Benchmark Payment Rates for MA Plans To Increase by 1.25%

Benchmark payment rates for Medicare Advantage plans will increase by an average of 1.25% in 2016, CMS announced Monday, Modern Healthcare reports (Herman, Modern Healthcare, 4/6).

Background

MA payments reflect several factors, including payment rates based on Affordable Care Act-related costs, quality ratings and a plan's mix of sick and healthy patients. The payment rates are also based on Medicare's cost growth and spending growth of traditional fee-for-service Medicare (California Healthline, 2/23). A total of 16 million -- or about one third of -- Medicare beneficiaries are enrolled in MA plans (Sullivan, The Hill, 4/6).

The announcement of an increase comes after CMS in February proposed cutting base rates by 0.95% (Modern Healthcare, 4/6). About 300 lawmakers wrote letters to CMS opposing the proposed cuts. The industry spoke out against the cuts, as well (Owens, National Journal, 4/6).

Reason for Change

The shift is a result of an increase in expected MA spending growth, Reuters reports. New estimates put expected MA growth at 4.2%, up from 1.7% in in February. The updated estimates reflect additional spending in 2014 and 2015, as well as higher forecasted outlays in 2016 (Humer, Reuters, 4/6).

CMS Deputy Administrator Sean Cavanaugh said, "The changes are not changes in policy, but rather in the actuaries' re-estimate of growth" (The Hill, 4/6).

According to CMS, hospitalizations, rural health clinics and federally qualified health centers are behind the higher spending (Reuters, 4/6).

Overall, the MA insurers will likely see about a 3.25% increase in revenue, according to CMS. The increase will come as insurers deliver -- and subsequently bill for -- more intensive services (Wilde Mathews, Wall Street Journal, 4/6). 

Updated Risk-Adjustment Score Model Stays

Meanwhile, CMS also announced that it will use an updated model to calculate 2016 MA risk-adjustment score.  

MA enrollment has grown by more than 8% annually since 2010. As a result, CMS has adopted a more accurate risk-adjustment model, Cavanaugh said. Under the model, MA plans use a risk-coding model that incorporates several demographics and conditions to determine each beneficiary's risk score to predict future health care costs. That score is multiplied by a baseline to determine an insurer's reimbursement for a particular beneficiary. Insurers receive more for sicker beneficiaries.

Critics have said companies inflate their scores to attract higher Medicare payments. In turn, MA has combined old and new models to address codes and procedures that are prone to fraud. Meanwhile, health insurers have said parts of the calculations work against the sickest seniors (Modern Healthcare, 4/6).