Medicare Advantage program gets an overhaul – here’s what you need to know

Why you should trust Insure.com

Quality Verified

At Insure.com, we are committed to providing honest and reliable information so that you can make the best financial decisions for you and your family. All of our content is written and reviewed by industry professionals and insurance experts. We maintain strict editorial independence from insurance companies to maintain editorial integrity, so our recommendations are unbiased and are based on a comprehensive list of criteria.

The Biden administration has moved ahead with changes to the Medicare Advantage Program and insurers will receive an average 3.32% increase in payments in 2024, or about $13.8 billion more in funding.

At the same time, the Centers for Medicare & Medicaid Services (CMS) update contains rule changes designed to crack down on overbilling practices and fraud.

The rollout of the changes, proposed in early February, will be phased in over three years instead of just one, after insurers and industry groups raised fierce opposition to the initial plan. The industry went so far as to run a Super Bowl ad to lobby against the proposal.

For its part, the CMS says changes were needed to ensure the program’s long-term stability.

“Paying Medicare Advantage plans more accurately for the care they provide is how we ensure that people enrolled in Medicare Advantage, especially populations with the highest health disparities and people in underserved communities, can continue to access the care they deserve,” CMS Administrator Chiquita Brooks-LaSure says in an announcement of the update on March 31.

The agency says that phasing in the changes over three years gives insurance companies time to adjust to the new rules and should ensure that premiums remain stable and consistent.

What is driving the changes?

The changes to Medicare Advantage payment formulas are driven by concerns that insurers are exploiting its rules to reap overpayments from the federal government.

At the heart of the issue is a setup under the risk adjustment program, which determines how much Medicare pays insurers per enrollee.

Insurers get more money for patients whose illnesses are more costly. Critics argue that this setup encourages insurers to list as many health conditions as possible for their customers to receive extra money. 

The Kaiser Family Foundation recently issued a report which estimates profits on Medicare Advantage plans are at least double what insurers earn from other kinds of plans.

Americans have flocked to Medicare Advantage programs

Not surprisingly, Medicare Advantage programs have become an increasingly important line of business for private insurers. More than 30 million people now get their Medicare coverage through private carriers.

Humana recently announced it would exit the employer insurance business to focus on Medicare Advantage and Medicare plans.

The Kaiser Foundation estimates more than $400 billion went to private insurers last year from the program.

What will change under the new rules?

While the changes are being phased in, the new rules will eventually eliminate extra payments to insurers for enrollees with certain conditions. Specifically, conditions that don’t require substantial medical care, according to Medicare data.

Around 2,000 diagnosis codes are being removed from the agency’s model. Health conditions being removed include certain forms of mental health illness, chest pain and diabetes. The CMS says that while some codes are being removed, many more still remain, including more than 300 codes related to diabetes.

The Better Medicare Alliance (BMA), a Washington-based advocacy organization, says in a statement following the rate announcement that it remains concerned with the general direction of changes.

“We appreciated that CMS moved to a phased-in approach, but the underlying policy is fundamentally unchanged,” says Mary Beth Donahue, president and CEO of the BMA. “We remain concerned about the unintended consequences for seniors of this risk adjustment policy.”

However, the changes did receive some industry support. The Alliance of Community Health Plans, a group representing non-profit health insurers in 37 states, says the CMS has taken “a significant step towards the goal of aligning incentives for documenting diagnosis codes with those clinical conditions most predictive of future health spending.

“We support the risk-adjustment model changes to focus on delivering results for consumers and address underlying incents to aggressively document,” it says in a statement following the announcement.

How will the changes affect your premiums?

It will take time to assess the longer-term impact of the policy changes, but in the short term, the CMS believes premiums should remain relatively unchanged, partly due to the 3.2% overall increase in funding to Medicare Advantage in 2024.

“CMS anticipates stable premiums and generous supplemental benefits for beneficiaries in 2024, as seen in previous years,” it states in a fact sheet on the rate announcement.

Related Articles

What is Medicare Supplement Plan F? By Elizabeth Rivelli

What you need to know about Medicare insurance By Chris Kissell

Who is eligible for Medicare? By Chris Kissell

Your rights when buying Medicare insurance By Beth Orenstein

Medicare Supplement Plan G: What you need to know about the Medigap policy By Elizabeth Rivelli

How do Medicare Advantage plans work? By Les Masterson