As discussed in a recent CMA Alert “Insurance Industry Response to Proposed Medicare Advantage Payment for 2024” (Feb. 16, 2023), the Centers for Medicare & Medicaid Services (CMS) recently released proposed Medicare Advantage (MA) payment rates for 2024 (2024 Advance Notice, comment deadline extended from March 3rd to March 6th), to be finalized in early April.
CMS has proposed to provide MA plans with an increase in payment – an additional 1.03% – but apparently not as much as the insurance industry would like.
The industry continues to claim this is a “cut” and is aggressively lobbying the public and policymakers to make sure MA money keeps flowing in at the same rate. In an extensive advertising campaign, the industry is characterizing CMS’ proposal as “unprecedented new cuts” and “massive proposed cuts” and are trying to scare MA enrollees with the threat of higher premiums and less coverage. As we noted in our recent CMA Alert, policymakers, the public, and in particular, CMS, should not be swayed by such fabricated statements. Reining in MA overpayments is good public policy, and should be supported.
“MediScare Ads” Falsely Claim Medicare “Cuts”
In our CMA Alert referenced above, we highlighted some of the insurance industry’s misleading ads, and the culprits behind them, including the industry-funded Coalition for Medicare Choices and Better Medicare Alliance. We also discussed how the industry is falsely framing these MA payment adjustments as Medicare “cuts.”
CMS and the Department of Health and Human Services (HHS) are appropriately fighting back against this misinformation. For example, on February 17, 2023, HHS issued a document titled “Fact v. Fiction: Biden-Harris Administration is Strengthening Medicare; Private Industry Must Share Obligation to Deliver Quality Health Care for America’s Seniors” wherein they challenge insurance industry falsehoods, including the following statement:
FACT: The Biden-Harris Administration is NOT reducing payments to Medicare Advantage. The Administration proposed a 1% increase in payments to Medicare Advantage for 2024 and finalized an 8.5% increase in payments to Medicare Advantage for 2023 – resulting in increased payments to insurance companies offering Medicare Advantage by nearly 10% over the last payment notice and the current proposed payment notice.
HHS Secretary Becerra has also spoken out on his own. As noted by Inside Health Policy in an article titled “Becerra Lashes Out At Industry For ‘Categorically False’ Claims CMS Will Cut MA” by Michelle M. Stein and Bridget Early (Feb. 17, 2023), “HHS Secretary Xavier Becerra called any claim that CMS is proposing to cut Medicare Advantage pay for 2024 ‘categorically false,’ as he hit back at those he dubbed ‘industry hacks and their allies’ and doubled down on CMS’ projection that the advance notice of MA pay rates would lead plans to see about a 1% pay bump for next year.” The article further quotes the Secretary, including from statements made in his Twitter account:
“Any claim that this Administration is cutting Medicare is categorically false. Leave it to deep-pocketed insurance companies and industry front groups to characterize this year’s increase in Medicare Advantage payments as a cut. Disinformation being pushed out by high-paid industry hacks and their allies hurt Medicare beneficiaries and the Medicare Trust Fund.”
Such industry claims have been debunked by independent fact-checkers. For example, Kaiser Health News (KHN) & PolitiFact HealthCheck issued an article titled “Proposed Medicare Advantage Changes Cannot Accurately Be Called ‘Cuts,’ Experts Say” (Feb. 22, 2023) which rates as “False” the claim that the Administration is “proposing to cut Medicare Advantage.”
In addition, more journalists seem to be highlighting the insurance industry’s misleading tactics. For example, a Huffington Post article titled “Republicans Try An Elementary School Defense On Medicare” by Jonathan Cohn (Feb. 17, 2023) analogizes GOP efforts to claim that the Biden Administration is “cutting Medicare” based on MA payment changes to “a slightly more sophisticated version of ‘I’m rubber, you’re glue; whatever you say bounces off me and sticks to you.’” Cohen notes that:
The GOP argument, which many conservative intellectuals embrace, is that any reduction in what the federal government sends to Medicare represents a “cut.” And so potentially reducing payments to Medicare Advantage or, say, using government negotiating power to reduce what Medicare pays drug companies, is fundamentally the same as raising the eligibility age (as the Republican Study Committee floated) or requiring that the program obtain new congressional authorization every five years (as Scott suggested).
But there’s a difference in the two approaches. What the Democrats are proposing represents an effort to manage the program differently, not change its fundamental commitment to seniors and people with disabilities. “I don’t think these are equivalent changes at all,” [Richard] Kronick [an economist at the University of California, San Diego] said.
Similarly, a Roll Call article titled “Insurers, Republicans square off with Biden on Medicare ‘cuts’” by Jesse Hellmann (Feb. 22, 2023) states that “[t]he insurance industry and Republicans are using the debt ceiling fight and President Biden’s vows not to cut Medicare to fend off changes to private Medicare Advantage plans, which are popular among the public but have faced criticism about their costs to the government.”
Hellmann notes that “organizations representing Medicare Advantage plans are running ads accusing the White House of cutting seniors’ benefits — a tactic the industry has used before to avoid changes to the program.” The article quantifies some of the industry’s recent expenses on ads; for example, “Better Medicare Alliance has spent $10.5 million on television ads in 2023, more than twice the next highest spending advertiser in the country”; “Better Medicare Alliance has also spent $90,000 on Facebook ads since Jan. 15”; and “Coalition for Medicare Choices, which is run by America’s Health Insurance Plans (AHIP), has spent nearly $40,000 on Facebook ads since that date” [emphasis added].
Hellman states that “those attacks are disingenuous, experts and advocates say, pointing to long-standing recommendations from government watchdogs that Congress and CMS rein in overpayments to Advantage plans, which have enjoyed increased enrollment and profits over the past decade.” She then quotes the Center:
“Implying that what they perceive to be cuts to Medicare Advantage payments runs afoul of President Biden’s promise or pledge not to cut Medicare … that’s disingenuous,” said David Lipschutz, associate director of Center for Medicare Advocacy, a nonprofit that supports comprehensive Medicare coverage. “It’s conflating a stand against indiscriminate budget cuts to the Medicare program with a regulator trying to more accurately pay one of its contractors.”
A recent Axios article titled “The political battle around Medicare Advantage” by Maya Goldman and Victoria Knight (Feb. 23, 2023) outlines the potential impact of such misinformation on public perception: “Between the lines: In the GOP counteroffensive, it all comes down to whether lower payment increases for Medicare Advantage are really the same thing as a cut — and whether the public will believe they are, regardless of what the experts say.”
An MSNBC Maddow Blog post titled “Why a new round of attack ads about Medicare ‘cuts’ are on the air” by Steve Benen (Feb, 24, 2023) summarizes the issue as follows: “the Biden administration’s Department of Health and Human Services is recalibrating its Medicare payments and trying to rein in overpayments, as insurers claim that the changes represent undue cuts.” Due to the proclamations of some members of Congress, along with insurance industry ads, Benen notes that “the public is hearing yet another round of claims about Medicare ‘cuts’ that aren’t actually cuts” [emphasis added].
Despite Industry Efforts to Induce Panic, Payment Adjustments Unlikely to Have Significant Impact on Benefits
As discussed in our CMA Alert reviewing some of these misleading ads, the insurance industry is characterizing CMS’ proposed payment rate as “unprecedented new cuts” and “massive proposed cuts” and are trying to scare MA enrollees with the threat of higher premiums and less coverage. Such sound and fury, though, likely signifies nothing.
The insurance ads fail to mention how much discretion plan sponsors have themselves in setting the benefits, premiums and cost-sharing structures of the plans they offer. Every year MA plans can change their premiums, cost-sharing (including out-of-pocket limits), coverage and coverage rules (including prior authorization requirements), type and scope of extra benefits covered, provider networks, drug formularies, etc. These are business decisions that insurance plan sponsors make – not mandates from the Medicare program.
In the Huffington Postarticle cited above, Jonathan Cohen quotes economist Richard Kronick from U.C. San Diego: “‘There’s not a lot of evidence to suggest that lower payments to MA will necessarily result in lower benefits to beneficiaries or to higher premiums’”.
Similarly, the KHN/Politifact Fact Check cited above quotes Matthew Fiedler, a senior fellow with the University of Southern California-Brookings Schaeffer Initiative for Health Policy: “‘My read of the evidence is that reductions in payments to Medicare Advantage plans are largely borne by the plans themselves, either through lower profits or cost reductions’”
A recent publication by the Kaiser Family Foundation titled “Is the Biden Administration Proposing Cuts to Medicare Advantage?” by Jeannie Fuglesten Biniek (Feb. 17, 2023) notes that “[t]he proposed payment changes for 2024, taken together, are unlikely to have a meaningful impact on the trajectory of Medicare Advantage spending, which CBO estimates will exceed $7 trillion (cumulative) through the decade that ends in 2032.” The paper further explains:
Some in the industry say the payment changes will lead to premium increases or cuts in benefits for Medicare beneficiaries, though there is no clear evidence to suggest that. Plans use payments from the federal government in excess of the cost of providing Medicare benefits to provide extra benefits or lower premiums to beneficiaries. In theory, lower payments from the federal government could reduce the surplus available for extra benefits. However, plans also compete aggressively for enrollees with zero premiums and those extra benefits.
During the debate over the Affordable Care Act, when Congress made significant reductions in Medicare Advantage payments, there were similar warnings that plans would respond by pulling out of the market and dropping extra benefits, when in fact, the opposite happened. The Medicare Advantage market has proven to be robust and relatively profitable. Plans may very well continue to offer extra benefits, and zero-premium offerings, to attract and retain enrollees, and grow market share. Medicare Advantage plans have responded to payment changes in the past by reducing their profits or lowering administrative costs. And plans have more money than ever to pay for extra benefits. Since 2018, the portion of Medicare Advantage payments that is used to fund extra benefits, called rebates, has doubled from $1,140 per enrollee in 2018 to $2,352 per enrollee in 2023 [emphasis added].
In short, the Kaiser report concludes that “current efforts to improve the accuracy of payments made by the federal government, and improve program integrity, are unlikely to have a major impact on the program, the insurance industry or beneficiaries, given relatively generous payments to plans and the robustness of the Medicare Advantage market” [emphasis added].
| Fact-Checking Industry Ads The Coalition for Medicare Choices – run by AHIP, along with industry-funded Better Medicare Alliance, have recently run ads in various media trying to MediScare beneficiaries into preventing CMS from reining in MA overpayments. Here we highlight two online ads found on the Washington Post website (accessed 2/24/23) paid for by the Coalition for Medicare Choices. Ad #1 states: “Medicare Advantage saves taxpayers billions every year by delivering basic benefits at 85% of the cost of original Medicare.” Verdict: FALSE. FACT: According to the Medicare Payment Advisory Commission (MedPAC), “private plans in the aggregate have never produced savings for Medicare” [emphasis added]; see the summary of their March 2022 report, which also highlighted that while nearly all MA plan sponsor bids are below the cost of traditional Medicare, “[t]hese efficiencies are shared exclusively by the companies sponsoring MA plans and MA enrollees in the form of extra benefits. The taxpayers and Medicare beneficiaries who fund the MA program do not realize any savings from MA plan efficiencies” [emphasis added]. FACT: Part of the promise of allowing private plans to participate in Medicare was that they could deliver better care, more efficiently and at a lower cost. These promises have not been met. According to the Urban Institute (2022) “although MA was also supposed to generate Medicare program savings, it never has.” FACT: Not only has MA never produced savings for Medicare, MA costs Medicare more: according to the Kaiser Family Foundation (2023) “Medicare pays more to private Medicare Advantage plans for enrollees than their costs would be in traditional Medicare, on average, and these higher payments have contributed to growth in spending on Medicare Advantage and overall Medicare spending.” This includes higher Part B premiums paid by all Medicare beneficiaries as a result of MA overpayments (see, e.g., Bloomberg Law article, 10/18/22). FACT: Not only does MA cost more now, this cost will increase in the future: elsewhere in the March 2022 report referenced above, MedPAC concludes that “as MA enrollment continues to grow, it will further worsen Medicare’s fiscal sustainability. It is imperative that the Congress and the Secretary make policy improvements” [emphasis added]. According to a January 2023 Journal of the American Medical Association (JAMA) article by former CMS Administrator Dr. Don Berwick, “MA will cost Medicare over $600 billion more in the next 8 years than would have been the case if the same enrollees had remained in traditional Medicare.” Ad #2 states: “Medicare Advantage has strong bipartisan support because it delivers better value for seniors, people with disabilities, and taxpayers.” Verdict: FALSE. FACT: Lack of Value for Taxpayers – see above. FACT: If “better” applies to “beneficiary experience, affordability, utilization, and quality” as analyzed by a Kaiser Family Foundation 2022 report that examined studies published since 2016, the results are actually quite mixed: “We found few differences between [MA] and traditional Medicare that are supported by strong evidence or have been replicated across multiple studies.” And if “people with disabilities” includes people with functional impairments, MA plans might not offer the best care. The same Kaiser report noted that “rates of switching from Medicare Advantage to traditional Medicare were relatively higher among beneficiaries who are dually eligible for Medicare and Medicaid, beneficiaries of color, beneficiaries in rural areas, and following the onset of a functional impairment. Switching rates may be a proxy for dissatisfaction with current coverage arrangements.” FACT: If “value” means out-of-pocket costs, even with a mandated Maximum Out-of-Pocket (MOOP) that all MA plans must provide, people in MA plans can pay more for care than those in traditional Medicare – see, e.g., this Kaiser Family Foundation report (2022) which found that about half of all MA enrollees would incur higher costs than beneficiaries in traditional Medicare for a 7-day hospital stay; also see this Kaiser report (2021) finding that rates of cost-related problems are higher among MA enrollees than those in traditional Medicare with supplemental coverage and “[a]mong Black beneficiaries specifically, a larger share of those in Medicare Advantage reported cost-related problems than those in traditional Medicare (32% vs. 24%).” |
Why is the Insurance Industry Pushing Back So Vigorously? Profits.
In a CMA Alert from March 2022, we highlighted a blog post by Georgetown University, McCourt School of Public Policy, Center on Health Insurance Reforms (CHIR) that analyzed how public programs are driving insurance profit. The CHIR post concludes:
Although the health insurance industry has generally opposed government coverage programs such as the public option, they appear to be thriving under government-run programs like Medicare and Medicaid. These two programs were the biggest source of revenue growth for insurers in 2021. As the U.S. economy navigates its way out of the pandemic with uneven results, the profitability of the health insurance industry stands out, thanks in large part to the largesse of federal and state taxpayers.
More recently, the Kaiser Family Foundation published a report titled “Health Insurer Financial Performance in 2021” by Jared Ortaliza, Krutika Amin, Cynthia Cox, Jeannie Fuglesten Biniek, Tricia Neuman, and Robin Rudowitz and issued an accompanying press release titled “Medicare Advantage Insurers Report Much Higher Gross Margins Per Enrollee Than Insurers in Other Markets” (Feb. 28, 2023). The report found that:
by the end of 2021, gross margins per enrollee had returned to pre-pandemic levels in the Medicare Advantage market, while gross margins in the individual and group markets were lower than pre-pandemic levels and Medicaid margins were higher than pre-pandemic levels. Medicare Advantage plans have far higher per person gross margins—more than double those seen in other markets in 2021.
Noting that “[w]hile gross margins are not equivalent to profitability in absolute terms, changes in gross margins can be indicative of changes in profitability (assuming administrative costs and tax liability are similar)” the report continues:
Across all markets, 2021 gross margins were by far the highest for Medicare Advantage plans. Medicare Advantage plans have both higher average costs and higher premiums (largely paid by the federal government), because Medicare covers an older, sicker population. So, while Medicare Advantage insurers spend a similar share of their premiums on benefits as other insurers in other markets, the gross margins—which include profits and administrative costs—of Medicare Advantage plans tend to be higher.
Potentially spurred by the prospect of strong financial returns, the Medicare Advantage market has grown substantially in the last decade, with more than 50% of eligible beneficiaries expected to enroll in a Medicare Advantage plan in 2023. Insurers that fall short of required loss ratio requirements for multiple years face penalties, including the possibility of being terminated. To avoid such a risk, some Medicare Advantage insurers with loss ratios below 85% may take this opportunity to offer new or more generous extra benefits, such as over-the-counter allowances, meals following hospital stays, or transportation, in addition to gym memberships, dental, vision and hearing benefits that are offered nearly universally to help retain and attract new enrollees [emphasis added].
Given such taxpayer largesse paid to private insurance companies, it is no wonder that Humana – the second largest Medicare Advantage insurer with 18% of all MA enrollees (per this August 2022 Kaiser report) – is exiting the employer group health market. In a press release titled “Humana to Exit Employer Group Commercial Medical Products Business” (Feb. 23, 2023) Humana’s CEO states that after “a strategic review […] ‘[t]his decision enables Humana to focus resources on our greatest opportunities for growth […] It is in line with the company’s strategy to focus our health plan offerings primarily on Government-funded programs (Medicare, Medicaid and Military) and Specialty businesses […]’”
Conclusion
Although there is far more to do in order to rein in MA overpayments and provide adequate consumer protections for MA enrollees, we agree with the Administration’s assertion in their Fact Sheet referenced above that their payment proposals, along with proposed policies (such as the Part C & D rule awaiting finalization, discussed in this CMA Alert) and the prescription drug changes pursuant to the Inflation Reduction Act “[t]aken together […] will make the Medicare program stronger.”
When CMS released its final Medicare Advantage audit rule and proposed 2024 payment rule, the Center for Medicare Advocacy issued a statement praising CMS for both acknowledging and taking some action about MA overpayments, but we noted that it is not enough to rein in and reverse such overpayments.
Given the insurance industry’s pushback against relatively minor payment changes, and their efforts to MediScare beneficiaries into doing their bidding, CMS is likely under immense pressure to back off of their proposal to more accurately pay MA plans. We urge CMS to hold the line. Thankfully, in a welcome development discussed in this recent CMA Alert, a growing chorus of policymakers agree. On February 16, 2023, Representatives Pramila Jayapal, Rosa DeLauro, and Jan Schakowsky led a letter of 70 members of the U.S. House of Representatives calling on CMS to implement reforms to Medicare Advantage, including stopping MA overpayments. It is long past time for Congress and the Medicare program to act accordingly.
March 2, 2023 – D. Lipschutz