Dive Brief:
- Favorable selection of beneficiaries in Medicare Advantage is throwing off benchmarks used to set payments to those plans, resulting in billions of overpayments to the privatized insurance program for seniors, according to a study published this week in Health Affairs.
- Healthier people are more likely to enroll in MA compared to traditional Medicare, leading to overpayment in counties with high levels of MA participation and underpayment in counties with less MA market penetration, the study found.
- Overall, MA plans were overpaid by an average of $9.3 billion per year between 2017 and 2020. As seniors increasingly turn to MA plans, setting payment benchmarks based on traditional Medicare spending has become “less tenable” and requires reform, researchers argued.
Dive Insight:
Overpayments to MA plans are a growing concern for regulators and researchers as more seniors choose the increasingly popular coverage option. More than half of the eligible Medicare population is now enrolled in MA, a stark increase from 19% of the eligible population enrolled in 2007.
One analysis from the USC Schaeffer Center for Health Policy and Economics found overpayments could reach more than $75 billion this year due to the favorable selection of healthier beneficiaries, aggressive coding and quality bonuses.
MA plans are administered by private insurers and paid a set amount each month regardless of beneficiaries' use of healthcare services. Those payment rates are set by benchmarks in each county every year alongside quality payments and risk scores based on beneficiaries’ health needs.
But those benchmarks, which are tied to risk-adjusted spending in traditional Medicare, may be contributing to overpayments to MA plans, as healthier people are more likely to choose MA and sicker seniors switch to traditional Medicare plans.
The distribution of MA beneficiaries has also shifted toward counties that were overpaid, according to the study.
In benchmark year 2020, 31.4% of MA beneficiaries lived in underpaid counties, while 68.6% lived in counties that were overpaid, the study found. There were more than 2,700 underpaid counties compared with just over 330 overpaid counties, highlighting the concentration of beneficiaries in counties with high MA market penetration.
In underpaid counties, underpayments totaled a loss of $407 per beneficiary, while overpayments reached an extra $762 per beneficiary in overpaid areas.
Overall, the Health Affairs study estimated that overpayments to MA plans reached $37.3 billion between 2017 and 2020.
The CMS could take action to improve its risk adjustment methodology, which doesn’t take into account favorable selection dynamics for MA, according to the study.
“The simplest strategy would be to allow risk adjustment to vary according to MA penetration, thereby flattening the relationship between traditional Medicare risk and spending across levels of MA penetration,” the authors wrote.
Federal regulators have moved to audit MA plans and are attempting to claw back billions in overpayments.
Insurers have pushed back on the rule. Humana, one of the largest providers of MA plans in the country, sued the HHS last week, arguing the regulation is unfair and should be vacated.
