In MA MLR Rule, CMS Giveth and Taketh Away

By James Gutman - March 1, 2013

Compared with what happened in the preliminary 2014 pay-rates notice issued Feb. 15, Medicare Advantage plans may have gotten away relatively easy in the proposed Medicare minimum medical loss ratio (MLR) rule released the same day. But this doesn’t mean they won’t face significant problems, especially since the rule would make Medicare Part D an integral part of the MLR calculation that begins being applied to MA next year.

There are several favorable aspects of the proposed rule, according to industry observers, starting with the decision to calculate MA plans’ MLRs at the contract level rather than the state level as in the commercial MLRs in effect since 2011. The advantage there is partly that numerous MA contracts stretch across state lines and that the fewer the units for which MLRs must be calculated, the less the chance that an MA sponsor will owe rebates for falling below the 85% minimum MLR requirement. Moreover, CMS’s proposed rule would allow “credibility adjustments” for smaller MA plans, meaning that they can add the amount of the adjustment to their actual MLRs for determining whether they meet the 85% minimum.

If MA plans with prescription drug benefits (MA-PDs) were feeling good about those provisions, however, the Part D inclusion in MLRs could change that. And for stand-alone Prescription Drug Plans (PDPs), their inclusion in the MLR rule without major amendments could qualify as a very unpleasant surprise. The problem in a nutshell, as explained by Pat Dunks, a principal and consulting actuary at Milliman, is that the base premium on the drug side is much lower, but plans still have to perform functions such as enrollment and marketing that count as administrative expenses and therefore can’t be used to raise MLRs.

So is the overall proposed rule a net plus or a minus for MA-PDs (and for that matter PDPs, which do gain from the contract-level calculation too)? What will MA plans need to do to make sure they don’t fall under 85% and therefore risk not only rebates but eventually also enrollment sanctions and potential contract losses? Are the MLRs another nightmare, or instead not worth losing sleep over given all the other potential problems on the horizon?

http://aishealth.com/blog/medicare-advantage-and-part-d/ma-mlr-rule-cms-giveth-and-taketh-away