Insurers cut back on Medicare Advantage
Funding cuts to Medicare will affect Minnesota residents, with UnitedHealth exiting primarily in the southern part of the state. FOX 9’s Mike Manzoni has the latest details.
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Some industry experts have warned that Medicare Advantage benefits could be cut or face increased costs next year if the Trump administration’s proposed 2027 micro-pay increases take effect.
The Centers for Medicare and Medicaid Services (CMS) updates Medicare Advantage or MA payment rates annually. In late January, the committee proposed an average increase of just 0.09% in 2027, well below the roughly 4% to 6% increase expected by analysts and also below this year’s 5.06% increase. CMS is accepting public comments on the latest proposal until March 1, and final rates are expected to be announced by April 6, CMS said.
Such a small increase prompted insurers to quickly warn that seniors with MA plans would face reduced benefits and increased costs in 2027.
“At a time when health care costs are skyrocketing and health care utilization is high, uniform program funding will impact coverage for seniors,” Chris Bond, a spokesman for the industry group America’s Health Insurance Plans (AHIP), said in a statement.. “If finalized, this proposal could result in reduced benefits and increased costs for the 35 million seniors and people with disabilities who renew their Medicare Advantage coverage in October 2026.”
How does CMS calculate this small increase?
There are two main changes to the calculations, said Richard Kronick, a professor in the Department of Family Medicine and Public Health at the University of California, San Diego.
- Updates to the data used in the 2023-2024 estimates from 2018-2019 reduced payments by approximately 3.5%.
- With the policy change, CMS will no longer use diagnoses based solely on medical record reviews that could lead to new diagnoses, including for patients who have not referred treatment to a physician. Additional diagnostics increase government payments. This is a setting known as risk adjustment to prevent risk selection and ensure care for more critically ill patients. This is in contrast to the government’s traditional Medicare, which pays providers on a per-procedure basis based on a fee structure known as piecework or FFS.
If you exclude medical record-only diagnoses or diagnoses that are not associated with a specific medical service, such as a doctor’s visit, your payments will be reduced by approximately 1.5%.
“It adds up to about 5%, and if you subtract the 5% trend, you get 0.09%,” Chronic said.
Why is CMS targeting chart review diagnostics?
The Department of Health and Human Services’ Office of Inspector General said in a 2024 report that diagnoses from medical record reviews have not been shown to be clearly supportable and are “vulnerable to abuse.”
“Analysis of Medicare Advantage insurers’ coding practices consistently finds that medical record reviews not used in traditional Medicare are the largest driver of increased payments, resulting in an estimated $24 billion in additional payments for Medicare Advantage in 2023,” nonprofit healthcare researcher KFF said in a report.
Earlier this year, Kaiser Permanente affiliates agreed to pay $556 million to resolve allegations that the company added about 500,000 diagnoses to MA patients’ medical records from 2009 to 2018, resulting in about $1 billion in overpayments.
“Each year, taxpayers overpay MA companies billions of dollars based on unsubstantiated diagnoses of MA enrollees,” the OIG said. “Unsupported diagnoses inflate risk-adjusted payments and cause inappropriate payments in MA programs.”
How affected are seniors likely to be by higher payments?
It is unclear how older adults using MA will be affected. Companies like AHIP and Fitch Ratings have warned that older people could eventually make up the difference.
Fitch said in its report that it expects “lower government reimbursement levels to lead to higher premiums, reduced benefits, and fewer coverage options as insurers further streamline product and market deployments.”
CMS has also been phasing out payment increases in recent years, and “Medicare Advantage insurers have been able to absorb what you would call a ‘step-down in payments,'” said Mary Johnson, an independent Social Security and Medicare analyst.
But certainly, “for patients and beneficiaries, that often means Medicare Advantage plans impose another way to slow patient utilization and claims through stricter prior authorization requirements than traditional Medicare with Medigap supplements,” she said. “That could mean shorter hospital stays, fewer rehabilitation services, and the need for prior authorization for expensive drugs.”
Seniors enrolled in MA plans may see some reductions in ancillary services like dental or vision, or a slight increase in cost-sharing, but historically insurers “don’t pass that much on,” Kronick said.
“CMS’s proposed changes to introduce new risk adjustment data and exclude certain diagnoses from risk adjustment, such as diagnoses from reviews of patient charts not associated with verifiable health care provider contact, are intended to help MA organizations focus on increasing value to enrollees rather than coding practices,” a CMS spokesperson said in an email.
MA “continues to be a strong and growing option for seniors, with beneficiaries choosing it for affordability, additional benefits and flexibility,” the spokesperson added.
Medora Lee is USA TODAY’s money, markets and personal finance reporter. Please contact us at mjlee@usatoday.com. Subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.
