Proposed Changes to Medicare Advantage Would Change Payments Based on Geography

A proposal by the Centers for Medicare and Medicaid Services (CMS) calling for adjustments to the Medicare Advantage (MA) program could cause payment changes in certain geographic areas, a recent study found.

CMS currently uses a system called the risk adjustment model to determine the expected health care cost for Medicare enrollees. MA enrollees are evaluated on an individual basis and make adjustment plan payments accordingly.

High-risk and low-risk scores determine the expected health care costs, meaning the higher the risk score, the greater the Medicare payments the government makes to the plan.

The model is also used for regional variations in the cost of health care through geographic payment adjustments, also referred to as county benchmarks.

An analysis by Avalere Health looked to address underpayments received by low-income Medicare beneficiaries or dual eligibles, who are eligible for both Medicaid and Medicare, and who have higher health care costs than other individuals.

However, because there are differences between states on the coverage of dual eligibles, these new changes could increase the payments for certain plans and dramatically lower payments for other enrollees, which all depends on their location. The researchers stress that reduced payments could lead to reduced benefits for some beneficiaries.

“The proposed payment changes from CMS could introduce volatility into the Medicare Advantage market with unintended consequences on beneficiaries in some regions,” said Vice President of Avalere Tom Kornfield. “While payment accuracy is critical, CMS policy also needs to ensure stability for Medicare beneficiaries.”

CMS announced future changes to the risk adjustment model on October 28, 2015, which looked to improve payments to plans for higher cost enrollees with dual eligibles. These changes by CMS would increase risk scores for certain populations and reduce others.

If the plans cover beneficiaries in a certain region for less than the cost of the reginal benchmark, the extra payment becomes a rebate and can be used to enhance benefits for the enrollees. The proposed model changes could potentially affect each payment stream.

If the county benchmarks are reduced, it could result in fewer opportunities for additional benefits and rebate-funded benefits. Researchers estimated that 7 of the 10 counties with the largest MA enrollment would experience a decrease in payment rates due to the changes in the risk model.

Los Angeles, which is the largest county with the highest enrollment, would see a decrease of 3.4%. With these decreases, it could lead to significant reductions in additional benefits for beneficiaries in Los Angeles.

Orange County in California and Queens in New York could also see reductions. The study utilized data from CMS released in October in the MA country ratebook for 2016, data on the distribution of Medicare and Medicaid eligibles by county and eligibility in 2014, and the 100% denominator file from CMS.

Researchers then formulated the estimated risk factors using the proposed CMS model. First, Avalere took each county’s 5-year average risk score from 2009 to 2013.

By using the denominator file, they were able to obtain the risk score for 6 categories: aged non-dual, aged partial-dual, disabled non-dual, disabled full-dual, and disabled partial-dual. These scores were projected by estimating the amount of dual and non-dual eligibles that were not enrolled in a managed care plan as of July 2014.

Next Avalere took the predictive ratio estimates from CMS to get new risk scores. Lastly, in order to estimate the change in the county benchmark, researchers adjusted payment rates using the new risk scores and compared those rates with old risk scores.

“Because CMS does not plan to publish the 2017 county benchmarks until April 2016, Medicare Advantage plans may want to ask CMS for this information earlier in order to determine the potential impact of these changes and whether or not they would have an adverse impact on beneficiaries,” said Senior Vice President of Avalere, Caroline Pearson.