It is a well-known fact that health insurers usually go ahead and breathe a sigh of relief after the federal government posts the final Medicare Advantage payment costs. In a normal scenario of a public comment period as well as aggressive industry lobbying, regulators go on to finalize a friendlier notice than what they had originally put out.
Well, that was not the case on April 1, 2024, when the Biden administration finalized MA rates for 2025, mostly unchanged from a proposal that had the sector up in arms earlier this year.
It happens to be a modest base rate cut, although the regulators went on to stress that insurers will still get billions of dollars more in 2025 than they are going to get in 2024 after coding for members’ medical conditions.
Still, shares within the major MA players such as UnitedHealth, Elevance, Humana, CVS, and Centene fell on April 1, 2024, after the rates that Leerink Partners senior research analyst Whit Mayo deemed as well below expectations were finalized.
Insurer lobbies went ahead and slammed the rule, with groups such as the Better Medicare Alliance and AHIP arguing that it does not account for the rising care utilization among Medicare seniors and will go on to force payers to decrease the benefits as well as raise premiums.
CEO of BMA, Mary Beth Donahue, said in a statement that left unaddressed, CMS’ Final Rate Notice goes on to risk the stability when it comes to affordable and dependable care that over 32 million Medicare Advantage beneficiaries happen to rely on.
But the researchers say that the rates will barely go on to touch insurers’ profits, while at the same time making an important step when it comes to curbing rampant overpayments in the privately managed choice to traditional Medicare.
The rate debate happens to hinge on Medicare spending
Payers have gone on to see their stocks fall in 2024 amid the growing challenges in MA, a program that once used to be reliable as well as a steadily expanding source of income that has grown to cover over half of all Medicare seniors.
The cost when it comes to covering care has been ratcheting up, as per the payers, as seniors look out for more outpatient care, such as hip and knee surgeries, as well as because of a difficult respiratory season this winter.
Health insurers’ core gripe with the April 1 final rule that amounts to a 0.16% decrease in the benchmark rate is that the regulators base it on a measure which the Medicare spending payers happen to remark is lower than the actual spending.
The 42,000 public comments that the CMS received on the proposed rule from payer groups like AHIP as well as the Blue Cross Blue Shield Association urged the regulators to push up that metric, known as the effective growth rate.
This is something analysts opine is likely to happen in the final rule, which goes on to rely on more complete data than just the proposal. Since the effective rate of growth goes on to affect the base payment for MA members, hiking it would indeed bump government reimbursement as well.
However, the CMS actually went on to slash the effective growth rate, from 2.44% in advance notice to 2.33% as far as the final rule was concerned.
In comparison, as per a study that was funded by a MA lobbying group in February 2024, it happened to argue for a growth rate of 4% to 6%.
The growth rate slash was indeed a surprise, said one of the analysts from J.P. Morgan, Lisa Gill.
The final metric happens to be based on more recent information, which includes payments in traditional Medicare by way of the fourth quarter of 2023. Those payments did not reflect higher utilization, said the CMS, in spite of MA payers’ warnings concerning the rising costs.
As per the regulators, actual program payments when it comes to the fourth quarter did not show more utilization than what was anticipated based on the prior year seasonal trends.
The present observation is in contrast with most MCOs’s reported experiences, said Mayo from Leerink.
Regulators went on to address the discrepancy in the final rule, noting that more Medicare beneficiaries happen to be getting outpatient care; however, it is not that much higher than anticipated. In addition, more people who are dually eligible when it comes to Medicare and Medicaid have been going ahead and enrolling in MA, which can as well be increasing that program’s spending growth as compared to traditional Medicare, the CMS said.
Rates are not a cut
April 1, 2024, final rates make 2025 the second straight year when it comes to rate decreases in MA. The base pay dip happens to also be a result of the continued phase-in of changes to how the regulators calculate the risk adjustments, which are meant to make the payments more accurate.
But, the CMS stressed that the rates are indeed not a cut. Payments from government to MA plans are still anticipated to rise 3.7% on average in 2025 as compared to 2024, thereby representing a rise of over $16 billion in reimbursement post-plan risk score for enrollees, the regulators said.
The fact is that the extremely high margins made by MA plans will be barely touched, researchers wrote.
Insurers have gone on to warn that they could cut benefits, exit the markets, raise premiums, or go ahead with a combination of all three if lower MA rates cut into profits. However, the CMS said these kinds of actions should not be a result of the rates.
When it comes to the finalized policies, CMS anticipates an adequate payment to MA as well as Part D plans in order to ensure stable premiums as well as benefits and plan options, the fact sheet reads.
Still, the rule’s actual earnings go ahead, and their impact on payers will indeed depend on cost trends in 2025, as per senior equity research analyst Gary Taylor at TD Cowen. In order to maintain or enhance the margins, plans will have to ensure the rate increase is teamed with their medical coding, member management, and benefit design to go ahead and work together to match or even go beyond the cost trends, as Taylor wrote in a note on April 1, 2024.
Analysts went on to say that one insurer especially jeopardized by the rule happens to be Humana, which is the second largest provider of MA plans across the U.S.
Earlier in 2024, Humana went on to anticipate that the preliminary notice would go on to cause its benchmark MA funding to dip 1.6% if finalized.
April 1, 2024 final notice at best is most likely to maintain this expected headwind and, at the same time, makes Humana’s 2025 earnings targets all the more challenging, said Mayo from Leerink.
Health policy researchers opine that the curbing of rates is indeed necessary in the face of the rising payments to MA plans.
In order to put the rates in context, the 3.7% revenue rise happens to be larger than 2023’s predicted rise of 1% but indeed smaller than increases in the previous years, which exceeded 7% yearly, Brown University as well as Georgia State researchers went on to write in Health Affairs.
Unlike the previous administrations, the Biden administration has been going ahead and cracking down on MA, specifically curbing inflated payments, that a congressional advisory group says could go on to total $88 billion in 2024.
In addition to the unfavourable rate as well as the risk-adjustment changes in 2023, regulators have also gone on to execute a stricter methodology when it comes to calculating quality ratings that has, by the way, lowered payer bonuses. The government also went ahead and approved a plan to audit MA payments that are expected to claw back billions of dollars from the payers.
It is worth noting that the regulators have also gone ahead and moved to crack down on improper care denials, marketing, and brokerage practices that are deceptive and steer beneficiaries to certain plans in MA.
Insurers aren’t taking these changes lying down. Along with aggressive lobbying as well as marketing campaigns, some happen to be turning to the courts, like Elevance, which is currently suing HHS over changes to how regulators calculate quality ratings within the MA, while Humana is suing the government to halt the overpayment audits.
Still, the fact is that the 2024 presidential election now matters all the more, said Taylor from TD Cowen, since the current administration looks most likely to relentlessly compress MA funding.
