Feds to Cut Medicare Advantage Plan Pay Over Health Score Creep


What You Need to Know

  • The federal government expects to pay Medicare Advantage plan issuers $6.3 trillion from now through 2031.

  • Officials believe they pay $15 billion too much per year because of problems with how plans measure the health of the enrollees.

  • Federal clawbacks of what CMS believes to be excess payments could start at $13 million this year and rise to $479 million in 2025.

  • The recoupment amount could be about $719 million in 2032.

Medicare Advantage program managers say they will cut federal risk-adjustment payments to Medicare Advantage plan issuers when it looks as if the plans are making enrollees look sicker than they really are.

The change could cut risk-adjustment payments by $4.7 billion from now through 2032, or about 0.075% of the $6.3 trillion that the federal government expects to pay the plans over the next decade.

The Centers for Medicare and Medicaid Services announced the move to the new approach, which will base the risk-adjustment payments partly on the results of CMS audits, Monday, in a new final rule set to appear in the Federal Register Wednesday.

Matt Eyles, the CEO of America’s Health Insurance Plans, and Mary Beth Donahue, the CEO of the Better Medicare Alliance, a group for Medicare Advantage plan issuers and other Medicare Advantage program supporters, are objecting to the new, “extrapolation-based” approach.

The new final rule “is unlawful and fatally flawed, and it should have been withdrawn instead of finalized,” Eyles said in a statement.

Donahue said the Better Medicare Alliance is still reviewing the final rule, but she said in a statement it could lead to “an environment of higher premiums and fewer benefits.”

“We encourage CMS to work with stakeholders to put in place solutions that are transparent and fair,” she said.

What It Means

The change might affect clients who have Medicare Advantage plan coverage, but it’s not clear how much a 0.075% change in federal payments would change insurers’ interest in the Medicare Advantage program.

The Medicare Advantage Program

Medicare is a federal program provide that provides health insurance for people over 65, many people who qualify for Social Security disability insurance payments and people with severe kidney disease in the United States.

The Medicare Advantage program gives private insurers and other private health coverage providers a chance to use a combination of federal money and enrollment premium payments to provide coverage that looks to the enrollees like an alternative to Original Medicare, rather than something that simply fills the many holes in Original Medicare coverage.

Medicare Advantage plans cover about 30 million of the 65 million Medicare enrollees.

About 14 million enrollees have Medicare supplement insurance, or standardized private insurance policies that fill Original Medicare coverage gaps, rather than looking like an alternative to Original Medicare.

Traditionally, many higher-income retirees who use Medicare have combined Original Medicare with Medicare supplement insurance to maximize care flexibility. But some high-income clients may sign up with Medicare Advantage plans to get access to certain providers, because they want care management, or because they want some of the extra benefits, such as dental insurance, that some Medicare Advantage plans provide.

The Risk-Adjustment Program

The Medicare Advantage risk-adjustment program is supposed to compensate Medicare Advantage plans for covering sicker, older enrollees by providing extra federal cash when plans do so.

The program does not affect Medicare supplement insurance issuers.

To participate in the risk-adjustment program, Medicare Advantage plans use a system based on Hierarchical Condition Categories, or diagnostic codes, to assign each enrollee a risk score. An enrollee who has metastatic cancer, for example, would have a much higher risk score than a healthy enrollee.

CMS estimates that it pays the plans about $15 billion too much per year because plans misrepresent enrollees’ health in some cases, and put too much effort into identifying health problems in many other cases.

The Clawbacks

CMS has organized a risk-adjustment data validation program, or wave of RADV audits, in an effort to determine how much it’s overpaying based on what it believes to be overly aggressive risk scoring.

The payment clawback strategy described in an analysis accompanying the new final rule could bring in just $41 million over the next two years, before CMS begins using the extrapolation-based payment adjustments.

The recoupment level could rise to $479 million in 2025, when the extrapolation-based approach kicks in, and the recoupment rate could rise to about $719 million in 2032, CMS analysts predict.

CMS administrator Chiquita Brooks-LaSure said the agency has a responsibility to keep plans from using aggressive risk scoring to increase federal payments.

“We are protecting access to Medicare both now and for future generations,” Brooks-LaSure said.