Reflecting health care cost trends, the Centers for Medicare and Medicaid Services has issued a final rule increasing payments to Medicare Advantage plans to 3.4% in 2019.

The announcement was part of a larger one on changes that will affect Medicare Advantage plans starting 2019, including more lax rules on what can be covered expenses for medical purposes.

The substantial increase is almost double the 1.84% hike the CMS had proposed in February. The 3.4% increase compares to the 2.95% that the payments were increased to in 2018, from the year prior.

But because of other changes the CMS made in its final rule to how it uses certain data to calculate patient “risk-adjustment scores,” the effective increase could be closer to 6.5%, on average, according to the agency’s announcement of the changes.

The payments that are being increased are made to the health insurers that administer Medicare Advantage plans. Medicare Advantage health insurers are paid a set rate by the government to help cover members’ health care costs.

The rate also affects how much insurers charge for the policies. The increase should help offset part of any premium increases, and the increased level should temper some of the inflationary pressures that all payers are feeling in the health care sector.


Risk-adjustment scoring

Another factor that will affect premiums and how much CMS pays out to health plans is how “risk scores” are calculated.

Payments to Medicare Advantage plans are influenced by risk scores, which take into account differences in patients’ medical diagnoses and health outcomes. The sicker the patient, the higher the risk score assigned.

In its announcement, the CMS said it would increase the use of encounter data to determine risk scores for plans. Under the final rule:

  • Traditional fee-for-service data will account for 75% of Medicare Advantage risk scores (it’s 85% for 2018), and
  • Encounter data will account for the remaining 25% (compared to 15% in 2018).

The effect, experts say, will likely be a further increase in payments, perhaps by as much as another 2 percentage points.


New covered items

Starting in 2019, new benefits for Medicare Advantage plans may include such items as covering special air filters for air-conditioners for people with asthma and allergies, healthy groceries, rides to medical appointments and home-delivered meals.

The CMS said it had expanded how it defines the “primarily health-related” benefits that insurers are allowed to include in their Medicare Advantage policies. And insurers would include these extras on top of providing the benefits that traditional Medicare offers.

Many Medicare Advantage plans already offer some health benefits not covered by traditional Medicare, such as eyeglasses, hearing aids, dental care and gym memberships.

But the new rules, which the industry had lobbied for, will expand that significantly to items and services that may not be directly considered medical treatment.