Analysts Predict Lower Enrollment Growth Under CMS's Proposed Rate Cut for MA Plans

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By Mindy Yochelson  

Feb. 24 --The release of proposed 2015 Medicare Advantage rates elicited some gloomy predictions for program enrollment growth and benefit cuts.

“Simply put, the rates contained in the notice will force another round of benefit reductions, which should serve to slow growth rates below the 9 percent to 10 percent rates seen in the past two years,” Joshua R. Raskin, a managing director and senior analyst in the equity research department at Barclays Capital, said.

In its 45-day notice to plans Feb. 21, the Centers for Medicare& Medicaid Services said it expects base rates for MA to fall in 2015 by 1.9 percent, a weighted average that blends the national per capita MA growth percentage (negative 3.55 percent) and the national Medicare fee-for-service growth percentage (negative 1.65 percent) (see related article in the Regulatory News section).

Carl McDonald, a director at Citi Investment Research, said the cut “will make it difficult for the Medicare focused plans to achieve their targeted earnings growth rates.”

Raskin predicted that the MA growth rate could be in the 3 percent to 5 percent range, rather than 8 percent to 9 percent. However, he emphasized that the industry is “looking at a potential decline in growth, not a decline in membership in 2015.”

MA plan enrollment rose by 8.9 percent to 15.9 million enrollees in 2014, up from 14.6 million in 2013, bringing enrollment to about 30 percent of all eligible Medicare beneficiaries, according to a Feb. 21 analysis by Avalere Health, a consulting company.

'Devastating' to Beneficiaries

Karen Ignagni, president and chief executive officer of America's Health Insurance Plans, the major industry group, said that the 2015 cuts “would be devastating to the more than 15 million seniors and people with disabilities that have chosen to enroll in Medicare Advantage.”

She urged that, before rates are finalized on April 7, the CMS “protect seniors from facing higher costs and fewer benefits by keeping Medicare Advantage payment rates flat.”

Michael Wiederhorn, Oppenheimer & Co. Inc., Equity Research, said he expected there might be some movement in that direction in the final notice.

“While the preliminary rates tend to not be dramatically affected by politics,” he said, “bipartisan support from Congress has already been fairly significant,” which might affect final rates.

Different Factors

Individual payments to plans vary by different factors, including location and a plan's quality rating.

John Gorman, executive chairman of the consulting company Gorman Health Group, estimated that the average MA plan will experience a “real cut” of 4.9 percent, if the proposed notice is finalized.

According to Gorman, “This includes a rough estimate of the impact of the new risk adjustment rules, and the average impact of the end of the 'stars' demo,” which offered bonus payments to MA plans with three and 3.5 stars, in addition to those plans rated at four and five stars, as required by the Affordable Care Act.

“After this year, as required under the ACA,” he said, “all plans above four stars will get a 5 percent bonus, while those below get nothing.”

Call Letter Proposals

As another example of factors that might individually affect some plans, analysts referred to the CMS's proposal in the 2015 Call Letter to exclude, for payment purposes, enrollees' diagnoses identified during a home visit that aren't confirmed by a later clinical visit.

Plans are paid, in part, based on the level of illness of their enrollees. The sicker the enrollee, the higher the payment.

Risk assessments performed in homes “are typically conducted by healthcare professionals who are contracted by the vendor and are not part of the plan's contracted provider network,” according to the proposed Call Letter.

“There appears to be little evidence that beneficiaries' primary care providers actually use the information collected in these assessments or that the care subsequently provided to beneficiaries is substantially changed or improved as a result of the assessments,” the CMS said.

“Therefore, we continue to be concerned that in-home enrollee risk assessments primarily serve as a vehicle for collecting diagnoses for payment rather than serve as an effective vehicle to improve follow-up care and treatment for beneficiaries.”

Citi's McDonald suggested this proposal might negatively affect individual payments.

Provider Contract Termination

Among other provisions proposed in the Call Letter are new disclosure rules and limits on MA networks.

“Currently, plans face very few restrictions when selecting and terminating providers,” McDonald said. “Plans can make changes to networks at any time during the year, as long as they continue to provide covered services in a nondiscriminatory manner, meet access standards and ensure continuity of care,” he added.

However, significant network changes were brought to national attention toward the end of 2013 when UnitedHealthcare, the largest MA company, issued notifications to thousands of physicians, particularly in Connecticut, that they would be removed from the company's networks.

A federal court in Connecticut in December 2013 issued a preliminary injunction that barred UnitedHealthcare from removing physicians from that state (24 MCR 1434, 12/13/13).

Policy Re-Examination

In the Call Letter, the CMS said that recent “mid-year changes” have prompted the agency to re-examine its policies.

The CMS is contemplating requiring MA organizations (MAOs) to notify their respective CMS regional offices no less than 90 days prior to the effective date of planned terminations.

This would allow the MAOs to coordinate with their regional offices to ensure that affected providers and enrollees receive timely notification of such changes, the proposed Call Letter said.

The agency is also proposing that MAOs develop and submit to the CMS, upon request, a written plan that provides a detailed description of the steps the MAO will take to ensure that affected enrollees are able to locate new providers that meet their individual needs.

The CMS said it is also considering whether to use the formal rulemaking process to require more than 30 days' advance notice to enrollees, and to broaden its authority to limit MAOs' ability to terminate provider contracts without cause at any time during the year.

Further, “we believe that affording providers more than 60 days' notice of a contract termination is appropriate, and in many cases, preferable,” the agency said.

“A longer period would give providers sufficient time to exercise their appeal rights and for the appeals process to conclude, perhaps before affected enrollees are notified of the change,” the proposed Call Letter said.

Part D Drug Program

The advance notice also includes the proposed annual updates for the Medicare Part D defined standard benefit.

Unlike in 2014, when each of the updates decreased, in 2015, each will go up.

The deductible will increase from $310 to $320; the initial coverage limit-or the total drug costs after the deductible before hitting the coverage gap-will increase from $2,850 to $2,960; and the out-of-pocket threshold (the amount the beneficiary pays before hitting the catastrophic phase) will from $4,550 to $4,770.

The CMS did not propose any major Part D changes in the Call Letter but focused on a few areas for additional guidance, including enhanced alternative (EA) plans that offer benefits beyond the defined standard benefit.

Cost Sharing by Enhanced Plans

The proposed Call Letter said that the agency in 2015 expects that all EA plans will offer additional reduced cost-sharing.

“Given the extent of cost-sharing reduction in the gap that is now required of all Part D plans under the defined standard coverage gap benefit, we believe this policy is necessary to ensure meaningful benefits are offered by EA plans,” it said.

Under the defined standard benefit in 2015, cost-sharing for generic drugs will be lowered to 65 percent coinsurance and for brand drugs to 45 percent coinsurance in the coverage gap.

The coverage gap is to be closed by 2020 as each year there is an incremental reduction in cost sharing.

The CMS said it expects all EA plans, whether they are stand-alone PDPs or MA plans that offer the drug benefit--to uniformly offer additional reduced cost-sharing in the coverage gap for all formulary generic drugs at a maximum cost-sharing of 45 percent and when offered, for all brand drugs at a maximum cost-sharing of 15 percent.

Expanding cost-sharing reductions will ensure substantial and meaningful EA plan benefit offerings that are easily recognizable to beneficiaries when comparing plans, the CMS said.


To contact the reporter on this story: Mindy Yochelson in Washington at

To contact the editor responsible for this story: Ward Pimley at

The Avalere analysis is at