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CMS is driving down rates for MA plans while taxes and dwindling bonus pay pile on the pain
The February 2015 Advance Notice called for what the Centers for Medicare and Medicaid Services (CMS) estimates will amount to a 1.9% combined effect cut to Medicare Advantage per capita rates for 2015. And that was just the latest ratchet of financial pressure on the MA program.
The cut piles onto other changes, including shifts to the CMS risk adjustment model, medical loss ratio requirements for Medicare Advantage plans and the health insurer taxes brought in with the Affordable Care Act (ACA). In time, MA plan payment will be watered down to equal fee-for-service Medicare. Industry observers estimate the total pinch for MA next year to be nearly 5%.
America's Health Insurance Plans (AHIP) says this year's MA cut was 6%, and the new proposal will mean an additional 6% for 2015.
However, Avalere Health notes that despite declining MA plan participation, MA enrollment has grown in all regions of the country. Membership rose by 8.9% to 15.9 million enrollees, up from 14.6 million in 2013, bringing MA enrollment to about 30% of all eligible Medicare beneficiaries. If current trends continue, plans stand to gain market share again next year.
EylesStill, the CMS notice signaled “a continued tough environment for MA plans,” says Matt Eyles, executive vice president at Avalere.
According to Mark Farrah Associates, Humana saw the largest enrollment gain of late, adding more than 374,000 new members, while increasing nationwide market share from 16.7% in February 2013 to 17.6% in February 2014. As the economy picks up, more workers will opt for retirement and that could bring more opportunity for MA enrollment.
“The margins are really low for insurers,” says Debra A. Donahue, vice president of market analytics and online products, Mark Farrah Associates. “If [CMS] cuts the rates too low, insurance companies will walk. They did it before.”
MA’s predecessor, Medicare+Choice, was created in 1997, and by 2002 was shriveling because of a private insurer mass exodus. Funding and profit margins dropped repeatedly year over year and the program ended.
“This year is especially troublesome,” says Pat Dunks, principal and consulting actuary with Milliman.
He believes that everything’s on the table in terms of strategies to cope with the market realities.
So which is it? Will Medicare Advantage be ground into a product that is no longer profitable enough for insurers? Or is so much at stake, with so many plans and participants, that winning formulas will be found despite the inexorable decline in rates?
Experts say it’s probably too soon to bail on MA.
Dunks“There are all kinds of initiatives” in place among Medicare Advantage insurers for dealing with the current pressures, says Dunks. The spectrum of approaches ranges from measures to improve drug adherence to getting providers to accept some risk through efforts such as patient-centered medical homes.
“If you’ve seen one plan,” he says, “you’ve seen one plan.”
Though cutting administrative costs might seem like an obvious approach, Dunks cautions that “the well might be close to dry.” Such costs are usually only 5% to 12% as it is, he says, “so you’re squeezing a small piece of the pie.”
MA plans are making ongoing efforts toward improving the management and coordination of care and have been exploring lower-cost models, such as outpatient clinics and even purchases of providers, says Ash Shehata, national healthcare plan leader for KPMG.
Along the way, he says, they’re “really starting to understand the cost per member” and gaining the ability to proactively manage high-risk members. The strategic goal, Shehata says, is to get ahead of reimbursement cuts and not just react to them.
One temptation plans have when facing payment cuts is to offer participants “less for more,” rather than “more for less.” Donahue, for one, notes that MA product enhancements like hearing or dental benefits, acupuncture and physical therapy, are getting cut back-benefits that were once key selling points for seniors and for the MA program overall.
Nevertheless, Shehata says for the model to be viable for the long term, plans have to do more in the way of senior benefits and services, not less.
An area where less has the potential to be better is the ongoing trend of narrower networks. By driving members to highly effective, efficient providers, plans save on rates and gain the financial benefits of improved outcomes. Many MA insurers have selectively cut back their networks, especially the higher-cost providers, such as teaching hospitals, says Donahue.
For example, if there are 10 hospitals in a metro area, the insurer might cut its network to seven, by lopping off the two most expensive as well as the one with the lowest quality.
Shehata sees “a sharp focus on medical management” as plans target high-efficiency providers. In general, he says, providers are not eager to leave Medicare Advantage, despite the rate pressure, though they’re competing more with the narrower provider panels.
In late 2013, a confrontation in Connecticut arose over UnitedHealthcare’s plan to drop about 2,200 physicians from its Medicare Advantage network in that state. A court ruling allowed providers the time to appeal the terminations. Medical societies in other states are keeping an eye on the situation and are not ruling out suits of their own, if they believe such actions necessary.
The Advance Notice says MA plans must give seniors a one-month heads up for network changes, while physicians must have 60 days notice of contract terminations, and CMS itself must be notified 90 days before plans cut providers out networks. How plans will prove network adequacy remains to be determined and will no doubt be the subject of ongoing debate.
As a result of narrower networks, the MA landscape is also seeing narrower geographies.
Though large MA players are likely to make adjustments rather than exit the program, Dunks says, he expects that “they’ll look at revenues and costs in each county” and make some service area reductions.
From a different angle, Eyles says that it’s harder to assemble a provider network in some counties, and that cuts in reimbursement might be making it doubly harder for plans to expand geographically, even if they want to. For example, Blue Shield of California is using telemedicine to allow specialists to consult with primary care physicians to deliver to care to more patients in a wider geographic area. Some markets have a shortage of available specialists, and the ones that do practice in the area might command an especially high price. Telemedicine could be one way to keep networks adequate, but the strategy is still in its infancy.
Better use of diagnostic codes by Medicare Advantage plans is another means to manage the product. Accurate risk assessment can lead to more favorable rates.
“Plans are getting better at submitting all those risk scores,” says Dunks.
With big changes looming next year for Medicare Advantage star bonuses, quality ratings are still an opportunity to earn extra payment. Starting in 2015, CMS will terminate contracts with plans that have been consistently unable to maintain a three-star quality rating, while the remaining plans stand to gain market share.
Even now, quality is becoming more important with the movement away from FFS and toward value-based reimbursement, and it’s “extremely important” from a financial standpoint to reach four to five stars, says Rob Slattery, CEO and president of CrestPoint Health. CMS will no longer hand out bonus pay to lower-ranked plans as it had in the past while the star program was still a demonstration project.
SlatteryAs a new Medicare Advantage player, CrestPoint entered MA recognizing that quality and value would be crucial, Slattery says. “We’re looking to be a five-star plan.”
There are only about two dozen five-star plans nationwide, and each has the added bonus of being able to market to and sign up seniors all year long. Though quality ratings are already a priority for established MA plans, there is still some room to improve.
“Improved quality scores for Medicare Advantage plans could be the difference between making and losing money,” says Eyles. When the quality bonus was introduced in 2011, he says, “it was a nice-to-do, but now it’s a must-do.”
Finally, Medicare Advantage plans that have performed well financially have tended to involve the community, not just the healthcare network, says Shehata. Though these efforts can be maintained by providers or by patients directly, he says, they typically have to be undertaken initially by health plans.
Down the road, Shehata sees great potential in “capture tools” that will gather data to help insurers create the right products and networks. Social media data is most valuable when combined with data that is more structured, such as plan call center data, he says, to figure out what will attract members to the plan.
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In spite of the increasing challenges, it’s important not to lose sight of the reasons that MA remains an attractive business: the growing Medicare population; and the incoming generation’s comfort level with managed-care plans.
Consumers retiring now are more than likely to pick a Medicare Advantage plan because they’re used to working with managed care networks. And local private insurers have the advantage over FFS Medicare by providing better service that today’s seniors expect such as home visits and benefits for gym memberships.
Donahue says if a plan offers good benefits and service, it pretty much has that member for life.
“They have somebody to talk to patients,” she says.
For most insurers, it seems, Medicare Advantage ultimately is just too big to walk away from entirely. Dunks doesn’t see insurers “getting all in or all out” of Medicare Advantage, except possibly smaller, local plans.
Because MA rates vary by county, as do the effects of payment reform, whether an insurer can compete depends on local market forces as much as overarching federal policy, he says. Even large, national payers have to look at opportunities county by county.
Medicare Advantage plans “have demonstrated an ability to adapt to a changing reimbursement environment,” Eyles says. “It is a viable business, but they have to do more with less.”