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Amid Proposed Rate Cut, Medicare Advantage Insurers Surge

HFMA.org, Healthcare Business News, February 24, 2015

By Rich Daly, Senior Writer/Editor

Medicare’s recently proposed cut for Medicare Advantage (MA) plan rates drew positive reactions from investors. Some of the leading companies offering increasingly popular Medicare Advantage insurance coverage saw their stock prices rise this week after the Centers for Medicare & Medicaid Services (CMS) on Feb. 20 proposed an average 0.95 percent cut for 2016. The agency tempered news of the cut by insisting that MA plans—which cover about 30 percent of Medicare’s beneficiaries, or 16 million people—actually would average a rate increase of 1.05 percent after factoring in an expected increase in risk scores.


On the first day of trading after the cut was announced, shares of Humana, which derives the largest share of its business from MA, increased 6 percent. Similarly, UnitedHealth Group, which has the largest MA volume, rose more than 3 percent, as did Aetna.

Market analysts said the rate cut was smaller than the industry was expecting, and some doubt any cut would go into effect given repeated CMS reversals of planned cuts in recent years. For instance, a proposed cut in 2015 rates was replaced with a 0.4 percent increase.

“My impression on the proposed rates is that they are surprisingly favorable; there’s nothing draconian in them,” Dudley Morris, a senior advisor for BDC Advisors, said in an interview.


An aggressive lobbying campaign on behalf of MA plans began even before the proposed rates were released. That effort included a letter to CMS last week from a bipartisan group of 53 senators urging the agency to minimize disruptions for MA beneficiaries by maintaining payment levels and providing a stable policy environment for 2016.


Hospital Impact

The proposed rates, which are expected to be finalized April 6, could affect hospitals and health systems in a variety of ways. Some could be directly affected, given the growing number of health systems that have moved into health insurance. Specifically, 70 percent of the MA plans approved by CMS since 2008 have been provider-sponsored, according to CMS enrollment data. Under the proposed rates, MA plans continue to be “a good bet, depending on the market situation,” for providers thinking of entering the health plan market, Morris said. “And for those guys already in there, having a care model that is specifically designed to take care of the elderly, making sure that the physicians are involved and trained so they do the best job in coding—, and if you’re able get the four-star rating, then it continues to be an attractive opportunity for providers,” Morris said.

MA plans have attracted providers seeking to get into managed care, he said, because plans with as few as 5,000 members can be profitable.


Other provider impacts in the proposed rate rule include strengthened requirements for MA plans to have accurate and updated provider directories. Other key provisions of the proposed payment rule include full implementation of a new model for risk adjustment, which CMS was phasing in amid opposition from insurers. On the other hand, CMS put off plans for another insurer-opposed change that would alter payments based on whether beneficiaries are treated through an office visit or a home visit. Another provision that has drawn some concern from insurance experts was for a 2017 cap on total payments to all MA plans. “We are not aware of any authority in that, or any other law, to allow CMS to set a cap on total MA payments,” John Gorman, head of the Gorman Health Group, wrote in a blog post about the proposed changes.

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