Here is a link to view the 148 page advance notice of the 2015 Call Letter for Medicare advantage and Medicare Part D:
The advance notice of the call letter gives Managed Care Organizations (MCO’s) and Part D providers the opportunity to begin their bid process for 2015. There is a comment period which closes on March 7th and the Final Call Letter will be issued on the first Monday in April (April 7th).
There has been a considerable amount of press on this Advance Notice due to the implications for reimbursements for 2015 Medicare advantage and also because of the political implications as the mid-term elections are this November and control of the House and Senate hang in the balance.
The Affordable Care Act included reductions to the Medicare advantage program that phased in over the past few years. CMS did introduce a demonstration project in the announcement of the 2012 CY MA rates and payment policies which introduced a 3 year program which provided bonuses to plans rated 3 and 3.5 stars. That demonstration project muted some of the impact of the rate cuts, however, that project ends on 12/31/14 and CMS had nothing included in the 2015 Advance notice to indicate it might continue.
There are a large number of factors which impact the funding of Medicare advantage for 2015. These factors include: MA growth percentage calculation, Quality Bonus Payments (including Qualifying County Bonus Payments or “Double Bonuses”), coding intensity adjustments, phase out of IME payments, phase in of new quartile system for county capitation rates or blended benchmark calculations and ACA premium tax amounts, to name a few.
Overall, it appears that there will be an approximate 3.65% reduction in funding for Medicare advantage, per capita, when taking into account all the changes indicated in the 2015 advance notice. This impact will not hit all plans equally, however, and will be weighted more heavily toward for profit plans which have a 3 or 3.5 star ratings. On average, here is how the cuts break out:
- MA Growth Percentage: -3.55%
- End of 3 year Demonstration: -2.0%
- Coding intensity adjustment: -0.25%
- IME Phase Out: -0.25% (this is difficult to estimate and varies greatly by county, however, CMS will be publishing the full FFS capitation rates including IME payments and the payment rate with the reduction for IME, so plans will see the impact by county)
- ACA Tax: -0.6%
- Changes to Risk Adjustment Factors: +3.0% (this number comes directly from Humana’s estimate)
I don’t think that these averages do a great job of telling the story for the independent agent. I believe that agent’s need to access their current books of business to determine the impact on their clients. This is based on a number of factors, so I will give some examples of how these numbers will impact different scenarios:
Example 1: Consider a for-profit company with a 2014 star rating of 3.5. The impact on this company would be 1.5% HIGHER than average because they will lose 3.5% funding due to the loss of the 3 year demonstration. Therefore, the impact would be a negative 5.15%.
Example 2: A not for profit company with a 2014 star rating of 4.0. The impact on this company would be 2.3% LOWER than average because they will not lose any funding due to the loss of the 3 year demonstration and the impact of the ACA tax will be on 1/2 of what a for profit faces. Therefore, the impact would be a negative 1.35%.
The difference between example 1 and example 2 is 3.8% more reimbursement for the non profit. This translates into an advantage of approximately $30/member/month that the non-profit would GAIN in 2015 versus 2014.
One potential major issue was brought up in the Humana announcement was a proposed change by CMS in the way that insurance companies capture their risk scores. Currently, many companies send out a representative to meet with the members to do a “risk assessment” to determine their risk scores. They check for chronic conditions like diabetes, COPD, etc. and risk adjust the member based on this data. They also send a copy of the risk assessment to the primary care doctor. CMS believes that this practice is done only to benefit the reimbursement rates of the insurance company and may do little or nothing to promote the member’s health. For this reason, CMS was looking for comments on ways to change or improve this system. For example, the risk assessment may need to be independently verified by the PCP in order for CMS to add to the member’s risk score. For plans that use the risk assessment merely for data collection and coding members, this is a serious problem, but CMS is opening the door for a dialogue about the process.
CMS will be giving plans less flexibility to decrease benefits or increase premiums in 2015 versus 2014. In 2014, a plan was able to make cumulative changes to their plans which impacted the member by NO MORE THAN $34.00 per month. For example, if a plan did not change any benefits, they could increase premium by $34/month. If they needed to increase premium (or reduce benefits) by more than $34/month, they were forced to terminate the membership, create a new plan and try and migrate the membership one at a time (as opposed to being able to “cross-walk” their membership). In 2015, CMS actually raised the bar here and now will only allow $32/month in cumulative changes before the plan would need to be terminated. This means less flexibility to hit the member’s premium and benefits and a higher likelihood of the plan needing to terminate.
Also, CMS commented on low performing plans. A low performing plan is one that obtains a Star Rating of less than 3.0 for three CONSECUTIVE years. CMS advised plans that have low performing plans that it may be in their best interests to non-renew these plans or, if possible, to crosswalk these members to 3 star (or better) rated plan in the same service area as they intend to terminate these contracts effective 12/31/2014. Plans at risk would include those that held a low performing plan identifier in ANY of the sets of star ratings from 2013, 2014 and 2015. Since the star ratings come out in the Fall of 2014 for the 2015 calendar year, the plans may have very short notice that a termination will occur.
Final assessment: I believe 2015 will be a very difficult year for plans with 3.5 stars or lower. In 2014, we saw about 600,000 members terminated from their plans. This represented about 5% of the overall Medicare advantage membership. With the loss of the demonstration money, the lower reimbursements, less flexibility in benefit reductions and CMS’ intention to terminate contracts of low performers, I see the number of plan terminations increasing to about 10% which based on current MA membership would mean approximately 1,600,000 terminations or 1,000,000 more than last year.
I believe that we will also see continued pressure on provider networks and we will probably see slightly higher premiums on average and some degradation in benefits. This will heavily slant toward plans with 3.5 stars or less.