Medicare Advantage payment rates for 2017 will rise by 1.35%

Baseline Medicare Advantage payment rates for 2017 will rise by 1.35% on average, an early win for health insurance companies in what is the final Medicare rate battle of the Obama administration.

When factoring in the risk coding tendencies, the average change in Medicare Advantage insurers’ revenue will climb 3.55% next year, according to a CMS release posted late Friday. The proposal is a major shift from last February, when initial benchmark rates were cut by an average of 0.95% before factoring in risk score trends.

In addition to pay bumps, several major policies are embedded within the CMS’ advance rate notice, including changes that will help insurers with many low-income seniors, known as dual-eligibles because they qualify for Medicare and Medicaid. The CMS included changes to the Medicare Advantage risk-adjustment model and quality ratings system that will, in essence, boost taxpayer funding for plans that enroll higher amounts of poor seniors.

The Affordable Care Act phased in cuts to the program’s benchmark rates over six years, and 2017 will be the last year of those payment reductions. Previously, the government heavily overpaid Medicare Advantage plans, and the ACA sought to bring the capitated payments in line with traditional Medicare spending.

Insurers warned those cuts would drastically lower enrollment, but those concerns never came to pass. More than 18 million people, a third of all Medicare beneficiaries, are enrolled in a Medicare Advantage plan as of this month. That’sa sizable increase from the roughly 11 million seniors who had a Medicare Advantage plan before the ACA took effect.

Yet, despite the final ACA-mandated cuts, average payments will remain positive for 2017, according to the CMS. The amounts will vary for each health plan, but many industry observers believe 2017 is “the best rate environment we’ve seen in years,” said John Gorman, a consultant for Medicare Advantage insurers and a former CMS official.

Medicare Advantage plans received roughly $170 billion in 2015. The CMS pays Medicare Advantage insurers a monthly amount for each member, based partly on risk scores. The median monthly capitated payment in 2014 was $754, or about $9,000 per year for the average beneficiary, according to CMS data. Insurers are salivating over the growing membership and revenue base because even a small margin of 2% to 5% reaps billions of dollars in profit for the industry, assuming plans have high quality marks.

The 2017 proposal again makes changes to the program’s risk-adjustment model. Medicare Advantage insurers document the health status of their members by using risk scores that adjust for different demographics and conditions, known as hierarchical condition categories. A higher risk score indicates a person is sicker or has complicated chronic health conditions, which leads to a higher payment.

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