Boards of Trustees for the Federal Hospital Insurance & Federal Supplementary Medical Insurance Trust Funds Issue Annual Report to Congress (Part 8 of 12)

WASHINGTON, June 8 (TNSrep) -- The Boards of Trustees for the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds issued a 263-page annual report to Congress on June 2, 2022.

(Continued from Part 7 of 12)

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C. PRIVATE HEALTH PLANS

Dating back to the 1970s, some Medicare beneficiaries have chosen to receive their coverage for Part A and Part B services through private health plans. Over time, numerous changes have been made to these plans that have increased or decreased the attractiveness of private plan coverage.

The foundation of the current program was established in 2003, when most of the private plans were renamed as Medicare Advantage (MA) plans and all private health insurance coverage options available through Medicare were formally designated as Part C./65

Since then, there has been a continuous increase in the prevalence of MA enrollment.

Beginning in 2006, payments are based on competitive bids and their relationship to corresponding benchmarks, which are based on an annually developed ratebook. Also, rebates were introduced and are used to provide additional benefits not covered under Medicare, reduce cost sharing, and/or reduce Part B or Part D premiums. From 2006 through 2011, rebates were calculated as 75 percent of the difference, if any, between the benchmark and the bid.

In addition to the plan types that already existed, regional preferred provider organizations (RPPOs) and special needs plans (SNPs) were established in 2006. Unlike other MA plans, which define their own service areas, RPPOs operate in pre-defined service areas referred to as regions and have special rules for capitation payment benchmarks, and they received special incentives.

SNPs are products designed for, and marketed to, these special population groups: Medicaid dual-eligible beneficiaries, individuals with specialized chronic conditions, and institutionalized beneficiaries. The statutory authority for SNPs, which had been extended several times previously, was permanently extended under the Bipartisan Budget Act of 2018.

Beginning in 2012, the MA county-level benchmarks are based on a multiple of estimated fee-for-service costs in the county. The factor applied for a given county is based on the ranking of its fee-for-service cost relative to that for other counties. The 25 percent, or quartile, of counties with the highest fee-for-service costs have a factor of 95 percent of county fee-for-service costs; the second quartile, 100 percent; the third quartile, 107.5 percent; and the lowest quartile, 115 percent. Prior to 2012, most county benchmarks were in the range of 100 to 140 percent of local fee-for-service costs.

Plans are eligible to receive specified increases to their benchmark based on their quality rating scores. The statutory provisions call for a bonus of 5 percent for plans with at least a 4-star rating. The bonuses are doubled for health plans in a qualifying county, defined as a county in which (i) per capita spending in original Medicare is lower than average; (ii) 25 percent or more of eligible66 beneficiaries were enrolled in Medicare Advantage as of December 2009; and (iii) the benchmark rate in 2004 was based on the minimum amount applicable to an urban area. There are special bonus provisions for newly established and low-enrollment plans. Additionally, the phased-in benchmarks, including bonuses, are capped at the pre-2012 benchmark level.

The share of the excess of benchmarks over bids, which is paid to the plan sponsors as rebates, varies based on quality. The highest quality plans (4.5 stars or higher) receive a 70-percent rebate, plans with a quality rating of at least 3.5 stars and less than 4.5 stars receive a 65-percent rebate, and plans with a rating of less than 3.5 stars receive a 50-percent rebate.

Beginning in 2014, private insurers were required to pay an assessment, or fee, based on their revenues from the prior year. There was a 1-year moratorium on the annual fee in 2017 and again in 2019. The fee was in place for calendar year 2020, with the assessment on MA sponsors expected to represent approximately 1.4 percent of plan revenues. The Further Consolidated Appropriations Act, 2020 permanently repealed the annual fee for calendar year 2021 and future years.

It is important to note that Medicare coverage provided through private health plans does not have separate financing or an associated trust fund. Rather, the Part A and Part B trust funds are the source for payments to such private health plans.

1. Participation Rates

a. Background

To account for the distinct benefit, enrollment, and payment characteristics of private health plans, enrollment and spending trends for such plans are analyzed at the product level:

* Local coordinated care plans (LCCPs), which include health maintenance organizations (HMOs), HMOs with a point-of-service option, and local preferred provider organizations (PPOs). * Private fee-for-service (PFFS) plans.

* Regional PPO (RPPO) plans.

* Special needs plans (SNPs).

* Other products, which include cost plans, Program of All-Inclusive Care for the Elderly (PACE) plans, and Medicare-Medicaid plans (MMPs) under the capitated model.

All types of coverage except for those represented in the "Other" category are Medicare Advantage plans. Also, the values represented in each category include enrollment not only in plans available to all beneficiaries residing in the plan's service area, but also in plans available only to members of employer or union groups.

b. Historical

Table IV.C1 shows historical and projected private health plan enrollment by type of plan. From 2012 through 2021, private plan enrollment grew by 14.0 million or 103 percent, compared to growth in the overall Medicare population of 25 percent for the same period.

PFFS enrollment dropped 89 percent during these years primarily due to plan reaction to new statutory provider network requirements beginning in 2011. Most of the enrollees in terminating PFFS plans transferred to LCCP or RPPO plans.

The 2021 enrollment includes 5.0 million beneficiaries with coverage through employer/union-only group waiver plans (EGWPs), the majority of whom are in LCCPs. Beginning in 2017, the bidding requirements for these types of plans have been waived, and payments to these EGWPs, including RPPOs, are based on individual market bids.

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Table IV.C1.--Private Health Plan Enrollment/1

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c. Projected

The Medicare Advantage (MA) enrollment projection model groups counties by common characteristics and models each of these groups using 2015 through 2021 base data, as follows:

* One group for Puerto Rico.

* Five groups for urban counties as defined by the fiscal year 2015 core-based statistical area (CBSA) designation. The quintiles are sorted based on 2015 penetration rates and grouped with an approximately equal number of MA-eligible beneficiaries in each cohort.

* Five groups for rural counties as defined by the fiscal year 2015 CBSA designation. The quintiles are sorted based on 2015 penetration rates and grouped with an approximately equal number of MA-eligible beneficiaries in each cohort. The private health plan enrollment projections are based on three cohorts of beneficiaries: (i) dual-eligible beneficiaries, (ii) beneficiaries with employer-sponsored coverage, and (iii) all others, including individual-market enrollees.

Private plan enrollment for the individual market is projected by calculating the penetration growth rates for individual plans in years 2015 through 2021 for each category described above and extrapolating those results through 2031. These growth rates are applied to the enrollment distribution for each county's specific 2021 plan type (for example, LCCP, PFFS, and RPPO) and are adjusted to reflect applicable legislative changes to the program, as described in more detail below.

Two categories of MA enrollees--those with employer coverage and those who are dually eligible--are modeled at the national level. Historically, EGWP and dual-eligible enrollment has had much larger enrollment variation from year to year while individual-market enrollment has trended at a more consistent level. Because of the fluctuations in enrollment, the cohort method does not work as well for the employer-sponsored and dual-eligible populations.

The private Medicare health plan enrollment projections for the 2022 Trustees Report are higher than those in the 2021 report. As shown in table IV.C1, the share of Medicare enrollees in private health plans is projected to increase from 43.2 percent in 2021 to 52.9 percent in 2031. The increases that are expected in private plan penetration rates for 2022 through 2031 are partly due to higher relative rebates that are used to lower premiums and expand benefits.

SNP enrollment is expected to grow by 24 percent in 2022 after increasing by 17 percent in 2021. In 2023 and later years, the enrollment growth rate for these plans is expected to slow, ranging from 15 percent in 2023 to 3 percent in 2031.

For LCCP-HMOs, enrollment is expected to increase by 3 percent in 2022 following growth of 5 percent in 2021. For LCCP-PPOs, enrollment is expected to increase by 13 percent in 2022 after growth of 18 percent in 2021.

The "Other" category is expected to fluctuate over the next several years due to enrollment in the MMP capitated model and enrollment in cost plans. The MMP capitated model represents health plans that are capitated by CMS and States to provide comprehensive and coordinated care for Medicare-Medicaid enrollees. After the introduction of MMPs in October 2013, enrollment grew nationally from approximately 3,400 enrollees in a single State to over 422,000 enrollees across nine States in October 2021. The remaining contracts are set to expire in 2022 and 2023. It is assumed that once the contracts expire, the majority of MMP enrollees will remain in the MA program by switching to SNPs. Meanwhile, the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) amended the cost plan competition requirements specified in section 1876(h)(5)(C) of the Social Security Act. The amended competition requirements provide that CMS not renew cost plans in service areas where two or more competing local or regional MA coordinated care plans meet enrollment requirements over the course of the entire prior contract year. Under MACRA, cost plans were permitted to transition to the MA program until the beginning of calendar year 2019.

Enrollment in the "Other" category increased by 49 percent in 2015 because of the influx of MMP enrollment. For 2016 through 2018, enrollment in this category increased by 14 percent before decreasing by 37 percent in 2019 due to the reduction in the number of cost plans required by MACRA. During the period 2020 through 2024, enrollment in the "Other" category is expected to decrease by 53 percent as a result of the expiration of the MMP contracts; for most years in 2025 and later, it is expected to grow more steadily at a rate of 2 to 3 percent.

2. Cost Projection Methodology

a. Background

Benchmarks form the foundation for payments to Medicare Advantage (MA) plans. Along with geographic, demographic, and risk characteristics of plan enrollees, these values determine the monthly prospective payments made to private health plans. MA benchmarks vary substantially by county. Benchmarks range between 95 and 115 percent of county-level fee-for-service costs, plus applicable quality bonuses.

For individual non-RPPO plans, a plan's benchmark is an average of the statutory capitation ratebook values, weighted by projected plan enrollment in each county in the plan's service area. For RPPOs, the benchmark is a blend of the weighted ratebook values for all Medicare-eligible beneficiaries in the region and an enrollment-weighted average of RPPO bids for the region. The weight applied to the bid component to calculate the blended benchmark is the national MA participation rate.

Plans submit bids equal to their projected per enrollee cost of providing the standard Medicare Part A and Part B benefits. Plans with bids below the benchmark apply the rebate share of the savings to aid plan enrollees through coverage of Part A and Part B cost sharing, coverage of additional non-drug benefits, and/or reduction in the Part B or Part D premium. The rebate percentage is based on the quality rating of the health plan and ranges from 50 to 70 percent. Beneficiaries choosing plans with bids above the benchmark must pay for both the full amount of the difference between the bid and the benchmark and the projected cost of the plans' supplemental benefits.

Medicare capitation payments to an MA plan are a product of the standardized plan bid, which is equal to the bid divided by the plan's projected risk score, and the actual enrollee risk score, which is based on demographic characteristics and medical diagnosis data. The risk score for a given enrollee may be adjusted retrospectively since CMS receives diagnosis data after the payment date.

Rebate payments are based on the projected risk profile of the plan and are not adjusted based on subsequent actual risk scores.

b. Incurred Basis

Private health plan expenditures are forecast on an incurred basis by coverage type. The bid-based expenditures for each quarter are a product of the average enrollment and the projected average per capita bid. Similarly, the rebate expenditures are a product of enrollment and projected average rebates.

Annual per capita benchmarks, bids, and rebates were determined on an incurred basis for calendar years 2007-2021 for each coverage category. These amounts include adjustments processed after the payment due date for retroactive enrollment and risk score updates.

Benchmark growth for 2012 through 2017 was significantly lower than it was before 2012 because of the phase-in of the fee-for-service-based ratebook beginning in 2012, which resulted in lower benchmark rates in most areas. Benchmark growth for years 2022 and later is estimated to be slightly higher than the growth rate of beneficiaries enrolled in Medicare fee-for-service due in part to quality bonus payments that are projected to increase slightly for 2022 and later years and changes in risk scores that are projected to grow faster for the MA population.

Private health plan expenditures are affected by the sequestration required by current law, which will reduce benefit payments by specified percentages through September 2031.

c. Cash Basis

Cash MA expenditures are largely identical to incurred amounts, since both arise primarily from the monthly capitation payments to plans.

Small cash payment adjustments are developed from incurred spending by accounting for the payment lag that results from CMS' receipt of post-payment diagnosis data, retroactive enrollment notifications, and corrections in enrollees' demographic characteristics.

Table IV.C2 shows Medicare private plan expenditures on an incurred and cash basis. The incurred payments are reported separately for the bid-related and rebate expenditures. As noted, most payments to plans are made as they are incurred, and cash and incurred amounts are generally the same.

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Table IV.C2.--Medicare Payments to Private Health Plans, by Trust Fund

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d. Incurred Expenditures per Enrollee

Table IV.C3 shows estimated incurred per enrollee expenditures for beneficiaries enrolled in private health plans. It combines the values for expenditures from the Part A and Part B trust funds.

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Table IV.C3.--Incurred Expenditures per Private Health Plan Enrollee/1

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Average Medicare payments per private plan enrollee vary by geographic location of the plan, plan efficiency, and average reported health status of plan enrollees. LCCPs and SNPs tend to be located in urban areas where prevailing health care costs tend to be above average. Conversely, PFFS plans and RPPOs generally reflect a more rural enrollment. These factors complicate meaningful comparisons of average per capita costs by plan category.

Per capita bids are expected to increase by 5.4 percent in 2022. For years 2023 through 2031, the per capita bid trend is expected to be equal to the average of growth in per capita Medicare fee-for-service expenditures and benchmark growth. After 2031, average Medicare payments to private plans per enrollee are assumed to follow the aggregate growth trends of the HI and SMI Part B per capita benefits, as described in section IV.D of this report.

Annual increases in per capita rebates are projected to be in the mid to high single digits for years 2024 through 2031 due to assumed increases in quality bonus payments and increases in benchmarks.

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The report is posted at: https://www.cms.gov/files/document/2022-medicare-trustees-report.pdf

(Continues with Part 9 of 12)

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