Health Care Reform’s Impact on MA and PDP Plans

Health Care Reform’s Impact on MA and PDP Plans

   By Miki Kolton and Brendan Dunn, Attorneys, Greenberg Traurig, LLP

President Barack Obama has now signed two separate bills that together will fundamentally transform our nation’s health care system. The Patient Protection and Affordable Care Act (P.L. 111-148) and the Health Care & Education Affordability Reconciliation Act (H.R. 4872), which modifies key provisions of P.L. 111-148, significantly increase coverage by expanding Medicaid, providing small businesses with tax credits for employee health coverage, and subsidizing the purchase of private health coverage through new insurance exchanges.

In addition to facing new legal and regulatory challenges, health care providers and insurers will provide much of the financing for these new coverage expansions. Among the stakeholder groups most significantly impacted by health care reform are Medicare Advantage (MA) plans. According to one calculation, the health care reform laws will cut direct payments to MA plans by nearly $130 billion over 10 years, with an additional $70 billion decline resulting from interactions with other cuts in the Fee for Service (FFS) Medicare program.

This Alert is intended as a summary only and is not to be relied upon for drawing legal conclusions or advising clients about specific issues.

Revised Benchmarks and Quality Bonuses

MA rates are frozen for 2011. Beginning in 2012, MA benchmarks will be phased down and based on county FFS spending. Rates for 2012 will be based partly on the current benchmark (50%) and partly on local FFS spending (50%). In 2013 and beyond, however, rates will be entirely based on local FFS spending. (Depending on the level of payment reductions, the phase down to 100 percent of FFS could be extended.)

The 100 percent FFS benchmark adjustment ranges from a benchmark of 95 percent in counties in the highest quartile of FFS spending to 115 percent in counties in the lowest quartile of FFS spending. Beginning in 2012, quality bonuses will be available to qualifying plans that receive at least 4 stars on a 5 star rating system developed by the Department of Health and Human Services (HHS). These amounts can be increased for qualifying plans in certain qualifying counties. In 2012 plans that do not qualify for a star rating are treated as qualifying plans. HHS will develop a method to compute quality for new and low enrollment plans for 2013 and beyond.

Supplemental Benefits

Provisions in P.L. 111-148 grandfathering supplemental benefits for areas where 2009 average plan bids were below 75 percent of FFS were eliminated by H.R. 4872. Savings and quality bonus payments must be used for a buy-down of Part A, B, and D cost-sharing prior to providing additional supplemental benefits.

Medical Loss Ratio (MLR)

If HHS determines for a contract year (beginning with 2014) that an MA plan does not have an MLR of at least 85 percent, the plan must remit to the Secretary the product of the total revenue of the MA plan and the difference between 0.85 and the plan’s MLR. The Secretary is to suspend enrollment of new enrollees for three years if the MLR is less than 85 percent for two consecutive years and terminate the plan contract if the MLR is less than 85 percent for five consecutive years.

Limits on Cost Sharing

MA plans are prohibited from imposing greater cost-sharing on members than Part A or Part B Medicare for the following services: chemotherapy administration services; renal dialysis services; skilled nursing care; and other services that the Secretary determines appropriate. Furthermore, the Secretary may deny a bid submitted by an MA organization for an MA plan if it proposes significant increases in cost sharing or decreases in benefits.

Coding Intensity Adjustment

The bill requires HHS to adjust MA rates for coding pattern differences between MA and FFS. The law sets an annual minimum coding intensity adjustment of 5.7 percent beginning in 2019.

Authority to Deny Bids

CMS is provided with the authority to deny an MA or PDP (prescription drug plan) bid if the bid significantly increases cost sharing or decreases benefits.

Beneficiary Election Periods

Beginning in 2011, MA enrollees will be allowed to disenroll and return to traditional Medicare at any time within the first 45 days of the year. For plan years 2012 and beyond, the open enrollment period is set at October 15 through December 7.

Extension for Special Needs Plans (SNPs)

Authority for SNPs is extended from 2011 to 2014. By January 1, 2019, HHS must transition enrollees without an applicable chronic condition out of SNPs and to a non-SNP MA plan or to traditional Medicare.

Technical Correction for MA Private Fee-for-Service Plans

The waivers granted to MA Plans regarding service areas shall be extended to certain employer sponsored plans so long as those plans had qualifying enrollment as of October 1, 2009.

Makes Senior Housing Facility Demonstration Permanent

Senior housing facility plans can be renewed or initiated on or after January 1, 2010 to continue under Part C. CMS is allowed to give a frailty payment adjustment to plans that enroll frail, dually eligible populations.

Development of New Standards for Medigap Plans

HHS is authorized to work with the National Association of Insurance Commissioners to review and revise the standards for Medigap benefit packages.

Closing the Donut Hole

In 2010, Part D enrollees who enter the “donut hole” will receive a $250 rebate. By 2020, beneficiary obligations for brand name and generic drugs will be reduced by 75 percent.

Medicare Part D Low-Income Benchmark Premium

Starting in January 2011, rebates and quality bonus payments will no longer be counted in the calculation of the low-income subsidy benchmark.

Voluntary De Minimis Policy for Subsidy Eligible Individuals under PDPs and MA–PD Plans

Starting in January 2011, PDP and MA-PDP plans can waive premiums if they are bid at a nominal amount above the regional low-income subsidy (LIS) benchmark in order to remain a $0 premium LIS plan. Improved Information for Subsidy Eligible Individuals Reassigned to PDPs and MA–PD Plans Starting in January 2011, Medicare must provide LIS-eligible beneficiaries who have been automatically reassigned to a new Part D low-income subsidy plan with the formulary, coverage determination, appeal and grievance information about the new plan within 30 days of the reassignment.

Improves Formulary Requirements for PDPs and MA–PD Plans

For PDP years 2011 and beyond, the current six classes of drugs of clinical concern are codified. The Secretary is empowered to identify classes of clinical concern through rulemaking, without the constraints of the criteria specified in section 176 of the Medicare Improvements for Patients and Providers Act.

Reduces Part D Premium Subsidy for High-Income Beneficiaries

Starting in January 2011, Part D premium subsidy for beneficiaries with incomes above the Part B income thresholds based on Adjusted Gross Income will be reduced or eliminated. This will be recalculated each September to determine the premiums for the following plan years.

Eliminates Cost Sharing for Certain Dual Eligible Individuals

Starting no earlier than January 2012, cost sharing for beneficiaries who receive care under a home and community-based waiver program and would otherwise require institutional care is eliminated.

Outpatient Prescription Drugs in Long-Term Care Facilities

Starting with PDP plan year 2012, Part D plans required to implement drug dispensing techniques to reduce prescription drug waste in long-term care facilities as developed by CMS in conjunction with stakeholders.

Develops PDP and MA–PD plan Complaint System

Requires HHS to develop and maintain a plan complaint system to handle complaints regarding MA and Part D plans or their sponsors, including electronic filing and tracking of complaints and their resolution, and an annual report to Congress.

Requires Uniform Exceptions and Appeals Process for PDPs and MA–PD plans

Starting in January 2012, PDPs must use a single, uniform exceptions and appeals process (including, to the extent HHS determines feasible, a single, uniform model form) for drug coverage determinations, and provide instant access to that process by enrollees through a toll-free telephone number and an Internet website.

This GT Alert was written by Miki Kolton and Brendan Dunn. Questions about this information can be directed to:

Miki Kolton202.331.3134

Brendan Dunn202.331.3135

• Or your Greenberg Traurig attorney

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