United States: Medicare Advantage And Small Business Insurance Market Reforms

In Depth

The 21st Century Cures Act includes provisions affecting Medicare Advantage, drawing from the bipartisan Senate Finance Committee's Chronic Care Working Group, and the small employer health insurance market. These provisions are primarily contained in titles XVII and XVIII of the new legislation.

The law includes the following changes, among several others affecting Medicare Advantage, Part D and insurance for small employers:

  • Allowing Medicare beneficiaries with end-stage renal disease (ESRD) to enroll in Medicare Advantage plans beginning in 2021
  • Requiring changes to the risk adjustment methodology, beginning in 2019
  • Postponing the Centers for Medicare & Medicaid Services' (CMS's) ability to terminate contracts with Medicare Advantage Organizations that do not achieve Star Ratings of at least three Stars for successive years until plan year 2019

Expanding Medicare Advantage to Include End-Stage Renal Disease Beneficiaries (§ 17006)

Starting 2021, all Medicare beneficiaries suffering from ESRD will have the option to enroll in a Medicare Advantage plan. Coverage for kidney transplants will be carved out of the Medicare Advantage plan and reimbursed under Parts A and B. In light of this change, the secretary of the US Department of Health and Human Services (HHS) must consider (1) incorporating into the Star Rating system a quality measure specific to ESRD coverage and (2) revising the Medicare Advantage risk adjustment model to include additional factors regarding chronic kidney disease.

Providing ESRD patients with expanded access to Medicare Advantage coverage could dramatically reshape treatment of and payment for the treatment of Medicare beneficiaries with chronic kidney disease. The Medicare Payment Advisory Commission endorsed opening Medicare Advantage to ESRD patients in 2000. More recently, the bipartisan Senate Finance Committee's Chronic Care Working Group promoted this policy in its draft legislation. Prominent patient and industry groups including the America's Health Insurance Plans and the National Kidney Foundation endorsed this effort to open access to Medicare Advantage to ESRD patients. Other stakeholders expressed concern that risk adjustment payments for ESRD patients may be inadequate to cover the cost of dialysis treatment.

These changes are a number of years away, but in preparation:

  • Plans should consider how including the ESRD population in the risk pool will affect rate development and their existing provider agreements.
  • Plans should evaluate other key factors that could be incorporated into the risk adjustment model to best represent the risk of covering ESRD beneficiaries.
  • Plans should monitor CMS for requests for information, rulemaking and other guidance regarding updates to the Medicare Advantage risk adjustment model.
  • Providers should evaluate their current membership in Medicare Advantage plan networks and the capacity and volume assumptions underlying their participation agreements.

Modifying the Medicare Advantage Risk Adjustment Model Beginning in 2019 (§ 17006)

The Act also directs numerous changes to the Medicare Advantage risk adjustment model beginning in 2019. Under the legislation, the model must take into account the total number of diseases or conditions of a Medicare Advantage enrollee. Additionally, CMS would be able to use two years of diagnosis data when determining beneficiary health conditions. The model must also separately adjust for "fullbenefit" and other dual-eligibles. Finally, the secretary of HHS must evaluate the inclusion of additional factors, including mental health and substance abuse, into the model. These changes to the risk adjustment model will impact all Medicare Advantage plans. The changes are intended to result in more favorable treatment for plans with patients who have chronic conditions. The modifications to the risk adjustment model were previously included in the Senate Finance Committee's Chronic Care Working Group draft legislation, and a number of patient and industry groups have endorsed the effort.

CMS has recently modified the risk adjustment model to account for the risk of enrolling different groups of beneficiaries (e.g., "fullbenefit" dual-eligible beneficiaries). In 2016, CMS announced that the 2017 risk adjustment model would be separated into six subgroups based on dual eligibility status.

In preparation for the changes:

  • Plans should consider how a modified risk adjustment model will impact rate development and existing capitated provider agreements.
  • Plans should evaluate other key factors that could be incorporated into the risk adjustment model to best represent the risk of covering beneficiaries with chronic conditions. Plans should monitor CMS for requests for information, rulemaking and other guidance regarding updates to the Medicare Advantage risk adjustment model. Traditionally, CMS issues changes and proposed changes through the Advance Notice and Final Rate Announcement process, which for plan year 2019, is expected to kick off in February 2018. However, CMS will likely begin the process of considering adjustments to the model before then.

Star Rating Exclusion Delay (§ 17001)

Another section of the Act suspends CMS's authority to terminate a Medicare Advantage plan solely on the basis of the plan's performance in the Star Ratings system through the end of plan year 2018. CMS has in the past voluntarily chosen not to exercise its termination authority, but announced in the 2016 and 2017 Call Letters that it would begin doing so, and issued at least one non-renewal notice in 2016 that will be effective December 31, 2016.

The Star Ratings system is central to CMS's goal of improving the quality of services provided to Medicare beneficiaries. Star Ratings help beneficiaries compare plan quality and determine plan bonus payments. CMS currently has the authority to terminate Medicate Advantage plans for failure to achieve a rating of at least three Stars in at least one out of three consecutive years.

Because the Act also requires CMS to continue to study the impact of socioeconomic status on Star Ratings, this suspension appears to stem from concerns that the Star Ratings system unfairly penalizes plans that enroll disproportionate numbers of low-income and disabled beneficiaries. In 2015, CMS engaged RAND Corporation to study this issue and concluded that there was some evidence of within-contract disparities between lowincome/ disabled members and other members at least for a subset of the Star Ratings measures. The size of the effect differed across measures and was not exclusively negative. In an effort to address these within-contract disparities, CMS implemented an adjustment factor for the 2017 Star Ratings based on each contract's low-income subsidy, dual-eligible and disabled enrollment.

CMS began exercising its authority under the Affordable Care Act (ACA) to non-renew contracts with consistently low Star Ratings in 2016, but the impact of this termination authority is limited in scope. Only a handful of contracts each year have fallen into the band where termination is possible, and some of these companies have higher-performing contracts into which the lowperforming contracts could be consolidated. The suspension of this termination authority in the 21st Century Cures Act provides short-term relief for a small number of contracts that may otherwise have received non-renewal notices in February 2017 (effective December 31, 2017).

Implications and action steps for plans are as follows:

  • This delay offers a temporary reprieve to a handful of Medicare Advantage plans at risk of termination. Lowerranked plans forego significant bonus opportunities and tend to grow at slower rates than plans with higher Star Ratings.
  • Plan Sponsors that may have been considering consolidating low-performing contracts into higher performing contracts may now abandon or delay any changes.
  • The ongoing work on socioeconomic status and dualeligible status could provide plans an opportunity to engage with CMS and shape the more permanent adjustment.

Requirement to Update Medicare Enrollment Handbook (§ 17003)

The Act also requires the secretary of HHS to update the "Welcome to Medicare" package to include information about the options for receiving benefits under Medicare Parts A through D, after consulting with stakeholders.

The Welcome to Medicare package is often the first document newly eligible beneficiaries receive, and is a key opportunity for beneficiaries to learn about enrollment in Medicare and their option to enroll in Parts C and D. Enrollment errors often result in coverage delays and lifetime premium penalties. Beneficiary advocacy groups believe that updating the package will reduce such errors.

Updates to the package may offer Medicare Advantage plans the opportunity to influence how beneficiaries are first introduced to the Medicare Program and to shape their view of Medicare Advantage in relation to Parts A and B. With a new administration handling development of the package, additional emphasis on Parts C and D in the handbook may drive increased enrollment in those programs.

Medicare Advantage plans should monitor CMS for requests for information or comment regarding updating the package and should consider responding to CMS with advice leveraging their expertise in outreach to and education of beneficiaries.

Restoring the Medicare Advantage Open Enrollment Period (§ 17005)

Another provision of the Act implements changes to Medicare Advantage open enrollment. Currently, a beneficiary enrolled in a Medicare Advantage plan may elect to disenroll from her plan and enroll in Medicare Parts A and B within the first 45 days of a year or, for a newly eligible beneficiary who has enrolled in a Medicare Advantage plan, in the first 45 days of coverage. Changes to other Medicare Advantage plans during this time period are not allowed under current law.

The Act restores a Medicare Advantage open enrollment period similar to the open enrollment period that existed prior to the enactment of the ACA, representing in part a rolling back of one of the ACA's less popular provisions. Under the Act, beginning in 2019, a Medicare Advantage or Part D enrollee will be able to elect to change her enrollment to either another Medicare Advantage Plan or to Medicare Parts A and B within the first three months of the year or, for a newly eligible beneficiary who has enrolled in a Medicare Advantage plan, the first three months of her coverage. One important distinction between this provision and the open enrollment period as it existed prior to the ACA is that this provision does not restrict changing enrollment between Medicare Advantage plans that include drug coverage and those that do not.

The change to open enrollment gives plans an additional three-month opportunity to enroll beneficiaries, but may also introduce administrative complexities associated with mid-year transitions between plans. In preparation for the changes:

  • Plans should consider adjusting their enrollment and termination policies for 2019 to accommodate this new enrollment period.
  • Plans should monitor for CMS guidance implementing this provision and update their marketing practices for 2019 to align with permissible marketing practices for newly enrolled Medicare Advantage beneficiaries.

Qualified Small Employer HRAs (§ 18001)

The Act also authorizes small employers to make taxadvantaged contributions through individual Health Reimbursement Accounts (Individual HRAs) towards the purchase of individual health insurance coverage by their employees. Currently, such contributions conflict with ACA minimum coverage standards and are penalized under the tax code. The adoption of this policy may represent an acknowledgement that small businesses have not fared well under the ACA, as fewer offer coverage today than prior to the law's enactment.

Individual HRAs represent both a challenge and opportunity for health insurance issuers. The shift of a significant portion of current small group enrollment to the individual market would potentially introduce uncertainty into small group rate setting and expected risk adjustment outcomes. Conversely, such a shift in enrollment to the individual market may assist in stabilizing the current uncertainty in that market. Because small businesses may begin shifting their coverage to the individual market starting in 2017, issuers will have limited opportunities to adapt to this new reality.

Individual HRAs present an opportunity for small businesses to simplify the administration of their health benefits. However, because in most states individual market premiums vary by age and because the Act permits variation in employer contributions based on premiums, small employers should ensure their contributions towards Individual HRAs are structured consistent with applicable federal law including the Age Discrimination in Employment Act (ADEA).

In preparation for this change:

  • Issuers should take advantage of all mid-year ratesetting opportunities to adjust rates to align with expected changes in enrollment.
  • Issuers should prepare for potential changes to enrollment in their small group plans.
  • Issuers should prepare for a potential influx of new members (potentially with lower overall health risks) into their individual market plans.
  • Employers wishing to offer Individual HRAs to their employees should consider applicable state and federal employment laws, including the ADEA, when structuring Individual HRA employee contributions.

Seth Schneer, an associate in the Washington, DC, office, also contributed to this article.

Medicare Advantage And Small Business Insurance Market Reforms

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