In the last few years, growth in healthcare spending has begun to moderate, fueled in part by Medicare’s shift toward new forms of payment based on outcomes and quality. But short-sighted regulations proposed last week would impose dramatic cuts to Medicare Advantage (MA) that may stifle this exciting transformation.
Many of the new cost-containment strategies now underway in original Medicare were pioneered in Medicare Advantage. The models for the Affordable Care Act (ACA)’s Accountable Care Organizations were integrated delivery systems like Intermountain, Kaiser Permanente and Geisinger, which all operated MA plans.
Last year the very plans that developed these innovations weathered a 6.7 percent cut in payment. The effect of the cut was predictable: a majority of counties across the country saw fewer plan options, premiums climbed 6 percent and out of pocket maximums jumped an average of $560. But now, after federal regulators issued a new proposal February 21, MA appears to be headed for an entirely new round of cuts.
The new cuts would slice another 5.9 percent from Medicare Advantage this year. That amounts to nearly 15 percent in cuts over just two years. This trend is unsustainable without imposing real costs to Medicare and its beneficiaries.
Regulators have offered several rationales for these cutbacks, which can sound plausible at first when considered one by one. After all, Congress did redirect some MA funding to offset costs associated with the ACA, and slower cost growth elsewhere in Medicare arguably would mean some adjustment for MA. However, after examining the overall, cumulative impact of this latest proposal, it’s clear that regulators are missing the forest for the trees.
Continued cuts of this magnitude put at risk the next generation of new cost-saving and quality-enhancing reforms. Even as today’s models of accountable care and primary care innovation are taking hold elsewhere in health care, MA plans would be falling behind due to the forced limit on their investment in cost-curbing strategies. That is bad news for the taxpayers who must help finance Medicare today and in the decades to come.
But the consequences for beneficiaries are even more concerning. As the proposed cuts force plans to pull back from markets they currently serve, some seniors and disabled Americans will have fewer integrated care options from which to choose, or even none at all. For any Medicare enrollee, this is a scenario to avoid. But when you consider how 41% of Medicare beneficiaries make less than $20,000 a year, the proposal becomes unjustifiable.
The Center for Medicare and Medicaid Services (CMS) has the authority to prevent this scenario. They must exercise it.
One element of a smarter approach could be to extend a recently-concluded quality demonstration project. Current law requires CMS to pay bonuses to MA plans that earn 4 or 5 stars in CMS’ 5 star plan evaluation system. But when a now-concluded demonstration program allowed CMS to offer bonuses to 3 and 3.5 star plans, there was a marked improvement in plan quality across MA as plans invested in better care management and partnered with providers to offer the high-value care that patients need. Resurrecting the demonstration would be win/win by mitigating damaging rate cuts for plans while promoting even better quality across the MA program. And rather than denying many beneficiaries the option of pursuing integrated care, continuing the quality demonstration would actually improve the quality of the options availability to them.
Whatever the exact regulatory levers used to reverse the proposed cuts, CMS must change its course. Blunt cuts will only stifle the very innovation which policymakers, providers and patients are so desperate to pursue in a new era of delivery system reform.
Patel is managing director for clinical transformation and delivery at the Engelberg Center for Health Care Reform at the Brookings Institution and a practicing primary care internist. She also served in the Obama administration as director of policy for the Office of Intergovernmental Affairs and Public Engagement in the White House. Rother is the president and CEO of the National Coalition on Health Care, a coalition of major businesses, labor unions, insurers, providers, state-based benefit programs, and consumers promoting an affordable, sustainable, and fair health system. Previously, he served as executive vice president for Policy, Strategy, and International Affairs at AARP.