Medicare Advantage Plans Need to Prepare Now for Expected Changes

The health insurance industry is carefully monitoring how the various options on the table for enacting health care reform will affect their business. Regardless of exactly which provisions are included in any potential legislation, it appears that Medicare Advantage (MA) plans will face a drastically different payment landscape.

Preparing for changes now will allow payers to better understand what challenges they may face and formulate strategies for managing the various scenarios, according to Stephen Wood, senior vice president, Ingenix Consulting.

“There is no question that regardless of the shape overall health care reform legislation takes, there will be changes to the MA program,” Wood said. “That train has left the station. Plans have to be very proactive in responding to the predicted changes.”

MA plans under review

One reason MA plans have become a focal point in legislative discussions is research showing that payments to private MA plans have been, on average, 14 percent higher for Medicare beneficiaries on these plans than they would have been if the same individuals had stayed in the traditional Medicare program.¹

Although, to some degree, payment disparity was part of the MA program’s design, momentum is growing for equalizing payments. How Congress will adjust MA plan payments remains to be seen, according to Wood. “Rural markets offer relatively high payment rates compared to traditional Medicare fee-for-service (FFS) costs for a reason: to attract plans to those less dense areas so beneficiaries could have a choice of plans from which to make their selection,” he said.

“If payments drop to 100 percent of FFS in a market that typically was getting 20 percent to 30 percent more than FFS rates, plans would be less interested in maintaining a presence in that region. That could limit choices for those populations,” he remarked. Conversely, if payments in urban areas drop, beneficiaries likely would see reduced benefits and substantial premium increases; zero-premium plans in those areas could be phased out.

Although the House of Representatives proposes to roll back MA payments to 100 percent of Medicare FFS costs, the Obama administration and the Senate Finance Committee have proposed establishing a competitive bidding system that pays plans based on a weighted average of their submitted bids to cover traditional Medicare benefits.² “When members of Congress look at inefficiencies in the Medicare system and the billions of dollars that result from those inefficiencies, they believe that a good portion of those dollars could be saved by eliminating what they consider to be overpayments to MA plans,” Wood explained.

But, he cautioned, lawmakers will have to carefully weigh how proposals will affect all areas of the country, and insurers will have to explore what effect each option will have on their business. “As various options for MA plan reform are examined, Congress will see that some proposed changes – like competitive bidding or payment tiering – may increase program savings but may not make practical sense for specific markets,” Wood said.

MA plan reform scenarios have different outcomes

Currently Congress is discussing two very different options to reduce MA plan payments: (1) move all payments to 100 percent of FFS costs in three years; and (2) mandate competitive bidding plus bonus for quality and efficiency.

A recent study conducted by Ingenix Consulting for America’s Health Insurance Plans found that competitive bidding impacts markets unequally. Larger markets, with higher MA penetration and lower FFS costs, oftentimes see MA bids that are lower compared with FFS costs. This may be a function of spreading fixed administrative costs over larger populations and revenues.

The competitive-bidding-plus-bonus option would add some percentage for meeting high quality benchmarks and also could provide additional incentives for achieving efficiency benchmarks. “These adjustments could help reduce the sting of payment cuts and help to improve the quality of care,” Wood suggested.

Preparing for reform starts now

How each option could affect a specific plan is a question that payers should attempt to answer now, so they are not blindsided. There is no question that currently proposed options will have a financial impact, Wood predicted. “If the government is taking 10 percent to 20 percent out of the system, all plans will be affected,” he said. “However, there is no reason – with the right strategy and action plan – that MA plans cannot continue to be successful,” he said.

The key is for providers to understand each of the different provisions so they can recognize quickly where there are opportunities for growth and where they may need to adjust back operations or plans. “Bottom line, MA plans will need to get better at what they are doing,” Wood indicated.

For example, increasing efficiency in handling customer service, care management and contracting, in addition to utilizing and incorporating technology – e.g., electronic data interchange and Web portals – will go a long way toward offsetting payment decreases. “Even a 1 percent increase in revenues resulting from these improvements will have a positive impact on the company’s profit and loss profile,” Wood said.

Weighing options and developing strategies 

Depending upon which health care reform option is realized, plans will have to re-calibrate their business plans, which may seem like a daunting task. However, preparing for possible changes in advance will help insurance carriers overcome the challenges inherent in each provision, according to Wood. Further, cost-containment and efficiency measures that are started now will yield a competitive advantage – and perhaps payment bonuses – in the future.

Ingenix Consulting can help payers determine the best strategies for managing change by examining plans’ patient populations, claims and demographics, and then modeling what effect each option would have on their business. “We look at a plan’s geographic footprint, performance by market, the anticipated payment changes and the consequences for both short-term enrollment and long-term presence strategies, as well as market viability,” Wood said.

It is important to plan and prepare for change so that payers can hit the ground running when payment modifications are finalized. Working with Ingenix Consulting, payers benefit from the analysis, senior market expertise, rich data resources, market dynamic understanding and an array of technology tools and services that can be deployed as required.  

Further, if Ingenix Consulting advisors identify plan weaknesses, they will work with clients to improve processes and develop strategic approaches to fix those problems. “Health plans, like any other business, need to tend to their weaknesses. This is particularly important today, because if they don’t resolve issues now, the problems may increase exponentially under the reform provisions,” Wood said. “Plans may have to re-engage their membership, reinforce their value with members, streamline their claims editing process or exit a market.”

With major changes coming soon, “plans should tackle their loose ends and improve or eliminate inefficient business processes while they are not embroiled in other sweeping reform measures,” Wood said. “Ingenix Consulting has the tools, the services and the data resources to help plans become more efficient and lay the groundwork for imminent changes.”

¹ Reinhardt, Uwe E.; Financing Health Care Reform: 2009 vs. 2003,” The New York Times/Economix blog (Aug. 28, 2009).
² “Paying Medicare Advantage Plans by Competitive Bidding: How Much Competition Is There?”; The Commonwealth Fund.

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