Projected Changes in Medicare Advantage Could Affect Payments Largely

A new study finds that projected and planned-for modifications to Medicare Advantage (MA) by CMS could lead to major changes in payments based on geographic locations.

Understanding Risk Adjustment

It is essential to review the concept of “risk adjustment.” Every enrollee in CMS has a projected healthcare cost and on the basis of this projection, CMS adjusts its payments to plans for each enrollee. The same goes for Medicare enrollees—a risk score that projects the expected healthcare cost is calculated for them. If the expected cost is high, then the risk score is high, and in turn, the government pays higher in Medicare plans.

In a new new study, Avalere Health researchers proposed changes to the risk adjustment model. These changes will address underpayments for certain Medicare beneficiaries who are low-income. Better known as “dual eligible,” meaning beneficiaries who qualify for both Medicare and Medicaid benefits, they tend to have higher healthcare costs than other enrollees.

Every state covers dual eligible beneficiaries differently, which means based on the location the payments for the plans can either be too high or dramatically low. The experts at Avalere Health point out that the reduced payments could lead to reduced benefits for many beneficiaries.

Scope of the Study

The researchers used the data published by CMS on October 25, 2015 for the study. Additionally, they used the calculation data for the Medicare Advantage county rate book for 2016 and the 100% denominator file from the CMS sources. They then used the distribution numbers of Medicare and Medicaid eligible beneficiaries by county and type for the year 2014 to estimate the risk factors for each county under the new model proposed by CMS.

Every county’s 5-year average risk score was calculated from 2009 to 2013 to obtain the risk score for 6 categories: aged non-dual, aged full-dual, aged partial-dual, disabled non-dual, disabled full-dual, and disabled partial-dual.

They also used the predictive ratio estimates from CMS to develop the new risk scores. Putting all the data together, the researchers adjusted the payment rates with the new risk scores. They compared these new rates with the old risk scores to define the anticipated changes in each county benchmark.

How the Study Helps

The adjusted payment for the MA plans could improve the adequacy of payments to plans for the higher costs associated with the dual eligible beneficiaries. It would also accordingly increases risk scores for some, and reduce for the others.

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

Ultimately, this study focuses on the need to account for regional variations in the cost of healthcare.