Medicare Advantage: As Enrollment Grows, So Do Risks For Plans

Plans also face a proliferation of new expenses in the areas of implants and prosthetics with newer, vastly improved remotely monitored and managed heart pacemakers, as well as more sophisticated prosthetics exceeding $60,000 each.

3. Outlier claims. Claims that Tenet Healthcare fraudulently abused the Medicare outlier payment system resulted in a high-profile $900 million fine. And while CMS has changed its methodology in processing Medicare outlier payments, this change is not well understood. Many plans still assume that claims will not reach outlier status, and therefore do not understand how expensive “Medicare Allowable” can be.

Earlier this year, CMS announced it will “reprocess” many existing outlier claims and the review could take up to 4 years. We know of a number of MA plans that have recently submitted claims of $1 million and more to CMS, only to be told they will have to wait a year or more for the review to be completed.

While this processing delay may not be a critical factor for a large national plan, for a smaller plan with limited capital, having to reserve a million dollars or more in outstanding claims for an indefinite period can create real pressure on capital.

4. Risk retention. The above factors have contributed to inappropriate risk transfer for many plans. In addition, historical reinsurance approaches have focused on inpatient claims only. Now, plans should consider the bigger picture.

To take one example, consider blood clotting factors, which were once administered only in inpatient settings. These products can cost $50,000-100,000 per patient annually and are now routinely administered in outpatient clinics and homecare settings. The incidence of hemophilia and other blood diseases requiring the use of these clotting factor products has historically been low among Medicare recipients. However, with the introduction of new Medicare/Medicaid “dual eligible” plans and the increasing diagnoses of blood illnesses such as von Willebrand disease (vWD), a blood clotting disease, MA plans may see increasing claims in this area. New research projects that up to 3% of the U.S. population suffers from vWD. A traditional, inpatient-only reinsurance approach could leave plans vulnerable to some large costs.

Plans should also reconsider their use of “inside limits” such as average daily maximums (ADMs). These are per diem, inside limitations on reinsurance reimbursement. In the past, many plans have accepted inside limits to obtain lower deductibles and save money–or so they thought. Some have had a rude awakening when they are faced with little or no reimbursement on a large claim.

Let’s take an example of a claim involving clotting factor products. In this scenario, we have a 46-day inpatient claim of $650,000. Assuming the health plan had reinsurance with a $100,000 deductible and a $3,500 ADM, the total eligible reinsurance claim would be limited to $161,000. Excess retention, or the amount of the claim ineligible due to the ADM, would equal $489,000. In this example, the plan would have been “effectively reinsuring” at a deductible of $589,000. If the claim involved clotting factor products in an outpatient setting, the inpatient-only coverage could potentially result in zero reimbursement, or an effective deductible of $650,000. In either situation, the plan has failed to achieve an effective transfer of risk.

What can be done?

As a result, more health plans are turning to reinsurance with higher individual deductibles, a broader range of covered services, and no inside limits. The pure reinsurance expense will be similar, but the risk to the plan in situations of true, catastrophic claims is significantly reduced.

The Medicare Advantage program is bringing new benefits to the American consumer and new business opportunities to the nation’s health plans. For plans, the key to success in this arena will be in fully understanding and managing the risks that come with the opportunity.