CMS Forecasts Medicare Advantage Pay Rate Increase

Federal officials unexpectedly announced a projected 0.4% increase in the 2015 payment rate for Medicare Advantage health plans. A cut had been proposed in February.

The Centers for Medicare & Medicaid Services caught insurers off guard Monday by announcing that the average 2015 Medicare Advantage payment rate for insurers will increase 0.4 percent.

The net positive MA payment rate change from the current year to 2015 is at odds with the 5.9 percent payment rate cut insurers had been anticipating for weeks.

Medicare Advantage Program Standards Tightening

During Monday afternoon's conference call, Jonathan Blum, CMS's principal deputy administrator, defended the agency's accounting of the 2015 MA payment rate. "CMS has a very good track record," he said. "We've been pretty spot-on over the past four years on predicting the markets."

Blum said payment rates for specific MA health plans will vary depending on factors such as geography and bonus payments from the MA star ratings program for quality. He set a confident tone throughout the conference call, saying "we're very confident we will see a very strong program go forward for 2015."  

In a statement released Monday night, America's Health Plan of America President and CEO Karen Ignagni said the trade association remained concerned that its members risked MA payment cuts next year.

"The changes CMS included in the final rate notice will help mitigate the impact on seniors, but the Medicare Advantage program is still facing a reduction in payment rates next year on top of the 6 percent cut to payments in 2014. We remain concerned about the impact year-over-year cuts to Medicare Advantage would have on the high-quality, affordable coverage millions of seniors like and rely on today," Ignagni said.

"We are still reviewing the final rate announcement to assess the full impact on payments and we will continue to work with policymakers in both parties to strengthen this critically important part of Medicare," she said.

'Baby Boomer Adjustment Factor'
In February, CMS had predicted an MA payment rate cut of at least 1.9 percent.

On Monday, Blum said CMS had made several statistical and policy changes since February that altered the 2015 MA payment rate equation:

• Year-to-year cost reductions in the MA program from 2014 to 2015 have been revised upward, with insurers forecast to experience a 3.9 percent reduction in health plan costs. "That's a good news story for the Medicare program," Blum said.
• CMS is adjusting the MA program's risk model to reflect an unexpected positive spike in the health condition of new beneficiaries. With baby boomers entering MA health plans in better health than anticipated, Blum called this positive impact on the payment rate the "baby boomer adjustment factor."
• CMS is dropping plans to cut back reimbursement for physicians who visit patients in homes or group home settings.

Blum called the 2015 payment rate impact on MA insurers "significantly better" than the proposal CMS released in February.

'An Interesting Little Number'
Nicole Stone, director of Wolters Kluwer Law and Business' Health Reform Knowledge Center, said a combination of fear and jubilation likely played a role in CMS pegging the final 2015 MA payment rate at a 0.4 percent increase.

Calling the 0.4 percent figure "an interesting little number," Stone said CMS faced a possible backlash from beneficiaries if the agency had announced a payment rate cut to the MA program, which serves more than 15 million seniors. By holding the anticipated MA payment rate increase to below 1 percent, CMS also runs little risk of "breaking its budget."  

And announcing a modest increase to the MA payment rate adds to the healthcare reform momentum the Obama administration established last week, she said.  

The forecast of a 3.9 percent reduction of MA costs in 2015 coupled with last week's announcement that more than 7 million people had enrolled in health insurance plans through the new individual exchanges are both significant achievements, she said.

"The last week has essentially been a success story for healthcare reform," Stone said. "It's kind of a feel-good moment for the federal government."