Medicare Managers Start to Change Medicare Plan Risk Math

A 2022 Medicare card (Credit: CMS)

Federal officials have started phasing in risk-adjustment machinery changes that could eventually revamp the Medicare Advantage plan game board.

The Centers for Medicare and Medicaid Services (CMS) — the arm of the U.S. Department of Health and Human Services that oversees the Medicare Advantage program — outlined the changes Monday, in a small part of the Medicare Advantage program advance notice for 2022.

The changes could eventually lead to lower premiums and out-of-pocket costs for Medicare Advantage plans that enroll a higher percentage of people with severe kidney disease, mental health problems, and problems with use of drugs or alcohol.

The changes could lead to higher premiums, and higher out-of-pocket costs, for enrollees in plans that tend to attract people with healthy kidneys, and few problems with drug or alcohol use.

Resources

  • A link to the 2022 Medicare Advantage advance notices folder is available here.
  • An article about the final Medicare Advantage rate announcement for 2021 is available here.

CMS usually issues the Medicare Advantage program advance notice in January or February. It put out a portion of the notice package early to implement a provision in the 21st Century Cures Act that calls for changes in the Medicare Advantage risk-adjustment program.

Plan issuers are supposed to charge the same rates for sick people and healthy people.

The risk-adjustment program is supposed to provide extra subsidies for plans that end up with more than their fair share of sicker enrollees.

Critics have argued that plans tend to try to boost risk-adjustment subsidy eligibility by making enrollees look sicker than they are, by using intensive health screenings to identify and record chronic health problems that might otherwise have gone unnoticed.

Insurers say they’re simply trying to do a good job of identifying and managing enrollees’ health risk.

In addition to giving more weight to certain kinds of health problems, such as mental illness, CMS says it’s shifting toward relying entirely on patient encounter data in patient risk scoring, and ending the practice of supplementing the patient encounter data with diagnoses from hospital inpatient records.

Medicare Advantage Basics

The Medicare Advantage program gives private insurers a chance to offer people eligible for Medicare plans that look, to the enrollees, like an alternative to “Original Medicare.”

About 23 million of the 62 million people who are eligible for Medicare have Medicare Advantage plan coverage, according to the CMS Medicare enrollment dashboard.

One reason for Medicare Advantage risk management program changes is that, traditionally, the Medicare Advantage program was backed by Republicans and some moderate Democrats. Many Democrats and public health advocates out in the community have expressed concern that the Medicare Advantage program may drive up overall Medicare program costs, and that it may help relatively healthy, high-income people at the expense of sicker, lower-income people.

America’s Health Insurance Plans and the Better Medicare Alliance have argued that Medicare Advantage plans tend to be a better deal than Original Medicare for the enrollees, and that the plans tend to fill in gaps in Original Medicare coverage by providing benefits, such as hearing aid benefits, that every American should have.

Health care policymakers in Congress, at CMS, and in outside groups see changing risk management programs as a way to make the Medicare Advantage program more efficient, and more fair to sicker Medicare enrollees.

What This Means for Agents

One lesson from other U.S. government risk management programs is that the government  often has trouble implementing new health insurance risk management programs as described on paper.

That means that any health insurer that seems to be depending heavily on the idea that CMS will implement a risk management program as announced may be in an uncertain position. Program implementation problems could lead to some insurers making drastic changes in their plan menus, being acquired, or shutting down.

Any serious turmoil in the Medicare Advantage program could be a headache for insurers, because many see it as an island of insurance calm in a world where low interest rates are slamming life insurance, disability insurance and long-term care insurance, and where both low interest rates and investment market turmoil are attacking annuities.

GoHealth, a broker, has estimated that the lifetime value, for it, of an approved Medicare Advantage coverage application is $879.

Another lesson is that risk management program changes that do take effect may tend to favor Blue Cross and Blue Shield plans and other old-line, unglamorous plans, over newer, scrappier plans that use innovative ads and wellness-oriented benefits designs that tend to appeal to younger, healthier Medicare plan prospects.

If the new shifts do lead to noticeable changes in the enrollees’ share of Medicare Advantage plan premiums, that could help Medicare supplement insurance policy sales, by pushing hundreds of thousands of Medicare Advantage plan enrollees to look for information about whether their coverage is still a good deal. Some of those enrollees may ask agents for advice.

— Read Medigap Plan G Sales Rise 39%: Mark Farrah Associateson ThinkAdvisor.

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