CMS Advance Notice and 2017 Draft Call Letter: Implications for MA and PDP plans

The Centers for Medicare & Medicaid Services (CMS) released its 2017 Advance Notice and Draft Call Letter in February, proposing numerous changes for Medicare Advantage (MA) and Part D plan sponsors.

The notice contains both opportunities and challenges that you will need to assess in order to determine how your organization will react. It’s important to remember that any impact from the proposed changes will vary greatly based on specific plan circumstances.

Several of the proposed adjustments are intended to improve the precision of payments and the quality of care. This includes updates to the Risk Adjustment Model used to calculate payments and to the Star Rating system, which evaluates plan performance.

Key proposed changes for 2017

At a high level, the most critical proposed changes to come from the notice are:

  • Estimated MA and FFS growth rate of about 3.0 percent, which results in a net 1.35 percent national average plans and payments change in plan payments after considering all proposed changes, which can vary significantly by county and plan.
    • Estimated ESRD growth percentage of -2.39 percent
  • Though not in the scope of the Advance Notice, the one-year holiday from Health Insurance Tax in addition to the MA increase is an important variable for plans to consider for 2017
  • ACA FFS-based rates are now 100 percent phased in for all counties in 2017 (rate caps still apply).
    Proposed changes below will impact plans differently.

    • HCC risk score model includes significant changes in relative risk factors for full dual eligible, partial dual eligible and institutional members, and statutory minimum +0.25 percent change in coding pattern adjustment factor (to 5.66 percent).
    • Adjustments to Star ratings will account for impact of socioeconomic status (SES) on outcomes.
    • Employer Group Waiver Plan (EGWP) Part C bids are no longer required and payment tied to non-EGWP bids intended to reduce CMS costs, plus a prospective reinsurance payment
  • Annual Part D policy and larger-than-typical benefit parameter changes; and continued increase in standard coverage in the gap
  • Part C meaningful difference test limits are unchanged, with some proposed equivalence and TBC test adjustments.
  • 2017 risk scores will be based on 50 percent EDS/FFS and 50 percent RAPS/FFS.
  • PBP tool changes expected to streamline and clarify copay input and display.
  • The notice contains no mention of any policy as proposed in recent years for in-home assessments for risk adjustment.

Needed reaction for 2017
How should you respond to the changes proposed in the notice?

  • Perform due diligence on those variables that can be estimated, to minimize the uncertainty of 2017 as you consider benefit and pricing options for next year.
  • Limitations on year-over-year changes (TBC and OOPC) will continue to pose challenge in terms of response to revenue and operational changes being imposed by CMS.
  • Large Part D cost increases will accelerate pressure on MA-PD and PDP plan liabilities, and competitive premium and benefit options.

Additional information
We provide further examination of both the 2017 CMS Advance Notice and Draft Call Letter and suggested responses for plan sponsors through several downloadable resources

About the authors

Mark CaryMark Cary
Vice President, Actuarial Consulting Services
Mark has almost 30 years of experience with group health insurance and managed care, both as a consultant and as a health plan leader in actuarial, strategic and administrative functions for health insurers. His experience includes building and providing strategic and analytic actuarial services and teams, with expertise in MA product and bid strategy, as well as responsibility for all traditional actuarial functions.
Mary Larson Mary Larson Headshot
Director, Risk Adjustment Consulting

Mary Larson is the risk adjustment lead within network and population health consulting for Optum. She has over 10 years’ experience improving payer revenues with specific focus on Medicare, commercial exchange and Medicaid risk adjustment.

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