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Medicare News from NAHU - Responding to the Egg Whip Cuts

Last month, the Centers for Medicare and Medicaid Services (CMS) released proposed guidance regarding Medicare Advantage (MA) rates for the 2017 plan year. The guidance proposed an average rate increase of 1.35%, a slight drop from the previously proposed increase of 3.07% that was announced in December. Included in this guidance was what the Administration deemed a “coding trend” to realign rates throughout the program to adjust for discrepancies in the program and that the effected increase would be 3.55%. Following the release of this guidance, there has been significant outcry for the estimated 3.3 million Medicare beneficiaries who are enrolled in Employer Group Waiver Plans, otherwise known as “Egg Whip” or EGWP.

The Obama Administration’s proposed guidance is designed to bring the EGWP plans in line with other MA plans as the employer plans are currently paid more, which would result in a cut for these plans. The Medicare Payment Advisory Commission claims that the average payment for an EGWP enrollee was 106% of that of a traditional fee-for-service beneficiary, and 102% for individual MA plans. The proposed cuts would reduce spending on these beneficiaries between $750 and $870 million according to a study by the actuarial firm Milliman, which would result in higher premiums or reduced benefits for beneficiaries. According to the Kaiser Family Foundation, roughly half of all retirees that have Medicare coverage through their former employers are enrolled on MA plans. MA currently enrolls more than 18 million individuals, or roughly one out of every three Medicare beneficiaries.

The average rate increase stems from a complex formula to determine how much insurers will be paid for MA coverage, including factoring in the risk adjustment formula, star rating bonuses and geographic disparities. The risk adjustment formula includes a change designed to attract beneficiaries who are disproportionately sick and expensive. However, several industry groups have disputed the average rate figure, including America's Health Insurance Plans (AHIP), which commissioned a study by the actuarial firm Oliver Wyman that found the proposed rates would lead to a 2.1% average payment reduction. The Milliman study found that spending on employer-based Medicare Advantage plans would decrease by 2.5 to 2.8% (roughly $250 per enrollee). AHIP is now funding its largest single-issue spending campaign to combat the proposed cuts to the program through a newly created Coalition to Save Medicare Advantage Retiree Coverage that has been rolling out TV and radio advertising on the issue.

On Wednesday, the House Ways and Means Health Subcommittee held a hearing, “Preserving and Strengthening Medicare,” to review the Medicare Advantage (MA) program and recently released proposed cuts to the program. Representative Pat Tiberi (R-OH) defended MA and its higher payments for delivering higher quality care than traditional Medicare and advocated that Congress transform traditional Medicare into an MA-like structure. Tiberi noted, “MA plans offer high quality, coordinated care for our seniors.” Democrats on the committee charged that Republican leadership has not adequately monitored market consolidation in the insurance industry, which has resulted in less competition in the MA market. The hearing follows a bipartisan letter sent on March 4 by House Ways and Means Committee leaders to CMS Acting Administrator Andy Slavitt concerning the proposed MA cuts. In advance of the guidance being released on February 19, more than 300 members of the House and 61 senators had already come out in opposition of the cuts.

It is unlikely the proposed rates will not be changed based on previous year’s trends, including last year when the proposed 1.7% rate hike for MA became a 4.2% increase in the final guidance. Comments on this year’s guidance were due on March 4 and the final rates will be published on April 4

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