Recent and expected policy decisions are projected to produce a rapid expansion in MA enrollment in the coming years.
Jan. 3—Proposed policy changes that were recently released for Medicare Advantage (MA) plans—coupled with expected rate increases—should boost those insurers, industry analysts say.
The Centers for Medicare & Medicaid Services (CMS) recently released the first of two parts of the 2019 Advance Notice of Methodological Changes for Medicare Advantage Capitation Rates, which proposes updates to the Part C risk adjustment model and to the use of encounter data.
The MA advance notice is being published in two parts this year due to requirements in the 21st Century Cures Act, which mandated certain changes to the risk adjustment model and a 60-day comment period for those changes, a CMS fact sheet stated. Proposed changes to the CMS-HCC Risk Adjustment model, which is used to pay for services for aged and disabled MA enrollees, include an evaluation of incorporating mental health, substance use disorder, and chronic kidney disease conditions. The changes also would make adjustments to take into account the number of conditions that an individual beneficiary may have.
“We view the [the proposed changes] as a likely positive precursor to the actual rate change and a positive catalyst,” Ana Gupte, PhD, a managing director for Leerink Partners, wrote in an investor’s note. “The notice offers a change in the risk adjustment methodology that is more industry friendly than the status quo and this combined with a 4+ percent underlying cost trend expectation should offer a positive advance rate announcement in [February] and final [notice] in April.”
Enrollment also is expected to benefit.
“The implementation of the 21st Century Cures provisions is a positive for MA plan sponsors as it will likely increase payments for more medically complex patients which, in turn, encourages greater penetration of the FFS [fee-for-service] population,” wrote Emily Evans, a managing director for Hedgeye Potomac Research, an investment research firm. “It remains to be seen what Part Two of the Advance Notice has to say about other payment factors like FFS normalization and changes to star ratings but we don’t expect anything too negative.”
The CMS-HCC risk adjustment change was important, said Andrew Kadar, managing director in the healthcare services practice of L.E.K. Consulting, because it would incorporate additional diagnosis codes over time in an effort to more accurately assess each MA enrollee’s health status and pay health plans accordingly.
Adding the new diagnosis codes “would likely benefit health plans with relevant higher-acuity members and potentially reduce reimbursement for health plans with lower-acuity members,” Kadar said.
MA enrollment has grown from 5.3 million in 2004 to 19 million—or one-third of Medicare enrollees—in 2017, according to a Kaiser Family Foundation analysis. That growth came amid findings, such as in a 2015 poll, that MA enrollees are more satisfied with their care compared with those in traditional Medicare.
Using Encounter Data
CMS proposed changes that include calibrating the risk model with more recent data, selecting diagnoses with the same method used for encounter data, and supplementing the encounter data used to determine payment with inpatient data from the historical risk adjustment data-collection system known as the Risk Adjustment Processing System (RAPS).
CMS calculated risk scores using 25 percent encounter data and 75 percent RAPS in 2017, with the ratio shifting to 15 percent encounter data and 85 percent RAPS in 2018. For 2019, CMS has proposed to calculate risk scores by adding 25 percent of the risk score calculated using diagnoses from encounter data and FFS diagnoses to 75 percent of the score calculated with diagnoses from RAPS and FFS diagnoses. CMS also proposed phasing in the new risk adjustment model by calculating the encounter data-based risk scores (EDS) exclusively with the new risk adjustment model, while maintaining use of the 2018 model for calculating risk scores with RAPS data.
“CMS will use a 25/75 encounter data to RAPS score model in 2019 which is far more benign than the previous version from the Obama administration,” Gupte wrote. “This is consistent with the concerns we heard articulated by top industry health actuaries at the June [America’s Health Insurance Plans] industry lobby conference.”
Kadar expected the proposed changes to the risk adjustment model and the shift from RAPS-based to EDS-based data submission to provide “a slight headwind” to average MA payment.
However, those changes “are not expected to outweigh the overall 4.29 percent baseline FFS rate increase that CMS proposed in November,” he said. “If the baseline rate stays close to 4.29 percent in the Final Call Letter to be released on April 2, 2018, then it will likely represent a rate increase that is more positive than the 2018 Final Call Letter’s overall headline per capital growth rate of 2.7 percent and represent a positive development for MA plans.”
Gupte also saw as a tailwind for the industry the recently enacted tax reform legislation and an expected continuation of the 2017 moratorium on the health insurer tax. Generally, “we expect that the Republican administration will drive tax reform as part of an imperative to reaccelerate what is likely irreversible privatization of Medicare, after the slowdown as part of the budget cuts in the era of ObamaCare,” Gupte wrote.
The Affordable Care Act required MA cuts of more than 10 percent, phased in over seven years, and plans experienced increased regulation in recent years, according to researchers.
“We expect the Republican Administration has the incentive to catalyze the irreversible privatization of Medicare to MA in advance of the 2018 midterms and 2020 Presidential election,” Gupte wrote.
The expected addition of 10 million enrollees by the 2021 plan year would offer up to $5 billion in incremental operating profit for MA plans, she noted.
Evans voiced a similar sentiment.
“Speaker Paul Ryan’s goal of privatizing Medicare is unlikely to be accomplished legislatively in 2018 but expanded enrollment in MA plans is a great substitute,” Evans wrote. “Expect Congress and the Trump administration to do what they can to expand enrollment in 2018 and beyond.”
Expectations are increasing for an aggressive future expansion of MA enrollment. For instance, a L.E.K. Consulting projection model concluded that MA enrollment could grow to 38 million, or half of Medicare enrollees, by the end of 2025, and to as much as 70 percent of enrollees by 2030.
The payment policies for 2019, as proposed in both Part I and Part II of the Advance Notice, will be finalized in the annual Rate Announcement. Comments on the Part I proposals are due by March 2.
Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare