The Biden administration will move ahead with changes that could reduce federal payments to many private Medicare plans, but will phase them in more slowly than it had planned under an earlier proposal that drew huge pushback from the industry.
The final payment policy for the private Medicare plans, known as Medicare Advantage, was released Friday and will take effect next year. The rollout of the changes, which will now take place over three years rather than one, means that the effect in 2024 will be substantially less than under the earlier proposal.
Medicare officials said the changes are aimed at making sure payments are accurate, and that they chose to phase them in more gradually after getting feedback from the industry and others.
“We think that the approach that we have taken in this final rate notice really ensures that insurance companies are in a position to adjust to our new rules and make sure that premiums are stable and benefits stay consistent,” said Chiquita Brooks-LaSure, administrator of the Centers for Medicare and Medicaid Services.
The new policy from the Medicare agency will change how the Medicare agency pays insurers. Under a setup called “risk adjustment,” the insurers get more money for enrollees who are sicker, since those patients are likely to need more care and generate higher expenses. The more health conditions that the insurers can document in their customers, the higher their payments from the government are likely to be.
Critics, including government watchdogs such as the Medicare Payment Advisory Commission, have long contended that insurers’ intense efforts to document health conditions have resulted in overpayments. The new plan will eliminate or trim the payments associated with some conditions, such as atherosclerosis, or plaque buildup, in arteries of the extremities, and a specific type of malnutrition.
Health insurers and some doctor groups had lobbied heavily against the proposed changes, and a more gradual phase-in would ease the impact significantly, said Gary Taylor, an analyst with TD Cowen, speaking before the final payment policy was released.
“Compared to the proposal, it is definitely a win” for the industry if the Medicare agency slows the implementation, he said. Insurers would have more time to adjust their practices based on the changes, likely blunting their effect, he said.
Matt Eyles, the chief executive of insurance industry group AHIP, said in a statement that they appreciated that the Medicare agency “recognized the serious concerns with several proposed policies,” and phased in the changes.
For insurers and some doctor groups, the stakes on the payment policy are very high, because of the importance of the rapidly growing Medicare business. More than 30 million people now get their Medicare coverage through private insurers, about half of all the program’s beneficiaries. In 2022, the federal Medicare program spent about $427 billion on Medicare Advantage, according to the Kaiser Family Foundation.
For some insurers—and doctor groups that work with them, which are in some cases owned by the same parent company—the diagnoses affected by the changes are key sources of revenue, industry consultants said. America’s Physician Groups, an association representing doctor groups, had said some members projected their revenue could fall by as much as 20% under the proposal.
The effect is likely to vary widely by insurer, and some may not see a payment drop-off, analysts said.
The industry and its allies lobbied intensely against the original proposal, including in an ad that ran during the Super Bowl, arguing that it represented a payment cut that would hurt patients.
The Medicare agency said that under the final policy, which includes the risk-adjustment changes but also other factors, average revenue for the private Medicare plans will go up 3.32% in 2024.
However, that figure includes an agency projection that insurers will bill next year in a way that will still increase the risk adjustments, which Medicare officials say is an important element in accurately projecting the payments. Insurers have argued that the agency is making an assumption about how they will bill, and that projection should not be included.
Without the projection factored in, Medicare Advantage payments would go down 1.12% on average in 2024, a figure the industry will likely portray as a cut. It is less steep than the reduction the industry tallied under the earlier proposal, however.