Skip to main content
off the charts

As Expected, No New Medicare Advantage Cuts

The Centers for Medicare and Medicaid Services (CMS) has announced the preliminary 2015 payment rates for private “Medicare Advantage” plans that serve some Medicare beneficiaries and, just as we expected, Friday’s announcement include no payment reductions beyond those already in law.

Also as expected, the health insurance industry’s trade association, America’s Health Insurance Plans (AHIP), still insisted that the CMS announcement included “new proposed cuts.”  AHIP wants CMS to keep Medicare Advantage payment rates “flat” in 2015.  But to do so would effectively mean repealing or scaling back most provisions of health reform that rein in excessive Medicare Advantage payments over time.  These provisions, however, are sound and should remain in full effect.

What did CMS actually announce?  The highlights include four areas where CMS is applying current law, reflecting the combined impact on Medicare Advantage payment rates of health reform and the continued slowdown in growth in Medicare costs.

  • Curbs on excessive payments.  The Administration continued to phase in payment reductions, as health reform requires, which curb some (but not all) of the excessive payments that Medicare Advantage plans receive.  Depending on the county in which a Medicare Advantage plan operates, some of these reductions have already been fully implemented, some will be fully implemented in 2015, and some won’t be in full effect until 2017.
  • Factors related to per-beneficiary costs.  As it does each February, the Administration disclosed the preliminary calculation of two key factors that help determine Medicare Advantage payments for the coming year, both of which are based on the estimated per-beneficiary cost of providing Medicare services in traditional Medicare.  With Medicare per-beneficiary spending continuing to grow slower than previously projected, CMS again revised downward its cost assumptions, which lowers these two factors and which, in turn, lowers 2015 payment rates.  (These factors have been used to calculate payment rates since well before health reform.)
  • Larger adjustment to compensate for “upcoding.”  As health reform requires, the Administration modestly increased a “coding intensity” adjustment to address the problem of upcoding, under which Medicare Advantage enrollees appear to be sicker than they actually are (and thus appear to have higher costs).  That’s important because the Medicare Advantage risk adjustment system increases or decreases payments to Medicare Advantage plans based on their enrollees’ relative health.  Upcoding thus distorts the system’s accuracy and results in higher-than-warranted payments to Medicare Advantage plans that enroll healthier-than-average beneficiaries.  The coding intensity adjustment attempts to compensate for this problem by producing a more accurate measure of enrollees’ actual health status for purposes of risk adjustment, which results in lower Medicare Advantage payments.  But this year’s adjustment was the minimum that the Affordable Care Act requires — CMS has the discretion to institute a larger adjustment — even though the Government Accountability Office found last year that the adjustment likely needs to be substantially larger to fully account for upcoding.
  • The planned end of a demonstration project related to quality bonuses.  CMS awards overall quality and performance ratings to Medicare Advantage plans — with ratings from one star (worst) to five stars (best) — based on numerous measures including the results of enrollee satisfaction surveys and access to care.  The Administration ended a demonstration program under which plans with a three-star quality rating could receive bonus payments, just as higher-rated four- or five-star plans are eligible for increased payments under health reform.  (The demonstration also enhanced the bonuses available to five-star plans.)  This effectively lowers payments to three- and five-star plans, relative to 2014.  But the Administration always intended to run demonstration project for only three years (2012-2014), so it is expiring as scheduled.