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Health insurers generally breathe a sigh of relief after the federal government releases final Medicare Advantage payment rates. Normally, after a public comment period (and aggressive industry lobbying), regulators finalize a friendlier notice than the one they initially issued.
That wasn't the case Monday, when the Biden administration finalized MA rates for 2025, essentially unchanged from a proposal that the industry rebelled earlier this year.
It's a modest reduction in the base rate, although regulators have pointed out that insurers will still receive billions of dollars more in 2025 than this year after coding members' medical conditions.
Still, shares of major MA players, including UnitedHealth, Humana, Elevance, CVS and Centene, fell Monday after the rates were finalized, which Leerink Partners senior research analyst Whit Mayo called “well below expectations”.
Insurer lobbies have criticized the rule, with groups like the Better Medicare Alliance and AHIP saying it doesn't take into account growing use of care among Medicare seniors and will force payers to cut benefits and increase premiums.
“Left unanswered, CMS' final rate notice endangers the stability of affordable, reliable care that more than 32 million Medicare Advantage beneficiaries rely on,” BMA CEO Mary Beth Donahue said in a statement. .
However, researchers say the rates will barely affect insurers' profits, while still being an important step toward curb the proliferation overpayments in the privately managed alternative to traditional Medicare.
Rate debate hinges on Medicare spending
Payers have seen their shares fall this year amid growing challenges in MA, a program that was once a reliable and constantly expanding source of income which has increased to cover more than half of all Medicare seniors.
THE the cost of healthcare coverage has increasedpayers say, as seniors seek more outpatient care, such as hip and knee surgeries, and due to a difficult respiratory season this winter.
Health insurers' main gripe with Monday's final rule — which amounts to a 0.16% reduction in the benchmark rate — is that regulators based it on a measure of Medicare spending, according to payers. lower than actual expenditure.
A number of the 42,000 public comments CMS received on the proposed rule from payer groups like AHIP and the Blue Cross Blue Shield Association urged regulators to increase that metric, called the effective growth rate.
Analysts say that's something that could likely happen in the final rule, which relies on more comprehensive data than the proposal. Since the effective growth rate affects MA members' base payment, increasing it would also increase government reimbursement.
However, CMS actually reduced the effective growth rate, from 2.44% in the advance notice to 2.33% in the final rule.
In comparison, a study funded by an MA lobby group in February argued in favor of a growth rate from 4% to 6%.
The drop in the growth rate was a “surprise,” JP Morgan analyst Lisa Gill wrote in a rate note.
The final measure is based on more recent information, including payments under traditional Medicare through the fourth quarter of 2023. These payments do not reflect higher utilization, CMS said, despite warnings from MA payers regarding rising costs.
“Actual program payments (in the fourth quarter) did not show higher utilization than expected based on seasonal trends from the previous year,” the regulators wrote in an information sheet on the final rule.
“This observation contrasts with the experience reported by most MCOs,” Leerink’s Mayo said.
Regulators corrected this discrepancy in the final rule, noting that more Medicare beneficiaries are receiving outpatient care, but it is not much higher than expected. Additionally, more people dual eligible for Medicare and Medicaid have enrolled in MA, which could increase spending growth for that program compared to traditional Medicare, CMS said.
Rates are not a discount
Monday's final rates make 2025 the second straight year of rate cuts in MA. The decrease in base pay is also the result of the gradual introduction of changes to the way regulators calculate risk adjustments, intended to make payments more accurate.
However, CMS emphasized that the rates do not constitute a reduction. Government payments to MA plans are still expected to increase 3.7% on average in 2025 from this year, representing an increase of more than $16 billion in reimbursement after plans risk assessing their enrollees, regulators said.
Industry arguments that the rates represent significant reductions are “not true,” according to researchers at Brown University and Georgia State. wrote in a recent Health Affairs analysis.
“The extremely high margins achieved by MA plans will barely be affected,” the researchers write.
Insurers have warned they could cut benefits, exit the markets, or raise premiums – or a combination of all three – if lower MA rates reduced profits. However, CMS said such actions should not be a result of tariffs.
Under the finalized policies, “CMS provides adequate payment to MA and Part D plans to ensure stable premiums, benefits, and plan options,” the fact sheet states.
Still, the rule's actual impact on payers' profits will depend on how costs evolve in 2025, according to Gary Taylor, senior equity research analyst at TD Cowen. To maintain or improve their margins, plans will need to ensure that rate increases, coupled with their medical coding, member management and benefit design, work together to match or exceed cost trends, Taylor wrote in a note Monday.
Analysts said one insurer particularly threatened by the rule is Humana, the second-largest provider of MA plans in the United States.
Earlier this year, Humana considered the preliminary opinion would result in a 1.6% drop in its MA benchmark funding if finalized.
Monday's final notice “best maintains this expected headwind” and makes Humana's 2025 earnings targets “significantly more ambitious,” Leerink's Mayo said.
Health policy researchers say a rate cut is needed in the face of soaring payments to MA plans.
To put the rates in context, the 3.7% revenue increase is higher than last year's projected 1% increase, but lower than increases in previous years, which exceeded 7% per year, the authors wrote. researchers from Brown University and Georgia State in Health Affairs.
Unlike previous administrations, the Biden administration has cracked down on MA — particularly by curbing bloated payments, as a congressional advisory group says. could total $88 billion this year.
With adverse changes in rates and risk adjustment Last year, regulators also implemented a stricter methodology for calculating quality scores this lowers payer bonuses. The government also approved a plan to audit MA payments this is expected to recoup billions of dollars from payers.
Regulators have also evolved towards repress refusals of inappropriate caredeceptive marketing and brokerage practices that guide beneficiaries to certain plans in MA.
Insurers do not accept change relentlessly. Along with aggressive lobbying and marketing campaigns, some are turning to the courts: Elevance is currently suing HHS on changes in how regulators calculate quality scores in MA, while Humana sues the government to end overpayment controls.
Yet the 2024 presidential election “now matters even more,” said TD Cowen’s Taylor, because “the current administration appears likely to relentlessly squeeze MA funding.