Niche Medicare Plans for Poor, Unhealthy at Risk Under New Rule

Unease is building among smaller, nonprofit Medicare managed care plans as they digest the impact of next year’s program payment rates.

The private Medicare Advantage “safety-net plans” say their 2025 payment rates won’t match the rising costs of serving some of the program’s most vulnerable beneficiaries.

Dual Eligible Special Needs Plans, or “D-SNPs,” are MA plans that serve a portion of the estimated 12 million sick, low-income beneficiaries with costly, complex medical needs who also qualify for Medicaid.

Payments to MA plans will increase 3.7% on average in 2025, according to a recent final rule. But that amounts to a 0.16% decline after excluding an estimate of how plans code for patient illnesses, which can increase payments.

After absorbing higher medical spending and prescription drug costs since late 2023, safety net D-SNP plans say the new rates don’t reflect increased medical usage by dually eligible beneficiaries that began late last year.

A trade group representing safety net plans says lower MA payments could force some D-SNPs to reduce supplemental benefits for enrollees next year. Others may have to shrink their list of covered prescription drugs or increase enrollees’ out-of-pocket costs, said one industry watcher. After enrollment in D-SNPs grew nearly 20% from 2023 to 2024, the new rates could imperil some plans’ ability to provide coverage.

“Any changes to the payment system” that are “meant to compress Medicare payments, hit them differently than it would hit a much larger national health plan, because they just don’t have the healthier Medicare beneficiaries to offset any losses that they may be experiencing in their D-SNPs,” said Christine Aguiar Lynch, vice president for Medicare and managed long-term services and supports policy at the Association for Community Affiliated Plans.

The association represents 34 nonprofit safety net health plans that offer D-SNPs in 16 states. The group also worries that changes in the rule to the Part D risk adjustment model that helps determine payments understate the true prescription drug costs of dually eligible beneficiaries in certain D-SNPs, Lynch said.

‘Razor-Thin Margins’

If left unaddressed, the final rate notice “risks the stability of the affordable and dependable care” that MA provides, “especially for those with lower incomes and from diverse communities, who may experience disruption to their benefits or premiums in the fall of 2024 when they choose their Medicare coverage,” said a statement on the rule from Mary Beth Donahue, president and CEO of the Better Medicare Alliance.

While larger plans work with actuarial firms to prepare and submit their MA plan bids before June deadlines, smaller safety-net plans “that run on razor-thin margins” may not have that option this year if they anticipate reduced MA payments when the new rates take effect next year, said Jenn Kerfoot, chief strategy and growth officer at DUOS, a digital health company that helps health plan members utilize and navigate their coverage.

Kerfoot said some safety net D-SNPs may have to narrow their list of covered prescription drugs or increase copays and other out-of-pocket costs to offset possible reimbursement cuts.

“It’s really going to impede their ability in 2025, I believe, to take care of these individuals,” Kerfoot said.

The Biden administration disagrees. The rule said it will “improve the accuracy” of payments and “help ensure that higher payments are available to plans that serve beneficiaries with more costly health care needs.” It added that dually eligible beneficiaries still receive higher reimbursements for every condition compared to non-duals.

The leaner projected payments are the latest action to address cost concerns in the fast-growing MA program that now enrolls more than half of all eligible beneficiaries. Unlike traditional fee-for-service Medicare, which pays for each medical service provided, Medicare Advantage plans receive a flat monthly payment to cover each beneficiary’s cost of care.

Plans Under Fire

But Medicare Advantage plans are under fire from lawmakers, regulators, and patient groups over concerns about quality, improper care denials, and overpayments. Taxpayers will pay $83 billion more this year to care for beneficiaries in Medicare Advantage plans compared with the cost of care in traditional Medicare, the Medicare Payment Advisory Commission reported last month.

To address MA program shortcomings, the Biden administration has begun auditing MA plans to recoup past overpayments, imposing new restrictions on MA plan marketing, and finalizing rules to help standardize and tighten prior authorization processes.

The 2025 reimbursement rates reflect another key initiative: the ongoing three-year phase-in of changes to the MA risk adjustment model, which helps determine plan payments. These changes are designed to improve payment accuracy after watchdog agencies said some plans were manipulating diagnostic codes to inflate payments. When the Department of Health and Human Services tried to revamp the system last year to discourage gaming, industry pushback led the department to phase in the risk-model changes over three years instead of one.

In public comments on the 2025 proposed MA payment rule, many commenters said the phased-in risk model changes should be delayed or extended. Doing so would “provide relief and allow time for plans to weather the unexpected rise in utilization,” said a March comment letter from AMGA.

But the new rule says the updated model improves on the previous model “by incorporating recent costs and utilization patterns.” And “because the model ensures that plans that enroll beneficiaries with higher expected costs receive higher payments, we do not agree that the continued phase-in of the model will negatively affect beneficiary costs or supplemental benefits, and care delivery,” the rule said.

The rule said the new rates “improve the accuracy of the risk adjustment model” and help “ensure that higher payments are available to plans that serve beneficiaries with more costly health care needs.” It added that dually eligible beneficiaries still receive higher reimbursements for every condition compared with non-duals.

Lynch, of ACAP, said assumptions the Centers for Medicare & Medicaid Services used to project future utilization and spending spending growth in MA and traditional Medicare—which factors into the final rates—didn’t factor in data from the last half of 2023 when MA plans saw higher utilization.

“Nobody knows quite yet why,” Aguilar said. She said the trend lasted enough months that “we felt CMS should have assumed that greater utilization continued into 2024 and 2025 when they were doing their estimates.”