Risk-adjustment proposal could hurt Medicare Advantage

America’s Health Insurance Plans (AHIP) is blasting efforts by the Trump administration to recoup what Medicare managers see as excess risk-adjustment payments to Medicare Advantage plan providers.

The Centers for Medicare and Medicaid Services (CMS), the agency that oversees Medicare, wants to eliminate an adjustment mechanism that that’s supposed to make spending on traditional Medicare coverage and Medicare Advantage plan coverage actuarially equivalent.

Related: Trump admin announces fix for risk-adjustment payments

CMS has proposed applying the change to Medicare Advantage plan payments made starting in 2012, when CMS first told health insurers about the new risk-adjustment methodology.

AHIP President Matthew Eyles writes in a comment letter than the CMS Medicare Advantage risk-adjustment proposal is “fundamentally unfair and ill-conceived.”

The proposed change ”would undermine stakeholder confidence in the agency’s willingness to comply with the law and to act as a fair partner with the private sector,” Eyles writes. “Private-sector partners must be able to rely on the government’s word and know that the government will adhere to its commitments, whether stemming from statute or otherwise.”

The Medicare Advantage risk-adjustment program

Congress has built many coverage holes into the traditional Medicare program, both to discourage unnecessary use of care and to cut down on direct spending.

Private health insurers and other companies run the traditional fee-for-service Medicare program for CMS, but the traditional fee-for-service program offers standardized benefits, and the administrators stay behind the scenes.

The Medicare Advantage program gives private insurers a chance to offer Medicare plans, under their own brand names, that fill in most of the gaps in traditional Medicare coverage.

Medicare Advantage plan issuers are supposed to sell coverage to Medicare enrollees who apply during specified enrollment periods on a guaranteed-issue basis, without using information about the enrollees’ health to set the premiums.

CMS runs a risk-adjustment program, based on enrollee health risk scores, in an effort to keep the issuers from taking on more than their fair share of enrollee health risk.

Critics of the Medicare Advantage program, inside and outside CMS, have argued for years that the Medicare Advantage plan issuers use many strategies to push up risk scores and game the system.

Program defenders have argued that Medicare Advantage plan enrollees tend to have fewer resources and more health problems than traditional Medicare fee-for-service program enrollees, and that plan issuers should have a right to use complete, accurate information to score enrollees’ health, even if the scores end up being higher than when plans are less diligent about risk scoring.

CMS uses a risk-adjustment data validation program to go back and look for what it thinks of as inaccurate, overly precise or otherwise objectionable issuer risk-adjustment data. It has said that replacing the fee-for-service actuarial equivalence risk adjuster mechanism with a new approach would be a good way to  recoup overpayments.

The Medicare risk-adjustment dispute has a direct effect only on the Medicare Advantage plan market. The Medicare Advantage risk-adjustment program is separate from the risk-adjustment program that CMS runs for issuers in the ordinary major medical insurance market.

What Eyles says

Eyles makes the following arguments:

• Federal law and two federal district court rulings require CMS to use a fee-for-service risk adjuster when it runs the risk-adjustment data validation program.
• CMS has no authority to use the extrapolation method it has proposed for deciding what a Medicare Advantage plan issuer’s risk-scoring error rate is.
• Federal law prohibits CMS from applying a new data validation method retroactively. Even if CMS does change the rules, the earliest the new rules should apply is 2021, after insurers have had time to build the new rules into their rates.
• CMS has never put the rate-adjustment proposal through proper public comment periods.
• CMS should withdraw the current proposal. Eyles says the agency should work with issuers to come up with a better way to improve the data validation process, then introduce a revised proposal that would apply only to coverage written after the new system takes effect.