Medicare managed-care plans say they’ll have to increase premiums and reduce benefit offerings if Democrats cut their program reimbursements to help pay for new dental, vision, and hearing benefits in traditional Medicare.
Because these Medicare Advantage plans receive higher payments for beneficiaries with more ailments and higher expected medical costs, plan providers typically record all possible medical diagnoses, which often results in overpayments, according to the Medicare Payment Advisory Commission. In 2019, the commission estimates that MA plans received nearly $9 billion in excess payments due to this “coding intensity.”
As Democrats work to trim their $3.5 trillion reconciliation package to accommodate leery party moderates, recent research suggests that tweaking some of the Medicare Advantage payment formulas could save billions of dollars in overpayments that could help pay for the proposed benefit expansion.
Billions in Savings
Excluding the cost of the new benefits from the “benchmarks” that Medicare uses to determine Medicare Advantage payment rates would save roughly $147 billion over 10 years, according to an analysis by Matthew Fiedler of the USC-Brookings Schaeffer Initiative for Health Policy. That’s 41% of the estimated $358 billion that the three benefits would cost over 10 years, according to a 2019 Congressional Budget Office estimate.
The Medicare Advantage benchmark is the highest amount Medicare will pay an MA plan to provide hospital and outpatient coverage. It’s a rate against which plans submit bids for coverage, benefits, and payments to the Centers for Medicare & Medicaid Services.
The benchmark rate reflects the equivalent cost of care in fee-for-service Medicare, which reimburses for all covered services provided to beneficiaries. Medicare Advantage plans receive a set monthly payment to cover each enrollee’s projected cost of care.
Most MA plans already offer some level of dental, hearing, and vision coverage as a supplemental benefit, although the level of coverage isn’t uniform and varies greatly from plan to plan.
In 2019, Medicare spent $321 more per MA plan enrollee than for those covered by traditional Medicare, according to a recent study by the Kaiser Family Foundation. The higher cost was due, in part, to extra supplemental benefits that are unavailable to beneficiaries in fee-for-service Medicare, the report said.
This year, Medicare payments to MA plans average an estimated 104% of fee-for-service spending, up 1 to 2 percentage points from 2020, according to the Medicare Payment Advisory Commission. “The 2021 estimate incorporates about 3 percentage points of uncorrected coding intensity,” the commission noted in its March report to Congress.
But insurers say cutting MA plan payments to help finance a mandatory, program-wide expansion of benefits would cause plans to hike premiums and reduce other supplemental benefits, like transportation to appointments and in-home meals. That would hold true whether the cuts stemmed from inaction on the benchmark rate, as Fiedler has suggested, or from deeper reimbursement offsets to account for coding intensity.
Medicare already reduces payments to MA plans by 5.9% because of coding intensity by MA plan providers who submit a larger number and more severe diagnoses codes per patient than their counterparts in fee-for-service Medicare, said
If Medicare increased the coding intensity payment reduction to 7% or 9% to help finance dental, hearing, and vision benefits, MA premiums would increase anywhere from about $9.30 per month to nearly $25 per month, on average, across all plans, according to an Avalere analysis commissioned by America’s Health Insurance Plans. Supplemental benefit offerings could decrease by $30 to $44 per month, the study found.
Lost Supplemental Benefits
If Congress adds the new Medicare benefits without an upward adjustment of the MA benchmark rate, those plans would receive 48% to 73% fewer rebate dollars, according to a Wakely Consulting Group analysis funded by AHIP. That represents nearly $700 to $1,056 a year in lost supplemental benefits, which rebate dollars help fund.
Those lost supplemental benefits help close disparity gaps for vulnerable beneficiaries and address social factors that adversely affect patient outcomes. Higher MA premiums could also slow Medicare’s push for greater health equity, since MA plans have a disproportionate share of lower-income and minority beneficiaries. About 57.5% of MA plan members are enrolled in coverage with no premiums.
Forty percent “of Medicare Advantage enrollees make less than $25,000 per year. Increasing premiums or lowering benefits could have a devastating impact on the affordability of this critical lifeline to helping America’s seniors get and stay healthy,” said a statement from Matt Eyles, AHIP’s president and CEO.
Groups like the Better Medicare Alliance have also urged Congress to “ensure additional benefits are structured in a way that fully reflect the cost of adding dental, vision, and hearing to Medicare in the benchmark calculation.”
While plans would get fewer rebate dollars if benchmarks weren’t adjusted, Fiedler disagreed with the magnitude of the estimated reductions in the AHIP study. “They would receive fewer rebate dollars, though much of the reduction in payments would be reductions in plans’ profit margins,” Fiedler said.
The most recent data from 2019 show MA plans had an average profit margin of 4.5%, the Medicare commission reported.
So the industry’s argument that a reduction in rebate dollars means fewer supplemental benefits isn’t “necessarily true because the rebate dollars currently being spent on dental, hearing and vision would be freed up for other uses,” Fiedler said.
Last month, the Department of Health and Human Services Office of Inspector General called for greater oversight of 20 MA plans that received a disproportionate share of $9.2 billion in enhanced payments in 2016 that were based on potentially suspect patient diagnoses. And in 2020, the OIG found $2.6 billion in payments to 438 MA plans in 2017 stemmed from patient diagnoses that were unrelated to any other clinical services.