Analysis: Medicare Advantage plans could see 2% net revenue drop in 2018

A new report concludes that healthcare costs are projected to rise 3% even as Medicare Advantage plans are set to get paid less.

If proposed changes in Medicare Advantage payment policies take effect, MA plans could see a reduction in payments even as Medicare costs rise, according to a new analysis.

The analysis (PDF), which the consulting firm Oliver Wyman prepared for the trade group America’s Health Insurance Plans (AHIP), estimates that MA plans will see their net revenue drop by 1.8% to 2% next year if the Centers for Medicare & Medicaid Services’ 2018 Advance Notice is approved.

The CMS released the annual rate notice earlier this month, estimating that MA plans will see a 0.25% average increase in payments next year. Some analysts said at the time that they expected the final rate to be higher given the Trump administration’s leanings and expected lobbying from insurers.

The primary differences in the CMS’ estimates compared to Oliver Wyman’s are that the latter includes the potential effect of implementing a new employer group waiver plan payment policy, as well as the effect of the possible reinstatement of the health insurer tax, the report says.

Both estimates account for the lever that would affect plans’ payments the most: a change in the normalization factor used to adjust plans’ risk scores.

The Oliver Wyman analysis also predicts that MA plans “will continue to see reductions in payment” if the CMS doesn’t address issues with the completeness, accuracy and reliability of the new Encounter Data Submissions reporting system.

The report concludes that the CMS’ proposed payment policies “could disrupt beneficiaries in the MA market” by causing them to face higher premiums or reduced benefits. That’s because healthcare costs are projected to rise 3% even as MA plans are set to get paid less, it says.

“We urge CMS to protect millions of seniors across the country by taking steps needed to avoid further cuts to the Medicare Advantage program,” AHIP President and CEO Marilyn Tavenner said in a blog post about the report.