Medicare Advantage

Featured Health Business Daily Story May 12, 200

Medicare Advantage Plans Must Find 'Big Areas' for Savings as CMS Issues its Final 2010 Rate Benchmarks

Reprinted from MEDICARE ADVANTAGE NEWS, biweekly news and analysis on the Medicare (and Medicaid) managed care programs.

By Judy Packer-Tursman, Editor, (tursman@comcast.net)

The implications of CMS's April 6 unveiling of final 2010 Medicare Advantage payment rate benchmarks are starting to become clear. MA plans on average will get about a 4% payment benchmark reduction, which translates into a 3% actual payment decrease, consultants say. Thus, typical MA plans will have to make up, via higher premiums and/or lower benefits and other strategies, $40 to $60 per member per month — and closer to $80 PMPM in some markets — to stay even with 2009, consultants tell MAN. By contrast, plans have had to make up somewhere in the range of $5 to $15 PMPM in recent years.

"Plans are going to have to go after big areas for savings," Stephen Wood, Chicago-based senior vice president of Ingenix Consulting, tells MAN. "This is not like changing coinsurance for a hearing aid. It's like increasing your deductible for an inpatient stay or increasing your copay for an office visit. It needs to be a lot, because you just have to come up with savings."

Compared to prior years, the MA rate picture for 2010 is "180 degrees different," Wood asserts. In the past five years, he says, MA payment rates were supported by CMS at reasonable levels, following the lead of Congress to provide greater access to MA plans for beneficiaries. National enrollment in MA plans is now just shy of 11 million, according to data recently released by CMS. That is up substantially from several years ago.

"If your [cost] trend is 4% up and you've got a revenue stream down by 3%, you've got to come up with the goods," Wood explains, "if you're going to maintain the same service area and footprint with the same products" for 2010 as for 2009.

Wood says his firm is hearing that many MA plans are trying to keep premiums fairly steady between 2009 and 2010 and looking at more substantial benefit changes. But some plans say they have no choice in the matter since they cannot shift costs to beneficiaries because of regulations or market conditions or both.

"As representatives of nonprofit, community-based plans that primarily focus on duals [i.e., people dually eligible for Medicare and Medicaid], the Association for Community Affiliated Plans is very concerned that the 2010 rates proposed by CMS will make it difficult to impossible to develop plans at zero premiums," states Mary Kennedy, ACAP's director of Medicare programs. "Our plans do not have the ability to shift costs to beneficiaries. We are especially concerned that although Congress may adjust the underlying physician rates, it will not act in time for the initial bids in June. Rebidding and the resulting actuarial expense are especially difficult for safety-net plans."

Yet, despite the challenges, Wood says his firm doesn't expect "much of a shakeout" in next year's MA marketplace. "We haven't heard that folks are exiting markets yet, at least for 2010," Wood said April 17. "At least our clients seem to be staying the course. We're not seeing wholesale market exits….After the initial shock [of final 2010 rates], they're getting down to business." But for 2011, he adds, "all bets are off" as MA organizations decide whether products are still viable.

Pat Dunks, a principal and consulting actuary in the Milwaukee office of Milliman, Inc. says he expects only a handful of MA plan service-area reductions or market departures for 2010. But he predicts that this "relatively small" number probably will grow in 2011, "depending on the political decisions made" with respect to the MA program.

"In certain markets, the dual-eligible SNPs are most at risk because practically speaking they have the least amount of flexibility," Dunks adds.

In finalizing 2010 rates, CMS only slightly revised two key figures from the 45-day advance rate notice released Feb. 20. The agency tweaked upward from 0.5% to 0.81% the national per capita MA growth estimate for aged and disabled members, which is a figure used as a starting point in setting capitation rates. And CMS reduced the first-ever coding intensity adjustment from the initially proposed 3.74% to 3.41% due to a methodology change, but stuck to its earlier decision to apply the adjustment uniformly across all plans. CMS also tweaked the budget-neutrality factor, in the final year of its phaseout, to 0.10%. This factor is estimated as the difference between aggregate payments to plans using 100% demographic payments and aggregate payments to plans using 100% risk-adjusted payments.

Actuaries say these revisions resulted in only a marginally better rate scenario for MA plans next year than what was originally proposed by the agency in February.

"It's still ugly," Dunks says of 2010 final rates. Moreover, Dunks notes that MA plans could potentially see an additional 3% downward adjustment to next year's rates from issues related to changes in CMS's adjustment of payments to account for beneficiaries with working aged and disabled Medicare Secondary Payer (MSP) status.

As was done in calculating its draft rates, CMS incorporated the scheduled 21% reduction in Medicare physician payments in finalizing 2010 MA rates, describing this approach as required under current law. If Congress approves a physician pay fix later this year, as is widely expected, CMS said it would have to hear from federal lawmakers on how they want to proceed. The agency cited potential logistical difficulties with timing, contending that since MA bids for 2010 are due June 1, a fix occurring afterward could "seriously undermine" the process. By law, CMS had to release the final 2010 MA rate notice on the first Monday in April.

"This year, I think people saw a challenging budget, challenging for Medicare, and saw the need to rationally approach these rates," Wood says. "CMS will say it did nothing different — there is still the doctor [pay fix] takeaway [from MA plan rates], but [in previous years] it was 5%, not 21%."

Since CMS announced final 2010 rates, MA organizations have begun working with actuaries to decide how best to handle the gap between revenues and cost trends next year. "They're looking at everything," including efforts at enhancing risk scores, improving medical management and better managing administrative costs, Dunks says. "If they're not in zero-premium markets, many will have at least modest premium increases…and make benefit changes also," he says. He did not elaborate on what those changes may be.

Scant time is left for making such decisions. Under the 2010 final call letter's timeline, CMS asks MA plans to inform it of any voluntary non-renewals of counties by May 1. CMS will begin accepting bids May 15 on 2010 products; the deadline for bid submissions is June 1. And 2010 formulary submissions from Part D plan sponsors were due April 20.

XLHealth Corp. is not planning any geographic exits for 2010 because of the rates, Robb Cohen, the company's chief government affairs officer, tells MAN. The company runs regional MA Special Needs Plans (SNPs) for a total of about 55,000 chronically ill members in Georgia/South Carolina, Arkansas/Missouri, Texas and Maryland.

XLHealth will become profitable in 2009, largely due to risk-adjusted rates for its sicker-than-average members, Cohen says. "But in 2010 for us to maintain that [profitability] we'll have to make meaningful changes to our benefit design," he says.

The company is looking not only at changing basic benefits but also at possibly increasing beneficiary copayments and deductibles to some still-unknown extent — and perhaps slightly raising premiums and removing some added supplemental benefits, Cohen says. "We'll continue to have a benefit design that focuses on the chronically ill, just within the constraints of the rates," he says. "We know from the final rates about how much difference we have to make overall. We still have to determine how to do it…and make the product attractive."

Wood says his firm is hearing that many MA organizations seem to be focusing on keeping 2010 monthly premiums in the same general range — perhaps within $10 to $15 of 2009 levels, though it will vary by market — and looking at reducing benefits, particularly in geographic areas where plans receive lower-than-average federal payment rates.

For 2010, MA organizations may "differentiate benefits and premiums between areas where rates are better and areas where rates are not so good," Wood predicts. For example, he says, an MA organization might have a 20-county service area and decide that it is viable to keep its plan's premium price point in only five counties with better payment rates. But in the remaining 15 counties, the organization may have to increase premiums more or reduce benefits more to reach the same point.

"You could see some bifurcation in markets," Wood asserts, especially in areas such as Minneapolis and Portland, Ore., where the MA payment benchmarks aren't much above 100% of fee-for-service (FFS) Medicare and which aren't so-called "floor" counties. By definition, the floor counties have benchmarks above FFS levels.

Go to www.cms.hhs.gov/MedicareAdvtgSpecRateStats/
Downloads/Announcement2010.pdf.

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