Health Reform WK-EDGE  Part C blooms under pressure
Monday, May 13, 2019

 Part C blooms under pressure

By Bryant Storm, J.D.

Medicare Advantage enrollment has almost doubled since the ACA’s enactment, despite significant reductions in plan benefits. What’s the cause of the growth?

Several factors have allowed Medicare Advantage (MA) plans to remain successful despite significant cuts created by the Patient Protection and Affordable Care Act (ACA). A study from the Urban Institute revealed that factors like quality bonus payments, rebate reductions, risk adjustment, and the phased-in nature of the ACA’s payment cuts have allowed MA plans to remain competitive despite regulatory pressures.

ACA. Although MA plans appeal to many consumers as a cheaper, "one-stop-shopping" alternative to traditional Medicare, the government has been historically unsuccessful at controlling MA costs. In 2009, MA plan spending reached 114 percent of traditional Medicare spending. To alleviate the problem, Congress made changes to MA through the ACA, including changes to the MA rate calculation with new levels of benchmarked spending. Those changes lowered MA spending from 114 percent of traditional Medicare in 2009 to 101 percent in 2018. Despite expectations that the payment changes would also limit enrollment, MA plan enrollment has done the opposite—increasing from 10.5 million in 2009 to 18.5 million in 2017.

Quality bonus payments. One reason MA plans have been able to weather the changes in MA rate calculation is the ACA’s quality bonus payments, which provide additional reimbursement for those plans with a four-star or higher quality rating. Additionally, between 2012 and 2014, CMS ran a three-year demonstration project that also provided bonuses to plans with three- or three-and-a-half-star ratings.

Timing of cuts. The ACA payment cuts did not become effective all at once, instead they were phased in over several years, allowing MA plans time to adjust. Plans made the adjustment by doing something contrary to initial expectations—lowering their bids. On average, MA plans dropped their bids from 102 percent of traditional Medicare spending per beneficiary in 2009 to just 90 percent in 2018.

Rebate reductions. The size of rebate reductions have also played a role in keeping MA plans competitive, with the average rebate rates declining an average of 12 percent of traditional Medicare spending per beneficiary in 2009 to 10 percent in 2017. At the same time, rebate rates for beneficiaries are going up—$83 per beneficiary per month in 2011 to $95 in 2018.

Risk adjustment. Because MA plans tend to more completely code patient diagnoses than traditional Medicare, MA plans have benefited from increased risk scores. Higher scores means higher risk adjustment payments. Those higher payments have been used to offset payment cuts and help MA plans increase revenue.

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