Healthcare costs will outpace Medicare Advantage payments in 2018, report says

Proposed rate changes to Medicare Advantage rates in 2018 would result in an estimated 2 percent reduction in MA insurer net revenues, which could mean cuts to beneficiary coverage and benefits, according to a Feb. 22 report by Oliver Wyman, sponsored by America's Health Insurance plans.

AHIP asked  Oliver Wyman to evaluate the effect of the Centers for Medicare and Medicaid Services proposed change to MA rates released in its advance notice of Feb. 1.

CMS's proposed rates would result in a 5 percent gap between the expected three percent growth in healthcare costs and the two percent reduction in MA payments, according to Oliver Wyman's report.

The reason for the projected 2 percent reduction in revenue is due in part to the reinstatement of the health insurer tax for 2018, which will take effect unless legislative action extends the current one-year moratorium or permanently repeals the tax, the report said.

The annual fee, or tax, was established in the Affordable Care Act. Plans will need to anticipate the HIT fee in their 2018 rate bids, Oliver Wyman said.

Also, CMS is proposing to update a technical adjustment it makes to calculate risk scores, which would reduce program funding by 1.9 percent.

Changes to employer group waiver plans payment policy would result in payment cuts of zero to .20 percent.

[Also: CMS pitches modest increase in 2018 Medicare Advantage rates]

Revenue cuts add up to a negative 1.85 to two percent, while CMS's plan would result in a .25 percent revenue gain, the report said.  

MA insurers are also eyeing the additional impact of CMS using encounter data in risk adjustment. CMS formerly used diagnostic codes for risk adjustment in a  risk adjustment processing system, or RAPS. In 2016, CMS began adding encounter data to calculate the final risk score for plan payments, which insurers said resulted in lower reimbursement.

Because of insurer concerns -- and a Government Accountability Office report on further operational activities needed to make a successful transition from RAPS to encounter data submission, or EDS -- the weighting or risk scores in 2018 remains at the 2017 level.

However, plans will continue to see a reduction in payment of 1 to 4 percent due to the 25 percent weight of EDS in risk adjustment.

Because of net revenue reductions for Medicare Advantage insurers, the 18.5 million seniors enrolled in the program could see cuts to their coverage and benefits next year if the planned payment changes take effect, according to AHIP.

Final payment rates are expected on April 3.

The reductions come at a time when Medicare costs are rising at nearly 3 percent, AHIP said, citing figures from CMS.

"Seniors should not face any further cuts to their coverage," AHIP President and CEO Marilyn Tavenner said. "Medicare Advantage works."

Twitter: @SusanJMorse