Dive Brief:
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Proposed Medicare Advantage rates for 2025 could have a steeper impact on health plans’ payment than the government expects, according to a new study funded by a payer lobbying group.
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The analysis — backed by the Better Medicare Alliance, which represents payers in the private Medicare program — found MA payment per month per beneficiary could drop by 1% next year if the CMS finalizes the changes. In comparison, the CMS expects payments to MA plans to drop 0.16% under its proposal.
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Study authors warned that when government reimbursement drops, MA benefits for seniors like supplemental benefits and lower premiums and cost-sharing also tend to be reduced. Health insurers have made similar arguments in recent earnings calls lobbying against the rate changes, which could reduce profitability of their MA businesses.
Dive Insight:
Insurers have been crying foul about the proposed rates since the CMS released them earlier this month. MA, in which the government contracts with private payers to provide Medicare coverage for seniors, can be twice as profitable for insurers than other types of plans.
However, the rate reduction, on top of other regulatory changes to the program, are expected to pressure payers’ profits in the popular program.
Watchdogs say curbing overpayments in MA is long overdue, pointing to insurer practices like upcoding, or exaggerating beneficiaries’ illnesses to garner higher reimbursement from the government.
Yet insurers are pushing back, arguing that the CMS has underestimated the effect of the proposed changes, especially when taken in tandem with the sharp uptick in healthcare utilization.
Starting in the second quarter last year, seniors began utilizing more medical care than insurers expected, especially outpatient care like hip and knee procedures.
That elevated utilization, which has shrunk how much in premiums insurers can keep as profit, has continued into this year.
The new study argues that some of the assumptions used by the CMS in its calculations don’t reflect that increase in utilization and how it’s driving payers’ spending. Regulators estimated a growth factor of 2.4% for 2025. That growth factor, a measure of how much costs are increasing, is a major metric in calculating the overall MA reimbursement rate.
But a growth rate of 4% to 6% is more realistic, according to the analysis performed by the Berkeley Research Group.
The BMA-backed study isn’t the first analysis finding a discrepancy between the CMS’ projections and its own modeling of the implication of MA rates.