 2018

posted by Kristine Grow

on February 22, 2017

WASHINGTON, D.C. – Millions of seniors who depend on Medicare Advantage (MA) plans could see cuts to their coverage and benefits if new payment changes take effect next year. That’s  according to a new analysis by Oliver Wyman prepared for America’s Health Insurance Plans (AHIP).

Earlier this month, the Centers for Medicare & Medicaid Services (CMS) released proposed changes to MA rates that will impact the 18.5 million seniors enrolled in the program. According to Oliver Wyman, these changes, if finalized, would result in an estimated 2 percent reduction to MA net revenues in 2018.

These reductions come at a time when Medicare costs are rising at nearly 3 percent, according to CMS.

“We estimate that the payment policies proposed in the 2018 Advance Notice could disrupt beneficiaries in the MA market,” the report states.

The most significant factors affecting the MA program include:

  • Health Insurance Tax (HIT) (2.1 percent cut). If the HIT is not repealed for 2018, costs for MA plans will increase by 2.1 percent, and could result in reduced benefits for MA enrollees.
  • Risk Adjustment (1.9 percent cut): The agency is proposing to update a technical adjustment it makes to calculate risk scores, which would reduce program funding by 1.9 percent. The reduction would fall particularly hard on plans’ efforts to improve beneficiaries’ health through early detection and prevention of chronic conditions, and exacerbates cuts CMS implemented last year that target health plans’ efforts to improve quality of care.
  • Employer Group Waiver Plans (EGWPs) (up to 0.20 percent program-wide; 1.25 percent cut for EGWPs): Employers, including state and local governments, as well as union sponsors, use customized EGWP products to finance retiree coverage for more than 3.6 million beneficiaries. CMS’ proposals to continue paying EGWP plans based on non-EGWP plan bids would lead to significant uncertainty in the cost of providing coverage for retirees, and they could lead to disruptions in their coverage and benefits.

Oliver Wyman also notes that CMS would maintain the use of encounter data to calculate risk scores. However, the system used to capture these data has numerous unresolved operational and technical issues and fails to capture a reliable, comprehensive picture of beneficiaries’ diagnoses. This could put payments at risk, which could also increase premiums and decrease benefits.

“Seniors should not face any further cuts to their coverage,” AHIP President and CEO Marilyn Tavenner said. “Medicare Advantage works.  We urge CMS to protect millions of seniors across the country by taking steps needed to avoid further cuts to the Medicare Advantage program.”

The new report comes at a time when a growing number of voices are urging CMS to prevent further cuts to MA, including large bipartisan support from members of Congress. AHIP’s Coalition for Medicare Choices (CMC), the largest advocacy group of more than 2 million MA seniors, recently launched a nationwide grassroots and ad campaign to protect MA. Final payment rates are expected on April 3, 2017.

Below is a brief analysis of the proposed changes:

Estimated Net Revenue Impact in 2018 for MAOs
Impact (%) Impact (%)
Oliver Wyman CMS Estimate
Change in Plan’s Star Rating for 2018 -0.4% -0.4%
Coding Intensity Change for 2018 -0.25% -0.25%
Change in FFS Normalization for 2018 -1.9% -1.9%
Change from RAPS to EDS data submission 0.0% Not Included
Change to EGWP Payment Policy 0.0 to -0.2% Not Included
Health Care Cost Growth for 2018 (Ratebook Change) 2.8% 2.8%
Subtotal Impact for 2018 (Excluding Health Insurer Tax) 0.05 to 0.25% 0.25%
Reinstatement of Health Insurer Tax for 2018 -2.1% Not Included
Total Net Revenue Impact for 2018 -1.85 to -2.05% 0.25%

To view the full report, click here.