Center on Budget & Policy Priorities: Medicare Advantage Payment Changes Would Have Little or No Effect on Beneficiaries

WASHINGTON, March 7 (TNSres) -- The Center on Budget and Policy Priorities issued the following news:

By Paul N. Van De Water, Senior Fellow

The Centers for Medicare & Medicaid Services (CMS) recently issued its annual advance notice of planned Medicare Advantage (MA) payment changes for 2024. CMS estimates these changes would increase nominal revenues of MA plans by an average of 1.03 percent. These updated payment rates are unlikely to have a major impact on the Medicare program or its beneficiaries, despite allegations by the health insurance industry.

About 30 million of Medicare's 65 million beneficiaries receive their benefits through MA plans operated by private insurers. Medicare pays MA plans a specified dollar amount for each enrollee, according to a method defined in law and administered by CMS. Payments are adjusted for health risk - plans receive higher payments for sicker enrollees who have higher expected health spending and lower payments for those with below-average expected spending.

The estimated change in MA plans' revenues is the net effect of four factors. Revisions to Medicare's risk adjustment model and changes in bonuses for plans with higher quality ratings would both tend to reduce payments to plans. But these two factors would be more than offset by an increase in MA "benchmarks" (which are county-level amounts that depend on spending in traditional Medicare) and the projected growth in MA risk scores (which measure MA enrollees' health status as part of the risk adjustment process).

MA plans and their trade associations have noted that, if one excluded the growth in risk scores from the calculation, the projected change in revenues of MA plans would be a small decrease instead of a 1.03 percent increase. But there's no good reason to omit this factor. Although the projected growth in risk scores is an estimate and would not apply equally to all MA plans, the same is true of other factors determining the projected growth in MA revenues.

Even if - contrary to the CMS estimate - payments to MA plans fell slightly in 2024, the effect on MA beneficiaries is likely to be minimal. The MA industry has pointed to a commissioned study (https://bettermedicarealliance.org/wp-content/uploads/2023/02/20230214_Advance-Notice-Impact_Final.pdf) that assumes that any reduction in plans' revenues would result in an increase in premiums or a decrease in benefits. But that's not necessarily the case. CMS' proposed changes are small, and insurers have significant flexibility in deciding how they will respond to changes in payments.

Gross margins of MA plans (the excess of premiums over benefit costs) averaged $1,730 per beneficiary in 2021 -- more than twice as high as in other lines of health insurance. This gives MA plans considerable room to respond to payment changes by reducing their profits or administrative expenses. This is how insurers have responded to payment changes in the past, the Kaiser Family Foundation (KFF) recently noted. "And plans," KFF observes, "have more money than ever to pay for extra benefits."

The Medicare Payment Advisory Commission estimates that Medicare overpays MA plans by at least 4.9 percent compared to traditional Medicare because MA plans generally overstate their enrollees' health conditions, generating $23 billion in excess payments to MA plans in 2023 alone. The improvements in the risk adjustment model and other payment updates that CMS is proposing would go partway toward curbing these abuses while having little or no effect on Medicare Advantage enrollees.

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View advance notice here: https://www.cms.gov/newsroom/fact-sheets/2024-medicare-advantage-and-part-d-advance-notice-fact-sheet

Original text here: https://www.cbpp.org/blog/medicare-advantage-payment-changes-would-have-little-or-no-effect-on-beneficiaries