Administration Retains Proposal to Curb Medicare Advantage Overpayments

The Centers for Medicare and Medicaid Services (CMS) announced yesterday its final Medicare Advantage payment rates and policies for 2017, affirming that it will implement a new policy to change how Medicare reimburses certain Medicare Advantage plans for employer or union retirees — though it will phase in the change over two years.

As we’ve explained, the CMS policy is sound because it will reduce excessive payments to employer plans that receive larger average reimbursements than Medicare Advantage plans overall, even though their per-enrollee costs are substantially lower on average.  In 2016, payments to these plans average 106 percent of the cost of covering comparable beneficiaries in traditional Medicare —higher than the overpayments that other Medicare Advantage plans receive — according to the Medicare Payment Advisory Commission (MedPAC).

At the same time, these plans tend to incur lower costs than other Medicare Advantage plans.  Their enrollees are healthier, as CMS has documented.  In addition, as MedPAC has found, employer plans don’t need to encourage individual Medicare beneficiaries to enroll.  By negotiating an agreement with an employer or union, they can get an entire pool of retirees to enroll at once.  Thus, they have less need to offer additional benefits that Medicare doesn’t cover and don’t need to spend as much on marketing.

The CMS policy on employer plans also is consistent with both a 2014 MedPAC recommendation and the approach that Medicare already uses to reimburse employer plans under its Part D drug benefit.

Unfortunately, CMS didn’t do more to address “upcoding” problems in the Medicare Advantage risk adjustment system that make enrollees appear sicker (and hence higher-cost) than they are and, as a result, inflate payments.  For example, as we’re previously recommended, CMS could have (1) increased its annual adjustment that helps account for upcoding, and (2) excluded health assessments that insurers use to “collect” diagnoses in order to make enrollees look like they’re in poorer health for purposes of risk adjustment, rather than to improve follow-up care or identify conditions needing treatment.  CMS didn’t include either change in its final payment announcement for 2017.