On Friday, March 31, 2023, the Centers for Medicare & Medicaid Services (CMS) released the Calendar Year 2024 Medicare Advantage Capitation Rates and Part C and Part D Payment Policies (Rate Announcement). This Rate Announcement follows CMS’s February 1 notice of planned changes to rates and the risk adjustment methodology. The Rate Announcement — providing for 60 days prior to the bid submission deadline of June 5, 2023 — provides notice of the annual capitation for MA for CY2024 related to the benchmark, risk adjustment, and other factors to be used in adjusting rates and responds to all substantive comments received from the Advance Notice.
In one key decision, CMS finalized a proposal to significantly revise the Medicare Advantage risk adjustment model, which had been the subject of extensive commentary from stakeholders. However, CMS said it would phase in the new model over three years. The Rate Announcement estimated a 3.32% increase in payments, as compared to the 1.03% estimated increase in the Advance Notice.
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Insurers fought the proposed payment rule when it was released in February. In comments to the CMS, the national payer lobby AHIP cited its own research to argue that the earlier proposed payment rule actually amounted to a 3.7% drop when all changes were considered. AHIP called the proposed revision to the 2024 risk model “flawed,” adding that the 30-day comment allotment was too short for the “extremely complex” proposed changes.
Some lawmakers, including Sen. Elizabeth Warren, pushed for the initially proposed rate change to be finalized. In a letter to HHS and CMS leaders, Warren said insurers play “tricks” to “squeeze billions of extra dollars out of the Medicare program.” She also said overpayments to MA plans, estimated at $23 billion this year, force those enrolled in traditional Medicare to pay higher premiums.
Ultimately, the agency announced a 3.3% increase in MA payments next year as opposed to a 1% increase put forward in an earlier draft, driven by the CMS’ decision to phase in technical risk adjustment changes over three years. Next year, the CMS will blend one-third of the new adjustment risk model with two-thirds of the old model, gradually increasing the amount of the new model that is used until it is 100% in the third year.
“We appreciate that CMS moved to a phased-in approach, but the underlying policy is fundamentally unchanged,” said Mary Beth Donahue, president and CEO of the insurer group Better Medicare Alliance (BMA), in a statement. The BMA was one of the most vocal groups opposing CMS’ proposed pay rule that introduced the risk adjustment concerns.
The American Medical Group Association (AMGA) is hoping that the agency sees the error of its ways at the end of the three-year phase-in period.
“With this more cautious approach, CMS will have an opportunity to refine the plan based on the effects the changes have on providers and their patients,” said AMGA President and CEO Jerry Penso, M.D., in a statement.
In other changes, the effective growth rate for 2024 MA non-End-Stage Renal Disease (ESRD) rates is 2.28%, a slight increase from 2.09% in the Advance Notice. Accounting for the impact of the benchmark rate cap, MA rebate and other policies, the net impact on the Medicare Trust Funds for CY 2024 is expected to be $8.1 billion.
Additionally, the Rate Announcement implements several updates made by the IRA for 2024. Cost sharing for covered Part D drugs will be eliminated for beneficiaries in the catastrophic phase. This means Part D sponsors will be on the hook for 20% of the costs incurred after a Part D beneficiary’s costs exceed the annual out-of-pocket threshold, compared to roughly 15% of costs in prior years. Further, the income limit for the full LIS benefit will increase from 135% to 150% of the federal poverty level (FPL). Individuals who earn between 135% and 150% of the FPL and meet certain resource requirements will now be eligible for the full low-income premium and cost-sharing subsidies, as well as a $0 deductible. Also, in the initial coverage and coverage gap phases, cost-sharing may not exceed $35 for a month’s supply of covered insulin products. The deductible will not apply to Part D-covered insulin products.