AMARILLO, TX – The original impetus for allowing private insurers to provide Medicare benefits was to reduce costs while maintaining or improving quality of care.
However, studies have largely found that Medicare Advantage Plans (“MAPs”) cost the government and taxpayers more than traditional Medicare on a per beneficiary basis. In 2022, that additional cost was about four percent, down from a peak of 17 percent in 2009.
The government pays MAPs a set rate per person, per year (around $12,000 in 2019, not including Part D-related expenses) under a risk-based contract. This means that each MAP agrees to assume the full risk of providing all care for that inclusive amount. This is known as “capitation.”
Medicare Advantage (“MA”) payments are based on a system of benchmarks, bids, and quality incentives.
- Benchmarks – Plan benchmarks are the maximum amount the government will pay a MAP. Benchmarks are set in statute as a percentage of traditional Medicare spending in a given county, ranging from 115 percent to 95 percent. For counties with relatively low spending, benchmarks are set higher than average spending for traditional Medicare (e.g., 115 percent). For counties with relatively high spending, benchmarks are set lower than average traditional spending (e.g., 95 percent).
- Bids – Insurers bid every year to enroll Medicare beneficiaries in their MAPs. The bid is based on the insurer’s assessment of its costs to provide Part A and Part B services to the average beneficiary. According to MedPAC, 92 percent of bids in 2022 were below traditional Medicare spending and below the county benchmark.
- Rebates – If a MAP’s bid is below the local benchmark – as is the case for the majority of MAPs – the MAP keeps part of the difference between the bid and the benchmark. This amount is known as the “rebate” and is equivalent to a shared savings between the government and the MAP. MAPs are required to use the rebate to lower patient cost sharing, lower premiums, or provide coverage for beneficiaries not included in traditional Medicare. Rebate dollars can also be used to pay for administrative expenses and profits associated with providing additional benefits.
- Adjustments to Bid Amounts and Rebates – Rebates and bid amounts are adjusted for enrollees’ health status. This means that MAPs with sicker enrollees, who cost more to treat, receive higher rebates. In 2022, rebates used to provide additional benefits to enrollees were at an historic high of $164 per enrollee per month. If a MAP’s bid exceeds the benchmark, the MAP can charge a premium for coverage of Part A and Part B benefits, in addition to premiums for supplemental benefits and Part D coverage. MAPs that receive rebates can also charge premiums for supplemental benefits and Part D coverage.
- Risk Adjustments – Rebates and bid amounts are “risk adjusted” to account for enrollees’ health status. Without risk adjustments, MAPs would have an incentive to select the healthiest, lowest-cost beneficiaries and avoid enrolling the sickest, highest-cost beneficiaries. Critics have asserted that many MAPs have been systematically assessing enrollees as having more health conditions, and being sicker on average, than is usually the case. These inappropriate assessments raise total payments to MAPs. In response to this “upcoding” debate, Congress required CMS to adjust risk scores down 3.4 percent beginning in 2010 and 5.9 percent in 2018 and future years. CMS has the authority to increase the adjustment but has chosen not to do so. Some argue that a fundamental redesign of MA risk-adjustment methods is needed, with studies suggesting that enrollees are no sicker than those in traditional Medicare.
- Medical Loss Ratios – Since 2014, MA and Part D prescription drug plans have been required to have “medical loss ratios” no lower than 85 percent. This means that MAPs’ administrative expenses and profits, or margins, can be no higher than 15 percent of the total revenues that MAPs receive from the government (in the form of payments) and enrollees (in the form of premiums). MAPs that do not meet this requirement must remit payments to CMS. The minimum loss ratio requirement was intended to create incentives for plan sponsors to limit administrative costs and profits.
In late September 2022, CMS announced that the average MA premium is projected to fall almost eight percent in 2023. According to a Kaiser Family Foundation analysis, this decline follows a 10% reduction in average MA premiums from 2021 to 2022. Average premiums paid by MAP enrollees have been declining since 2015. The anticipated decline in MA premiums follows a CMS announcement that average monthly premiums for Medicare Part B and basic Part D prescription drug plans, are set to decline in 2023. Part B enrollees will pay $164.90 per month on average in 2023, down $5.20 from 2022, largely due to lower than anticipated spending on the Alzheimer drug Aduhelm.
Part D premiums are expected to dip about two percent to $31.50 in 2023, paired with Medicare prescription drug savings through the Inflation Reduction Act, which will limit monthly cost sharing for insulin products to $35 and reduce costs for adult vaccines, among other changes.
Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, PC, a law firm with a national health care practice based in Texas. He represents pharmacies, infusion companies, HME companies, manufacturers and other health care providers throughout the United States. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization and can be reached at (806) 345-6320 or firstname.lastname@example.org.
AAHOMECARE’S EDUCATIONAL WEBINAR
Six-Year Lookback Audits: How to Prepare and Respond
Presented by: Denise M. Leard, Esq., Brown & Fortunato & Jeffrey S. Baird, Esq., Brown & Fortunato
Tuesday, December 13, 2022
1:30-2:30 p.m. CENTRAL TIME
The Affordable Care Act includes the 60-day overpayment rule that requires DME suppliers to refund overpayments within 60 days of identification. What many suppliers are not aware of is that if an overpayment is identified, either internally or externally, suppliers are mandated by law to perform a six-year lookback audit. If suppliers do not comply with this rule, they are at risk for false claim penalties. This webinar will (i) discuss the 60-day overpayment rule and the six-year lookback obligation; (ii) discuss steps that suppliers can take to reduce the risk of being subjected to the 60-day overpayment rule; and (iii) set out the steps the supplier should take to successfully fulfill its obligations under the rule.