How COVID-19 May Impact MA Risk Scores, Payments in 2022, 2023

CMS does not anticipate coronavirus-related expenditures including deferred care to impact 2022 healthcare spending, but the pandemic might impact Medicare Advantage risk scores in contract year 2023, according to a Wakely report commissioned by America’s Health Insurance Plans (AHIP).

“The CY2022 fee-for-service (FFS) growth rate is in line with CMS projections released prior to COVID, indicating that CMS believes most of the impact of deferred care, forgone services, and pent-up demand will not affect 2022 costs,” the report found.

The Wakely experts estimated 2.80 percent revenue change and 4.79 percent growth.

In contrast, CMS indicated in its 2022 Medicare Advantage Advance Notice that Medicare Advantage may see an average 2.82 percent revenue change and 4.55 percent growth in 2022.

CMS estimated that the total benchmark change would amount to 4.21 percent change, while Wakely estimated a 4.46 percent change.

CMS made a restatement on its non-ESRD fee-for-service Medicare cost projections in November 2020, which decreased 2020 costs by 12.1 percent compared to April 2020 projections, increased 2021 cost projections 2.2 percent over April 2020 projections, and increased 2022 cost projections by 0.3 percent over April 2020 projections.

CMS attributed the 2020 cost reduction and the 2021 cost increase to coronavirus-related deferred care. Vaccine costs drove the 2022 upward restatement.

Encounter data submissions will be fully phased in for 2022, leading to a 0.23 percent decrease in Medicare Advantage risk scores and a 0.12 percent decrease in Medicare Part D risk scores.

Because of the normalization factor, however, health plans might experience the impacts of 2020 coronavirus-related care deferrals in 2023.

“The Part C FFS normalization factor continues to trend upward, which reduces payment to plans,” the report stated. "The calculation CMS uses to derive the normalization factors was updated to include 2016 through 2020 scores, but these scores are unaffected by potential impact of COVID on 2022 scores, and CMS made no adjustment for such a potential impact.”

The normalization factor works to ensure that the average risk score is 1.0. When normalization factors are higher, then the risk score will be lower and the payments that Medicare Advantage plans receive will also be lower. In this way, the normalization factor regulates the fee-for-service payments across health plans.

Since 2015, the normalization factor has been inching upward.

The Wakely report recounted that, under the 2017 CMS-hierarchical condition category (HCC) normalization, the normalization factor would have grown from 1.075 in contract year (CY) 2020 to 1.128 in CY2022. This would result in payment decreases across contract years 2020, 2021, and 2022 (3.2 percent, 2.8 percent, and 1.99 percent, respectively).

Under the 2020 CMS-HCC fee-for-service normalization, however, the impact on year over year payment would be less.

The normalization factor under the 2020 CMS-HCC would grow from 1.069 to 1.118 between 2020 and 2022. This would result in a 2.6 percent decrease in payment in 2021 and a 1.91 percent decrease in 2022.

The Wakely report anticipated that the coronavirus will not impact the 2022 fee-for-service normalization factor or 2020 risk scores.

CMS has projected a 1.88 percent increase in risk scores from 2019 to 2020.

The coronavirus may not hit the normalization factor until 2023. The pandemic is expected to skew the 2021 fee-for-service risk scores away from current trends. In 2023, the normalization factor will be determined using 2021 fee-for-service risk scores.

“CMS should consider using emerging 2020 diagnosis data relative to prior years to estimate a 2020 risk score impact and adjust the expected trend and normalization factors accordingly,” the Wakely report recommended.

Addditionally, the Wakely report analyzed the impacts of end-stage renal disease eligibility expansion and potential maximum out-of-pocket limits.

Regarding the expanded eligibility for end-stage renal disease (ESRD) patients, the CMS advance notice aligned with previous analyses that found that benchmark Medicare Advantage payments would be inadequate to cover the higher enrollment.

“CMS is expecting that the number of new ESRD enrollees in MA plans for 2021 due to the open enrollment provision is about 83,700,” the report stated. “This estimate is double the 41,500 new ESRD enrollees from the June 2, 2020 Rule.”

As a result of this influx of enrollees, Medicare Advantage plan profits are expected to take a hit, dropping around 0.08 percent below required revenue.

Despite their relatively small population size, ESRD patients require high healthcare spending as their administrative costs, medical loss ratio, and general healthcare cost is much higher than the typical Medicare Advantage enrollee, the Wakely report warned.

CMS did not update the maximum out-of-pocket limit or beneficiary cost threshold for ESRD patients in the advance notice for 2022.

Using the methodology that CMS employed to set the calendar year 2021 maximum out-of-pocket limit, Wakely found that the mandatory limit would fall between $7,800 and $8,500.

For both the highest and lowest estimate, there is around $1,000 difference between the maximum out-of-pocket limit estimate that includes ESRD enrollees and the estimate that excludes them.