CMS Holds the Line Against Insurance Industry Pressure, but Plans Remain Significantly Overpaid.
As discussed in recent CMA Alerts (see, e.g., here and here), in late January this year the Centers for Medicare & Medicaid Services (CMS) issued proposed Medicare Advantage (MA) and Part D payment rates for 2025. CMS proposed an overall pay increase of 3.7% – an increase of $16 billion – which the insurance industry has characterized as a cut, and claimed was insufficient. This, of course, is in the face of overwhelming evidence of overpayments to MA plans (estimates of which range from $88 billion in 2024 (according to the Medicare Payment Advisory Commission, January 2024) to $140 billion annually (according to Physicians for a National Health Program, October 2023).
While exerting extra pressure on Medicare’s finances and driving up premiums for all beneficiaries (see, e.g., KFF, Jan. 2024), these overpayments have significantly enriched health insurance companies. As noted in a HEALTH Care un-covered post by Wendell Potter titled “BIG INSURANCE 2023: Revenues reached $1.39 trillion thanks to taxpayer-funded Medicaid and Medicare Advantage businesses” (April 2, 2024), the 7 big for-profit health insurers in the U.S. “have seen revenues increase by over 345% in the last decade.”
An article in Bloomberg Law titled “Health Insurer Shares Sink as Medicare Holds Firm Line on Rates” by John Tozzi (April 2, 2024) describes the dynamics surrounding the finalization of the MA rate notice:
Medicare Advantage has driven growth and profits in the health insurance industry for years. But Biden’s administration has tightened some payment policies and moved to claw back billions in past overpayments. The annual rate update is always a contested policy, with insurers vying for more favorable treatment, and sometimes arguing that seniors will suffer benefit cuts without it.
On Monday, April 1, 2024, CMS announced payment rates for Medicare Advantage (MA) and Part D plans for 2025, and, breaking with recent precedent, held firm and did not increase the payment rate from their initial proposal. In other words, CMS held the line and did not cave to industry pressure, for which they should be applauded. While CMS has additional tools at its disposal to rein in MA payment, including increasing the coding intensity adjustment above the statutory minimum, which it did not do, the rate notice is an important first step towards reining in excessive overpayments to MA plans. In recent years, CMS has also strengthened consumer protections for MA enrollees by, among other things, restricting plans’ excessive use of prior authorization and targeting marketing misconduct (see, e.g., this Center for Medicare Advocacy May 2023 report).
Industry Response
The insurance industry is not pleased with CMS’ rate announcement. According to a statement issued by industry association America’s Health Insurance Plans (AHIP) (April 1, 2024):
These policies will put even more pressure on the benefits and premiums of 33 million Medicare Advantage beneficiaries who will be renewing their coverage this fall. It is important to note that the Medicare Advantage and Part D programs are already undergoing a number of significant regulatory and legislative changes. Moreover, the cost of caring for Medicare Advantage beneficiaries is steadily rising (emphasis in original removed).
Our Translation: Because there are finally attempts to rein in our overpayments, our products will not be as profitable and our shareholders will be unhappy. At the same time, we are being held more accountable for our behavior, including rampant use of prior authorization and misleading marketing, and on top of that, because of the Inflation Reduction Act, we are being forced to make prescription drugs more affordable for our enrollees.
In a similar statement by industry group Better Medicare Alliance (April 1, 2024), which includes complaints about all the “new policies over a short period of time” that plans must comply with, makes a thinly-veiled reference to election-related implications:
Left unaddressed, CMS’ Final Rate Notice risks the stability of the affordable and dependable care more than 32 million Medicare Advantage beneficiaries rely on, especially those with lower incomes and from diverse communities, who may experience disruption to their benefits or premiums in the fall of 2024 when they choose their Medicare coverage.
Our Translation: Because we can no longer rely on the same level of significant overpayments, we are going to try to make our changes to MA plan benefits for 2025 (which are completely at our discretion) an election issue.
The Bloomberg Law article by John Tozzi referenced above makes a more direct connection to the upcoming election:
President Joe Biden’s administration held firm on proposed Medicare Advantage rates Monday, a break with recent practice that means health insurers are now facing lower payments than they’d anticipated for 2025. As a result, insurers may recalibrate the benefits they offer and the prices they charge for Medicare Advantage plans that cover 31.6 million seniors and people with disabilities. The 2025 plans will hit the market in October, just weeks before the presidential election.
Similarly, an article in Think Advisor titled “Medicare Moves Toward Election Season Clash With Insurers” by Allison Bell (April 2, 2024) notes:
Any dramatic changes in Medicare plan menus could become an election issue, because early general election voting will already be underway in 13 states when the annual enrollment period starts, and the Nov. 5 general election date will fall in the middle of the Medicare annual enrollment period.
In short, the insurance industry will try to shift the blame for their own business decisions that could lead to benefit changes during the upcoming election period.
Impact on Medicare Advantage Program
Let us be clear: this minor adjustment to Medicare Advantage payment is not a cut to Medicare despite how the insurance industry might frame it. MA plans will still be significantly overpaid, even after these adjustments take effect.
MA plans are required to cover all services under Parts A and B of Medicare (except for hospice) and are required to impose an out-of-pocket cap on the cost of covered services for plan enrollees. Within these confines, every year MA plans make business decisions about whether they will continue to offer plans, and, if so, what their coverage for the following year will be, including how they will spend their rebate dollars on things such as extra benefits that are often used to lure prospective enrollees. Changes that insurance companies make to their benefit packages are at their discretion.
Because of the way that plan sponsors have manipulated the risk-adjusted payment system and flawed quality bonus program, they have earned record profits from the Medicare program that are simply unsustainable for programmatic finances. Adjustments to MA payment and increased consumer protections are part of a long-overdue and necessary course correction.
Conclusion
Policymakers and the public should not lose sight of the motivations behind industry protestations. Journalist John Tozzi closes his Bloomberg article referenced above by exposing the real focus of insurance industry pressure to increase the MA payment rate between the proposed and final announcement: “Without a bigger increase in payments, Humana wouldn’t meet the high end of its goal to boost earnings by $6 to $10 a share in 2025, Chief Financial Officer Susan Diamond said at a conference in March.”
Despite recent attempts to rein in MA overpayments and improve consumer protections, CMS and Congress have a long way to go to adequately protect MA enrollees and Medicare’s finances from insurance industry misconduct. But CMS deserves credit for what it has done so far, including resisting industry pressure to increase MA payment in the final rate notice.
April 4, 2024 – D. Lipschutz