Medicare Advantage profit structure under scrutiny in new report
Authors said the major insurers are padding their bottom lines by disguising profits as costs.
Photo: Ceciie Arcurs/Getty Images
As enrollment in the Medicare Advantage program grows, so do concerns and uncertainly over the profits providers are reaping and whether "overpayment" is an issue.
A report from the Brookings Institution indicates the five major insurers – UnitedHealthcare, Humana, Aetna, Kaiser Permanente and Elevance Health (formerly Anthem) – are padding their bottom lines by disguising profits as costs.
The report points out that insurers are able to do this because profits accrued through related businesses are not regulated by medical loss ratio (MLR) requirements.
In certain cases, spending on related businesses can reach more than 70%, the report noted.
The top 5 companies have related businesses, including pharmacy benefit managers (PBMs), post-acute providers, hospitals and physician practices.
"In each case, the prices charged to the MA plan can have a material effect on where profits and costs appear," the report said. "This creates potential to move earnings outside the reach of regulations."
With payments to MA plans totaling $350 billion in 2021, the MA payment structure allows for several ways for plans to earn profits.
"The implication is that for the health plans serving most MA beneficiaries, related businesses offer an opportunity for pricing practices within the parent firm umbrella that can shield profits from the terms of MLR regulations," the report said. "The extent to which parent companies engage in such practices is yet unknown."
The authors added that the potential to engage in such practices puts smaller plans without related businesses at a competitive disadvantage.
WHY THIS MATTERS
The Centers for Medicare and Medicaid Services issued a final rule in April with policies meant to provide greater transparency for Medicare Advantage and Part D plans.
Lawmakers want CMS to maintain the stability of the program, pointing to growing enrollment numbers during the pandemic.
CMS released the rule on the day that the Office of Inspector General released an unflattering report on Medicare Advantage prior authorization denials, as compared to original Medicare.
THE LARGER TREND
Medicare Advantage plan payments are expected to get an 8.5% revenue increase for 2023. This is an increase over the 7.98% proposed in the February advance notice. The 2023 growth rate is set at 4.88% in the rate announcement released today by the Centers for Medicare and Medicaid Services
ON THE RECORD
"What is clear is that CMS guidance on transfer prices and monitoring of MLR reporting is quite limited," the report concluded. "This may change in the future as the 2022 payment regulations governing MA plans calls for renewed efforts to monitor reporting connected to MLR regulations."
