The federal government is proposing a 3.5 percent Medicare Advantage rate reduction, but all other factors considered, how much could the cuts translate into?
Industry analysts are projecting a range of implications from the Centers for Medicare & Medicaid Services' proposed MA changes, with the total rate reduction for some insurers potentially approaching or even exceeding the 6.5 percent many were expecting.
For the 2015 contract year, CMS is proposing a downward adjustment of 3.55 percent for the National Per Capita Medicare Advantage Growth Percentage. But with other variables in the proposed changes -- including a reduced per beneficiary monthly charge, a higher Star rating threshold and stricter risk assessments for in-home coding -- many are pegging it at at least more than 4 percent.
Deutsche Bank analysts are projecting a reduction in range of 4 to 5 percent, while Cowen analysts have estimated an 8.7 percent reduction and Bank of America analysts think it could be as high as 9.3 percent.
Last year, CMS initially proposed decreasing the growth rate percentage by 2.2 percent -- only to end up raising it by 3.3 percent. But depending on how all the other changes were accounted for, America's Health Insurance Plans argues that the Medicare Advantage program took what amounted to a 6.5 percent cut last year.
For 2015, Citi Research managed care analyst Carl McDonald is estimating rate reductions on the lower end of the spectrum, at between 4 and 5 percent.
"At first glance, it seems like Medicare rates should be down 7-8 percent next year," but there are some nuances that could cushion the blow, he wrote in a report
A variable known as fee-for-service normalization "could be a big positive" in 2015 by offsetting other downward adjustments. While the FFS normalization percentage has historically grown and eaten into MA upward adjustments, this year CMS is proposing decreasing it and effectively adding a 3 percent increase to normalization factor's place in MA rate calculation -- although CMS won't set finalize that factor, like the other rates and proposals, until April.
Another nuance, McDonald argued, is in CMS's proposed per beneficiary per month reduction from $34 to $32. Since CMS adjusts the total beneficiary cost for each plan based on a variety of member and geographic factors, plans meeting reduced benchmarks "would be able to adjust beneficiary costs by more than the $32 PMPM requirement," McDonald argued.
There is "a little more flexibility here to adjust benefits," although it's not clear that would be enough to "allow for the kind of benefit adjustments that plans would need to make in 2015 in order to remain profitable," McDonald concluded.
Other rule changes are bound to create more pressure. Starting next year, CMS is proposing to exclude from payment risk adjustment diagnosis data, such as those collected in an at-home visit, that's not confirmed by a subsequent clinical encounter, although the agency said it's still open to using at-home risk adjustment.
And then another big factor looms: provider networks.
With narrow networks getting more attention in the news, CMS regulators are considering requiring more than 30 days' notice to beneficiaries of provider changes or terminations and also considering limiting MA plans' ability to end provider contracts at the time of the year.