CMS Seeks Reforms for Medicare Advantage Risk Adjustment System

The Centers for Medicare & Medicaid Services (CMS) is seeking input on whether its current risk adjustment system might disadvantage smaller Medicare Advantage (MA) plans. Concerns have emerged that the existing framework encourages prioritization of coding activities over effective care management. To address these issues, CMS is considering developing a new risk adjustment model that leverages AI-driven solutions and alternative data sources.

Market Dominance and Financial Strain

Major insurers like UnitedHealthcare and Humana dominate the MA market, collectively covering nearly half of all enrollees nationwide. In 66% of U.S. counties, one or both carriers hold leading positions. By 2024, their market influence means 90% of Medicare beneficiaries reside in areas where MA enrollments are concentrated with one or two top companies. Regional and nonprofit insurers encounter significant financial challenges under the current system. According to a HealthScape Advisors report, 71% of these plans are projected to report losses by 2024, with over half facing the risk of regulatory intervention within two years.

Potential Reforms and Future Outlook

There are suggestions for CMS to adjust payment structures to offer smaller insurers better terms, possibly through differentiated per-member-per-month compensation based on scale or tax status. Encouragement of AI and alternative data usage aims to modernize risk management, enhancing the focus on patient care and chronic disease management, ultimately aiming to reduce healthcare costs. These discussions underscore ongoing efforts to ensure that both large and small entities can operate competitively, providing sustainable and effective healthcare solutions within the Medicare Advantage market.