Health Plans

How health plans can sustain growth and profitability

May 20, 2021 | Article | 3-minute read

How health plans can sustain growth and profitability


The risk-adjustment and quality assessment policies that the Centers for Medicare & Medicaid Services’ (CMS) designed to promote fairness and quality in Medicare Advantage (MA) programs have instead become tactical revenue channels.

 

The ROI on the risk-adjustment program is approximately six to twelve times what plans invest, which incents health plans to manage tactical revenue instead of improving quality and the patient experience.

 

Focusing on tactical revenue generation also makes MA plan payments higher than expected fee-for-service (FFS) costs (for similar beneficiaries), as highlighted in the March 2021 Medicare Payment Advisory Commission (MedPAC) report. The Commission expects 2021 MA payments to come in at 104% of what similar beneficiaries would pay in FFS. The Commission attributes these elevated payments to higher MA plan-risk coding. A rising number of MA enrollees reside in areas where average payments hover above FFS spending benchmarks and quality bonuses.

 

To sustain growth and profitability, health plans need to move their investments back to core health insurance practices.

Manage risk with population health



The purpose of CMS’s risk-adjustment program is to fairly compensate plans for accepting all categories of enrollees, including those with high medical costs. Plan compensation is adjusted according to members’ risk profiles to ensure that plans do not select only low-risk members. However, this approach has prompted health plans to elevate member risk profiles and reap the financial benefits. According to the MedPAC report, health plans unearthing diagnosis codes to elevate risk profiles is the leading cause for higher MA payments.

 

Risk adjustment is still relevant, as plans should be paid based on the risks they take. For a sustainable future, from both a health plans and MA program perspective, health plans need to move away from risk mining to risk management. Currently, value-based contracts push population health management entirely to providers. Plans should also share in this work. They must invest further in advanced analytics and data to foster implementation partnerships, especially for social determinants of health initiatives. If implemented, MedPAC’s recommendation to lessen the coding gap between MA and FFS will reduce risk adjustment ROI. Why not pursue a more balanced approach?

Health plan-quality over Star Ratings



CMS’s Star Ratings program rewards MA plans that improve care quality and the customer experience. However, the current program has grown to be quite complex. As a result, plans are becoming bogged down by details and focus on specific measures and ratings rather than holistic improvement.

 

This year’s MedPAC report echoes similar concerns, saying that the current program makes it difficult to evaluate current MA program quality. The Commission proposed replacing the current quality measurement system with a new MA value incentive program.

 

Health plans must pursue the quality assessment program’s detailed measures with more broad quality and customer experience efforts. This investment will help plans sustain these quality programs and insulate them from continuous changes to CMS’s quality assessment program.

 

Health plans should make quality and customer experience a focus of their entire organizations, not just their Star Ratings teams. They should align staff incentives and set up internal key performance indicators and continuous improvement goals to support this focus. Cigna talked about this in 2019: It stopped chasing individual Star measures or cut points and instead focused on overall quality, which, incidentally, helped it achieve higher Star Ratings as a byproduct.  

Long-term health plan sustainability



Health plans will stay profitable over time by devoting resources to population health management, operational efficiency, product design, and retention. At first, plans may earn less money per beneficiary. However, MedPAC’s recommendations and the general need to reduce MA spending will steer plans away from tactical revenue generation regardless.  Although this shift might be difficult to proactively address for some health plans, it will position them more strongly for long-term sustained success.

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