CMS 2016 Advance Notice and impact on plan sponsors

The release of the Centers for Medicare & Medicaid Services (CMS) 2016 Advance Notice of Methodology Changes presents numerous opportunities and challenges that Medicare Advantage (MA) plans will need to assess for the 2016 plan year. The general impact of these changes could vary greatly based on specific plan circumstances and what we see as underlying CMS concerns.

Perhaps the most immediate overview and observations associated with the Advance Notice are in regard to revenue increases and quality changes:

  • Average MA revenue estimated by CMS to increase 1 percent – this increase is attributed to several factors, and actual outcomes could vary substantially from plan to plan.
  • Quality remains the focus with changes to the weights applied to certain Star measures and the elimination of pre-established thresholds planned. For most plans, these changes will not have an immediate impact.
  • Benefit and testing parameters remain unchanged for TBC, OOPC and MOOP, but additional quality-based TBC adjustments are proposed.

From the onset, there is immediate reaction required of plan sponsors as they prepare for 2016:

  • For MA plan sponsors, the combination of rate book and medical expense trends will continue to put pressure on rebates resulting in an increase in member premiums and a reduction in benefits.
  • Limitations on year-over-year changes (TBC and OOPC) will continue to challenge plans in terms of response to revenue and operational changes being imposed by CMS.
  • Last year’s high-cost drug expenditures relating to Hepatitis C, in combination with the introduction of other high cost specialty drugs will create challenges for projecting drug costs into 2016. Plans will need to evaluate contracts, formularies, networks and benefits to maintain a competitive product.
  • Plans will continue to see pressure on documenting member risk scores to achieve alignment with realized claims cost. The assumption continues that MA plans will increase risk scoring relative to FFS costs, while placing controls on how those scoring efforts are recognized.
  • Movement to ICD-10 diagnoses and EDS data submissions will put significant pressure on plans to improve their operational process and relevant data capture.
  • Plans must execute effectively on the remaining “levers” available to plan sponsors in the areas of quality, risk adjustment and cost of care if they are to achieve their goals for benefits, member premiums and margins.

For in-depth insight into the impact of the CMS 2016 Advance Notice for MA plan sponsors, please download our issue brief on 2016 Advance Notice and Draft Call Letter – Pricing and Operational Challenges.

–Brent Greenwood

About the author

Brent Greenwood, ASA, MAAA
Vice President, Actuarial Consulting Services

brent_GreenwoodBrent Greenwood is a Vice President with the Actuarial Consulting Services practice of Optum. An actuary specializing in financial and strategic managed care engagements, Brent has experience with managed care benefit design, pricing, product development, provider contracting, as well as general financial analysis. Brent has more than 37 years of managed care consulting experience and joined Optum in 2000. He was previously a principal with Towers Perrin.

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