AHIP: CMS must fix flaw in Medicare Advantage rate formula

Close-up of person making calculations
The average spending rates used in CMS' current payment benchmark formula for Medicare Advantage improperly uses data from patients ineligible for the program, says AHIP. (Getty/wutwhanfoto)

As Medicare Advantage grows in popularity, America’s Health Insurance Plans warns its vital that the Centers for Medicare & Medicaid Services fix the flaws in the funding formula to maintain the program’s stability.

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Recent reports have attributed much of the success of the Medicare Advantage program to its comprehensive, consumer-friendly coverage as well as its offerings, which patients have frequently found stronger than those on the Affordable Care Act exchange markets. But in a blog post, AHIP’s Tom Kornfield, vice president of Medicare Policy, and Greg Berger, executive director of Medicare Policy, suggest a current flaw in the program’s funding formula could endanger its financial stability.

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The group’s assessment rests on a new legal analysis (PDF) demonstrating that CMS calculates current benchmarks for Medicare Advantage using data from patients who are not eligible to participate in the program.

Indeed, the analysis finds that CMS currently calculates its payment rate benchmarks using the average spending for all traditional Medicare patients, which includes patients enrolled in Medicare Part A or Medicare Part B. However, only patients who enroll for both Medicare Parts A and B are eligible to enroll in Medicare Advantage Plans. To the extent that the CMS benchmarks get calculated using patients enrolled only in Part A or Part B, they use claims data from ineligible enrollees.

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AHIP’s legal analysis notes the statutory language governing the calculation requires CMS to calculate Medicare Advantage rates “based on a percentage of the adjusted average per capita Medicare fee-for-service expenditures … from each county.” Because of a rising number of beneficiaries enrolled only in Part A, the Medicare Payment Advisory Commission sees a risk for skewed measurements in some counties.

Kornfield and Berger argue more accurate benchmark rates would “help health plans improve benefits and services for seniors,” leading the group to advocate strongly for CMS to change its benchmark calculation in its upcoming 2019 Final Notice.

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