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CMS sets Medicare Advantage and drug plan MLR rules

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The Centers for Medicare & Medicaid Services (CMS) has released the final version of regulations that will affect how insurers manage and price private Medicare plans.

The final rule, Medical Loss Ratio Requirements for the Medicare Advantage and the Medicare Prescription Drug Benefit Programs (CMS-4173-F), explains how CMS wants insurers to apply new minimum medical loss ratio (MLR) rules to Medicare Advantage plans and Medicare Part D drug plans.

The regulations are set to appear in the Federal Register Thursday.

PPACA and her sister, HCERA
The Affordable Care Act package has two parts: The well-known Patient Protection and Affordable Care Act of 2010 (PPACA), and another, less publicized act, the Health Care and Education Reconciliation Act of 2010 (HCERA).

A new law created by HCERA — Section 1857(e) of the Social Security Act (SSA) — requires Medicare Advantage plans and Medicare Part D prescription drug plans to spend at least 85 percent of their revenue on health care and quality improvement efforts starting in 2014.

A Medicare plan that misses the minimum MLR goal is supposed to send rebates to enrollees. Officials at CMS — an arm of the U.S. Department of Health and Human Services (HHS) — are estimating that insurers could end up paying about $858 million in rebates, or $30 to $40 per private plan enrollee, if 2014 revenue and benefit totals are comparable to 2013 revenue and benefit totals.

PPACA already requires commercial health insurers to spend at least 85 percent of large-group revenue and 80 percent of individual and small-group revenue on health care or quality improvement efforts or else pay rebates.

CMS posted a draft version of the Medicare MLR regulations in February and received 51 comments.

Much of the debate about the commercial plan minimum MLR regulations focused on what a plan should and should not be able to count when calculating the amount it has spent on health care and on “quality improvement activities” (QIAs).

Health plans have argued, for example, that the quality improvement activity total should include the cost of efforts to control soaring health care costs by fighting fraud. Some have argued that many of the costs involved with managing a provider network, such as verifying the credentials of providers, also have a direct bearing on quality.

In the final rule, CMS officials decided to let plans include cash recouped through fraud-prevention efforts to be included in the incurred claims total, but to exclude fraud prevention and network management costs from the QIA cost total.

“Even though fraud prevention is not a QIA, we believe this provides an incentive for [Medicare Advantage] organizations and Part D sponsors to engage in fraud reduction activities,” officials said in a preamble to the final rule.

Elsewhere, CMS decided to let plans count the cost of setting up the electronic health record (EHR) systems required by PPACA as a quality improvement activity, but not the cost of converting to the new ICD-10 claim coding system. 

Some commenters wrote to CMS to make sure that officials would include the fees paid to agents and brokers in the term “marketing expenses.”

“We consider agents and brokers fees as non-claims costs and therefore impermissible as being considered included as incurred claims,” officials said. “We also exclude marketing as a quality improving activity.”

Officials also took pains to note that, although they want health plans to find ways to use wellness programs to improve the quality of care, they have concerns about plans using wellness programs to attract unusually healthy enrollees or to penalize older or sicker people.

“Our longstanding policy is that a plan benefit design cannot offer differential benefits to its enrollees, and that [Medicare Advantage (MA)] organization or Part D sponsor may not deny, limit, or condition enrollment to individuals eligible to enroll in an MA plan offered by the organization on the basis of any factor that is related to health status, including medical history, disability, race, or age,” officials said.

“Moreover, MA organizations and Part D sponsors must have procedures in place to ensure that members are not discriminated against in the delivery of health care services, consistent with the benefits covered in their policy, based on race, ethnicity, national origin, religion, gender, age, mental or physical disability, genetic information, or source of payment,” officials said.

The Medicare Advantage managed care manual discusses the kinds of evidence, such as studies from government agencies or independent technology assessment groups, that plans need to support use of wellness programs, officials said.

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