CMS gives another boost to Medicare Advantage plans

Fact Sheet: Moving Medicare Advantage and Part D Forward

Centers for Medicare and Medicaid Services (CMS), April 6, 2015

On April 6, CMS released final updates to the Medicare Advantage and Part D programs through the 2016 Rate Announcement and Call Letter. The finalized policies will continue to strengthen the growing Medicare Advantage program, and continue the successful implementation of the Affordable Care Act’s reforms that improve quality and provide greater protections for beneficiaries and value for taxpayers. 

Recent Trends in Medicare Advantage and Part D

  • Enrollment continues to grow – MA enrollment has increased by 42 percent since passage of the Affordable Care Act in 2010 to an all-time high of more than 16 million beneficiaries, with nearly 30 percent of Medicare beneficiaries enrolled in an MA plan.
  • Plan quality continues to improve – In 2015, 60 percent of MA enrollees will be enrolled in a 4 or 5 star plan, compared to an estimated 17 percent back in 2009.
  • Premiums remain affordable – Average premiums today are lower than before the Affordable Care Act went into effect, dropping 6 percent between 2010 and 2015.

2016 Rate Announcement

Expected Average Change in Revenue
  1.05% - 2016 Advance Notice
  3.25% - 2016 Rate Announcement

Effective Growth Rate
  1.7% - 2016 Advance Notice
  4.2% - 2016 Rate Announcement

Updated Growth Rate

The 2016 rate announcement reflects an underlying per capita growth of 1.9 percentage points of additional FFS spending for 2014 and 2015 and 0.6 percent for 2016, and 0.1 percent for the assumption that Congress will enact the pending legislation to permanently fix the SGR. The updated growth rates reflect the Office of the Actuaries’ best estimate of Medicare spending and are not the product of discretionary CMS policy. The underlying per capita FFS costs continue to demonstrate a historically slow health care growth rate and that growth rate remains below the per capita gross domestic product growth rate. Initial information from Medicare actuaries suggests that contributing factors behind the change from the preliminary growth rate include higher than expected spending on inpatient hospitalizations and some intermediary services such as therapy, rural health clinics and federally qualified health centers.  As always, when changes occur, we’ll continue to watch developments closely and work to understand these factors in greater detail.

Value-Based Contracting

In January 2015, the Secretary announced the Administration’s vision for moving the health care system toward paying providers based on quality rather than the quantity of care they provide. In the Call Letter, CMS continues to signal an intention to begin working with plans participating in Medicare Advantage to better understand, through a voluntary effort, the extent to which they use value-based payment models to compensate providers offering services to their enrollees.


Seniors Love Their Medicare (Advantage)

By Meghan McCarthy
Morning Consult, March 30, 2015

Whether enrolled in traditional Medicare or Medicare Advantage, Morning Consult polling shows Americans aged 65 and older expressing high levels of satisfaction with their federal health benefits. But when asked about individual pieces of their insurance—like prescription drug coverage, the benefits that are covered, and preventive care—seniors using Medicare Advantage reported higher satisfaction rates, sometimes by double-digits.

The poll of 3,975 seniors found that 85 percent of seniors on traditional Medicare said they were satisfied with their plan, compared to 88 percent of seniors on Medicare Advantage.

Despite registering nearly identical satisfaction levels for the overall programs, 80 percent of seniors on Medicare Advantage said they were satisfied with the overall cost of their plans, compared to 68 percent of traditional Medicare seniors. The gap in satisfaction appeared in every individual measure, with Medicare Advantage proving more popular every time.

Robert Berenson, a Medicare expert at the Urban Institute who previously served on the Medicare Payment Advisory Commission, said seniors on Medicare Advantage often get more benefits and have to pay less out of pocket, because the federal government ends up paying more per beneficiary when compared to traditional Medicare.

“Medicare Advantage plans provide better benefits, and overall costs are less, but plans get paid more—with favorable selection—to be able to do that,” Berenson said in an interview. A March MedPAC report found that Medicare Advantage plans would be paid 2 percentage points more than traditional Medicare in 2015.

Berenson also noted that traditional Medicare often covers the sickest and poorest seniors, and they might have a more negative view of their insurance, and health care in general.

With more seniors signing up for the program, insurers are getting more help from Congress to pressure the Obama administration to protect payment rates from any reductions.



By Don McCanne, MD

CMS has done it again. For the fourth year in a row, CMS has used innovative methods to boost the payment rates for Medicare Advantage plans, more than compensating for the required reductions in overpayments mandated by the Affordable Care Act.

Although this year’s Advance Notice called for a 1.05% increase in Medicare Advantage revenue, CMS has responded to an intensive campaign orchestrated by AHIP - the insurance lobby organization - by increasing revenue by 3.25% instead. Members of both parties in Congress were involved in this lobbying function - 239 from the House and 53 from the Senate.

Although many factors are considered when determining payment increases for Medicare Advantage plans, this year’s surprise discovery of new funds was predominantly in the updated effective growth rate of fee-for-service (FFS) Medicare - a rate of 4.2% as opposed to their Advanced Notice estimate of 1.7%. They explain that this is their “best estimate” of FFS Medicare spending and “not the product of discretionary CMS policy,” though they say, “the underlying per capita FFS costs continue to demonstrate a historically slow health care growth rate.”

This continued overpayment to private Medicare Advantage plans has allowed the insurers to offer greater benefits with lower out-of-pocket costs, and that is what has made the plans popular - demonstrated by a 40 percent increase in enrollment between 2010 and 2015. Little is said about the fact that the majority of the overpayments are retained by the insurers for administrative costs and profits. Robert Berenson confirms how these overpayments have made the plans more popular in polls such as that from Morning Consult, whereas “traditional Medicare often covers the sickest and poorest seniors, and they might have a more negative view of their insurance, and health care in general.” The Happy Healthy are in the private plans, and the Sad Sick are in traditional Medicare.

The march to Medicare privatization moves forward, aided and abetted by both Democrats and Republicans in Congress and in the Administration. Enabling better benefits and lower beneficiary costs for private Medicare Advantage plans, while leaving those in the traditional, less expensive FFS Medicare program devoid of these additional benefits, continues to incentivize the shift to private plans. Next week another step forward will occur with the enactment of the “SGR fix” which will expand somewhat the use of premiums and deductibles in the traditional Medicare program, but not in the Medicare Advantage plans.

Where is citizen action on all of this? Are we headed to “Medicare for None” with “Private Plans for All.” Keep in mind that the purpose of privatization is to shift the costs of health care from the government (collectivism) to individuals (freedom). That surely cannot be what Martin Luther King Jr meant when he dreamed of being “free at last.” What are we doing to his dream?