MA plans escape killer cuts

April brought good news to Medicare Advantage (MA) plans. The Centers for Medicare and Medicaid Services (CMS) pulled back on its earlier proposal to sharply reduce plan payments for 2014, a policy that had set off a ruckus in the industry and on Capitol Hill.

Thousands of the 14 million MA plan members wrote members of Congress protesting potentially higher premiums and loss of MA coverage. That prompted more than160 legislators to press CMS to re-evaluate its rate-setting formula.

Health and Human Services (HHS) secretary Kathleen Sebelius responded, evidently hoping that the move would help win Republican support for confirmation of Marilynn Tavenner as CMS administrator.

MA plans still face rate reductions steeper than cost trends, largely attributed to payment reforms enacted in the Patient Protection and Affordable Care Act (PPACA). A new excise tax will raise costs, and budget cuts will dampen revenues. Final rates, which will vary greatly by county, benefit design and other factors, will be shaped by changes in how CMS sets benchmarks for plan bids, adjusts for coding intensity, awards bonus payments to plans achieving high star quality ratings, and implements other policy revisions. But the final fee will be more attractive than that proposed a few months ago.

The MA rate problem began in mid-February when CMS proposed a 2.2% reduction in cost trends, a number that reflected the actuaries’ usual practice of basing rates on current law. That assumed a 25% reduction in doctors’ fees under the sustainable growth rate (SGR) formula. But HHS agreed with critics that policymakers will prop up Medicare provider fees and that MA plans will end up paying doctors what they do today. So instead of a sharp drop in trend, the April final call letter projected a 3.3% growth rate.

Consequently, MA plan rates are projected to decline 2% to 3% for 2014, as opposed to the 7% to 8% cut previously anticipated.

Future reforms

CMS’s decision to to set MA rates based on current fees to physicians increases pressure on Congress and the White House to tackle the doc fix sooner, rather than later. While another short-term SGR patch is likely, there is greater support for negotiating a more permanent solution for the flawed physician payment formula.

A serious move to revise the SGR could encompass broader changes in the traditional Medicare program, which are surfacing in budget negotiations between the Obama administration and Congress. One proposal is to combine Medicare Part A and Part B coverage to create a single deductible and cap on out-of-pocket costs for both programs. Beneficiary protection from catastrophic costs would reduce the need for Medigap plans with first dollar coverage, making seniors more sensitive to costs and likely to avoid unnecessary care.

Further MA reforms would be part of the package. The Medicare Payment Advisory Commission (MedPAC) acknowledged in its March report to Congress that the gap is closing between MA plan payments and prevailing traditional Medicare, but that there’s still room to revise benchmarks to achieve parity. The Government Accountability Office similarly noted in a March report that MA plans received some $5 billion in overpayments between 2010 and 2012 due to upcoding of risk scores that classify members as sicker than normal. 

The promise of the MA program is that health plans will reduce Medicare spending by better coordinating care for elderly patients with multiple chronic conditions and high costs. The challenge is to curb expenditures sufficiently to support reduced plan payments.