In its June 2021 annual report to Congress, the Medicare Payment Advisory Commission (MedPAC) called for an update to the Medicare Advantage (MA) program, including the way health plans are paid. MedPAC acknowledges that the “current benchmarks have resulted in a very robust MA program with respect to plan participation, beneficiary enrollment, and the value of extra benefits provided to enrollees,” but that “in spite of the apparent relative efficiency of MA, no iteration of private plan contracting has yielded net aggregate savings for Medicare.”
MedPAC estimated that Medicare spends 4% more per capita for beneficiaries enrolled in MA plans than those enrolled in fee-for-service (FFS) plans, under the existing benchmark policy. Therefore, MedPAC argues, to save money, Medicare could change how the benchmark/maximum payment amount for plans is adjusted for geographic variation.
Under the current policy, a quartile system is used that generates geographic variation in plan payments with Medicare paying an increased rate to an MA plan if it covers an area with lower FFS spending. Plans in areas where FFS is higher, bid at a lower level relative to their benchmark and wind up with higher rebates (the difference between the bid and the benchmark) as a result. The Commission also notes that “despite most plans bidding below FFS spending in these areas, payments are 9 percent higher than the areas’ FFS spending, and MA enrollment is disproportionately higher than in many other areas.”
MedPAC noted that “because the rebate dollars must be used to provide extra benefits, large rebates result in plans offering a disproportionate level of extra benefits. Moreover, as MA rebates increase, a smaller share of those rebates is used for cost-sharing and premium reductions — benefits that have more transparent value and provide an affordable alternative to Medigap coverage.”
To respond to this, MedPAC recommends a rebalancing of the MA benchmark policy to: “use a relatively equal blend of per capita local area FFS spending and standardized national FFS spending,” use a rebate of at least 75%, and integrate a discount rate of at least 2%. The Commission believes that such actions would align benchmarks in low-FFS-spending areas more closely with local FFS spending, create greater efficiency, and ensure that the Medicare program shares in the efficiencies that are generated through MA.
MedPAC also recommended that its prior MA benchmark recommendations be implemented, such as using geographic markets as payment areas, using the FFS population with both Part A and Part B in benchmarks, and eliminating the pre-Affordable Care Act cap on benchmarks.
While the recommended changes would be expected to have a minimal impact on plan participation or MA enrollees, they could lead to Medicare savings of 2% when compared to current policy. The Commission believes that sharing in MA plan efficiencies is important, especially “given the trust fund solvency and revenue issues that Medicare is projected to encounter in the near future.”