Medicare advisers toy with MA payment overhaul as major payers expand for 2021

Medicare advisers toy with MA payment overhaul as major payers expand for 2021

Dive Brief:

A key congressional advisory board seemed open to the idea of overhauling payment methodology in Medicare Advantage to save the program money, a move which would disrupt a quickly growing and highly lucrative program for insurers even as most expand their MA footprints for next year.
Currently, MA benchmarks are set on a county-by-county basis. But in a Thursday meeting, members of the Medicare Payment Advisory Committee toyed with the idea of a new payment model calculating MA payments by blending local and national spending.
However, commissioners were split on how to weight local versus national spending, with some leaning toward a more aggressive approach to MA plans and others worried about disrupting supplemental coverage, like cost-sharing reductions. The group has yet to finalize a recommendation to Congress.

Dive Insight:
About a third of all Medicare beneficiaries are currently in the privately run plans, and analysts expect that it to grow to cover about half by 2030.
The plans allow private insurers to contract with the government to insure Medicare beneficiaries, in exchange for a fixed payment — typically per member, per month — while offering supplemental benefits, such as reduced cost-sharing, reduced Part B and D premiums and other add-ons, like vision and dental care, food support or gym memberships.
The 23-year-old program is very profitable for insurers. Average gross margins, or the amount by which premium income exceeds annual claims costs, are higher in MA than the individual and group markets, with an average of $1,608 per enrollee per year, according to a 2019 Kaiser Family Foundation report.
Yet the federal government has always struggled to set payments to private plans at an appropriate rate, policymakers and health experts say, resulting in some major fraud.
And despite claims by backers that the program is more efficient than traditional Medicare, MA has never yielded savings for Medicare, paying between 1.5% and 14% above fee-for-service Medicare between 2004 and 2020.
Currently, MA plans submit bids for the next plan year that include estimated revenue needed to cover Medicare benefits in Part A and Part B. That’s then compared against a benchmark based on fee-for-service spending in the plan’s geographic region. The benchmark can shift based on the plan’s quality.
That system has given rise to benchmark cliffs in certain counties. In some areas, a $1 difference in traditional Medicare spending can create a $54 difference in the benchmark, a MedPAC analysis found. That can result in overpayments to MA plans, because if a bid is lower than the benchmark, plans are paid their base payment plus a rebate to account for the difference.
Almost all plans submit bids below the benchmark, MedPAC said. Despite bids averaging at just 88% of traditional Medicare, the current system hasn’t resulted in aggregate savings to Medicare.
Instead, staff on Thursday suggested a new payment model to factor in spending in the local area and national spending overall. They suggested a blended approach made up of 50% local spend and 50% national spend was the best option to nudge benchmarks in low-spend areas closer to fee-for-service, while pressuring high-spend areas to lower cost.
That would help in the near term while giving commissioners more time to craft a substantive overhaul of MA, analysts said.
“This begins to correct issues with cliffs and geographic variation while also putting greater fiscal pressure on some of the plans,” Commissioner David Grabowski, a healthcare policy professor at Harvard Medical School, said.
Commissioners were generally supportive of revamping MA, but were split on the aggressiveness of the proposal. Some thought it would be better to fiddle with rebate percentages in lieu of benchmarks, concerned the proposal could cause overly large shockwaves in MA and disrupt plan functioning and beneficiary benefits.
Any facelift for MA would likely be unpopular with participating insurers, many of which are expanding their MA plans for the 2021 plan year following massive profits amid COVID-19. The largest MA provider, UnitedHealthcare, is embarking on its biggest expansion in five years by launching in almost 300 more counties. Cigna is making its largest expansion ever, entering five new states next year and growing its county reach by 22%.
Humana, Aetna and Anthem also announced notable expansions.

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