KFF: Medicare Advantage payments increased federal spending by $7B in 2019

The federal government spent $7 billion more on Medicare Advantage plans in 2019 compared to traditional Medicare, likely due to higher rebates and benchmarks, a new analysis finds.

The Kaiser Family Foundation’s analysis, released Tuesday, comes as the Biden administration is eyeing reforming MA payments to help prevent Medicare's hospital fund from becoming insolvent.

“This analysis suggests that reducing the difference in payments between Medicare Advantage and traditional Medicare would generate savings, with the potential for reductions in extra benefits for Medicare Advantage enrollees,” the analysis said.

Kaiser found that the federal government spent $321 more per person in 2019 for MA plan enrollees compared to traditional Medicare beneficiaries.

The findings come as spending on MA has increased steadily in recent years and projected to increase to $664 billion by 2029, more than double the $348 billion that is spent now, the analysis said.

Several factors likely contributed to the spending disparity; chief among them are benchmarks which are used to determine payments to MA plans. A benchmark is tied to traditional Medicare spending in an area and can be increased based on the plan’s star ratings and quality bonuses.

“Star ratings increase their benchmarks and allow plans to keep more of the difference between the benchmark and their bid,” said Jeannie Fuglesten Biniek, Ph.D., a senior policy analyst with Kaiser, in an interview with Fierce Healthcare.

More plans have gotten star ratings of four or higher, leaving them eligible for quality bonus payments and another key driver of spending, the analysis found.

“In 2021, 81% of Medicare Advantage enrollees are in plans that receive a bonus payment,” the analysis said.

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Rebates to plans to compensate them for supplemental benefits not offered by traditional Medicare such as vision or hearing can also increase with star ratings, because a plan with a higher rating gets a larger percentage “of the difference between the benchmark and bid as a rebate,” Kaiser added.

Another factor could be inaccurate coding practices among MA plans that could lead to higher risk scores for enrollees and in turn bigger payments.

“When a traditional Medicare beneficiary goes to doctor, the [provider] will write down diagnoses but won’t get paid more or less based on how comprehensively they code,” Biniek said.

But in MA, there is an incentive for a diagnosis to be coded by the plan comprehensively since it can affect the payment amount.

“There is also some concern that Medicare Advantage plans submit inaccurate diagnoses that increase risk scores and result in overpayments,” Kaiser added.

Last month, the Department of Justice intervened in a lawsuit against Kaiser Permanente over inaccurate diagnosis codes for MA enrollees. The Department of Health and Human Services’ Office of Inspector General is also exploring coding issues in Aetna’s MA plans.

A separate analysis from the Medicare Payment Advisory Commission (MedPAC), which makes recommendations to Congress on how to lower Medicare spending, estimated that more comprehensive codes led to a nearly 10% increase in risk scores for MA plans.

Kaiser based the analysis on publicly available data from 2019, the most recent year available.

More scrutiny on the horizon?

The analysis comes as the Biden administration is looking at MA as a potential way to curb Medicare costs.

The White House’s 2022 budget supported reforming payments to private plans to extend solvency of the Medicare Hospital Insurance Trust Fund, which is expected to become insolvent by 2024.

MedPAC has found that changes to the benchmark policy for MA payments would result in a 2% decline in payments per year. The cut would save Medicare $82 billion from 2021 to 2029.

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But it remains unclear how such a payment change would affect rebates to plans that pay for supplemental benefits that plans offer.

“If you were to reduce payments to MA plans, some part of that would come out of these rebates,” Biniek said.

However, MedPAC found the 2% hit to payments would only have a “modest effects on the availability of plans,” Biniek added. “Virtually all beneficiaries would still have access to plans with benefits.”

“I think that there is definitely opportunity for modest changes to the benchmark policy that could generate savings with little disruption to enrollees,” she said.