(Bloomberg) -- The US Medicare program moderated proposed changes broadly opposed by the health insurance industry to limit payments to companies that administer private versions of the program for the elderly.
The final rate notice for 2024 will mean a 1.12% cut for Medicare plans, after stripping out the expected impact of how plans report patient illnesses. The rate is slightly more favorable than what regulators proposed two months ago, which would have meant a 2.3% cut without the adjustment for patient illnesses. When including the effect of that adjustment, Medicare says average payments to plans will increase.
The agency will also phase in controversial changes that determine payments based on the severity of patients’ health problems. That policy will take effect over three years instead of one year, after the proposal drew fierce criticism from the industry.
The changes add up to a near-term victory for the industry, which had argued that the Biden administration went too far in its initial proposal. But the policy may mark the start of a period of slower growth for a market that has doubled in size in the last decade, driving growth and profits at major insurers.
Shares of health insurers including UnitedHealth Group Inc., Humana Inc. and CVS Health Corp. rose in trading after US markets closed.
Medicare paid health plans $403 billion last year to administer private versions of the government program, which has become increasingly popular and profitable for companies. The industry argued the proposal would take away from financial support of the care of low-income, vulnerable patients. But Biden administration officials rejected those arguments.
“The MA market is highly competitive and has seen rapid growth,” Chiquita Brooks-LaSure, administrator of the Centers for Medicare and Medicaid Services, said in a call with reporters. “Any reduction in benefits would be decisions made by companies, not because of CMS policies.”
Insurers will now have to determine whether to maintain generous benefits that help attract customers, such as zero premiums, or protect their profit margins with more costly plans.
Some of the policy changes are meant to address “discretionary coding that results in wasteful spending,” CMS Deputy Administrator Meena Seshamani said on the call.
The officials emphasized that Medicare Advantage plans will still be paid more for taking care of sicker patients, including those with low incomes who also qualify for the safety-net Medicaid program. Conditions like diabetes and depression will still be factored into the payment formula.
But the updates were intended to remove unjustified payments for some diagnostic codes, they said.
“Some of the codes that were removed were what I like to say ‘eye of the beholder’ codes, where there was ambiguity,” Brooks-LaSure said. The same patient might be coded differently, and be paid for differently, depending on their plan or physician, she said.
Officials said the proposal will increase average payments to Medicare Advantage plans by 3.32% in 2024, or an additional $13.8 billion for the industry. That’s counting an adjustment for risk-score trends, which analysts typically exclude in evaluating the impact of the policy on companies.
(Updates shares in fifth paragraph.)
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