Two major developments on the Medicare Advantage (MA) finance front over the past week or so.
On one hand, the Centers for Medicare and Medicaid Services (CMS) actuary is estimating that the Patient Protection and Affordable Care Act (PPACA) MA plan premium reductions will save $68 billion through 2016. (The 10-year estimate of savings when the bill passed was about $150 billion.) Plan premium was about 14% higher than FFS costs nationally before the PPACA cuts. About half of the reduction to average FFS costs in the MA program will now be in force. CMS administrators point to continued strong MA plan enrollment and revenue to debunk arguments that the reductions were too much for the program to sustain without meaning huge benefit reductions.
At the same time, the non-partisan Government Accountability Office (GAO) is arguing that the quality pilot that CMS announced that temporarily waters down quality mandates through 2014 is wasteful and will cost Medicare $8.35 billion. GAO and some congressional Republicans are arguing that quality bonuses should only go to 4 and 5 Star plans as PPACA intended. GAO says that the cost of the demonstration is well above those of other such projects done by CMS. Further it says that the bonuses won’t improve quality until 2014 as data is retrospective and for the most part average and excellent plans will be paid roughly equally in the demonstration.
Republicans say that the administration is attempting to temporarily shield seniors from benefit cuts in an election year. As we have said before, whether politics entered into the equation or not, CMS also had less-sinister reasons for pursuing the demo. Only 20% to 25% of plans would have qualified if left as PPACA envisioned. CMS correctly saw that the glide path to 4 Star was too steep for most plans and a different approach was needed to incent all plans to move the quality bar. It has implemented a carrot-and-stick approach to doing so, by incenting 3 Star plans with bonuses and at the same time implementing measures to penalize low-scoring plans (e.g., inability to enroll through Plan Finder and terming consistently low-scoring plans). Convinced of the good policy rationale, Department of Health and Human Services Secretary Kathleen Sebelius told the Congressional hearing this week that she has no intention of cancelling the demonstration.
While it is too early to tell, the demonstration probably will have the intended effect of focusing all plans on quality. While some plans are still getting their act together in terms of pushing the quality bar higher, many are finally enacting reforms that should bear fruit in higher scores and the concomitant increase in revenue and membership.
For those laggard plans that have yet to focus on quality, Sebelius also deflated the hopes of some executives when she indicated that CMS has no plans to extend the temporary reprieve past 2014.