The CMS proposed terminating the bidding process for employers and unions that offer 2017 Medicare Advantage plans to their retirees. The policy was included in the recent 228-page Medicare Advantage rate notice (PDF). Instead of bidding, those plans would receive predetermined payments that would, in essence, lower their revenue.
The health insurance industry plans to lobby the CMS aggressively over the coming weeks to change course, considering employer Medicare Advantage plans are quite lucrative. In 2012, the average employer group Medicare Advantage plan had a 7.2% profit margin, whereas individual Medicare Advantage plans had a 4.4% margin.
Most Medicare Advantage plans, the private managed-care version of Medicare, are sold through the individual market. But approximately 18% of the program’s enrollees, or more than 3 million retirees, receive their Medicare Advantage benefits through their employer or union.
Individual and group Medicare Advantage plans are paid through a complex process that involves bidding to what is known as the benchmark, or the maximum monthly per-member rate that Medicare will pay. Individual plans often bid below the benchmark and then use the remaining funds to add supplemental benefits, like lower cost-sharing, vision care or exercise classes, to entice seniors to choose their plan.
However, employer plans have operated differently, according to the Medicare Payment Advisory Commission. Group plans have “consistently” bid higher than individual plans because they don’t have the same incentives to “submit competitive bids,” MedPAC said in 2014. Insurers that manage employer accounts don’t need to compete for enrollment since the membership is already defined, so it’s in the financial interest of plans to have bids close to or above the benchmark and then pocket any excess money.
“The employer plans have already ensured themselves of enrollment through negotiations with the employer groups,” MedPAC said. “Their bids appear to be set to maximize revenue.”
Further, the CMS found that Medicare Advantage enrollees with employer coverage were generally healthier than those with individual coverage, meaning the bids were “higher with no apparent rationale or explanation for the higher costs.”
Medicare overpaid employer plans by five cents on the dollar last year, said the CMS, which initially raised concerns over this topic in 2011. MedPAC ultimately recommended in 2014 that all employer group Medicare Advantage plans be paid based on the average benchmark bids of individual plans instead of their own bids.
The CMS took MedPAC up on its recommendation in last week’s advance rate notice, which caught some observers off guard.
“I don’t know that people were necessarily expecting it,” said Ankur Goel, a partner at McDermott Will & Emery. “That’s going to get some attention.”
MedPAC said the policy could save between $1 billion and $5 billion over five years. However, some companies or unions may drop their Medicare coverage as a result, forcing beneficiaries to choose an individual plan or traditional Medicare.
And that’s the rallying cry for insurers and self-insured companies that offer the plans. They argue if the CMS finalizes its policy in its April 4 document, millions of satisfied beneficiaries will lose access to their coverage, creating disruption in their care.
“If you start down a path of disincentivizing employers, employers are likely to drop that coverage, and the burden shifts back to the government,” said Mary Grealy, president of the Healthcare Leadership Council. The HLC is part of the Better Medicare Alliance, a group funded by insurers and other groups that support private Medicare plans.
Opponents of the proposal also say the extra payments don’t capture the differences in plan designs. Employer Medicare Advantage plans often have broader networks, which are more expensive to include, compared with the skinnier HMOs of individual Advantage plans.
Medicare Advantage has been a boon for health insurers, which have viewed taxpayer-funded insurance as a ripe business opportunity. Highmark, a Blue Cross and Blue Shield affiliate based in Pittsburgh, had 318,000 Medicare Advantage lives as of Feb. 1, and almost 42% of that total came from employer group plans, said Tim Lightner, Highmark’s vice president of senior markets.
Goodyear and U.S. Steel moved thousands of their retirees to Highmark’s broad-network Medicare Advantage plan, which fueled growth last year, Lightner said. However, he said the insurer’s actuaries were still “digging through the numbers” to determine how the CMS’ proposal would affect Highmark and to what degree it would fight the measure.