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New Medicare Advantage Rule: Implications and Impact on Hospitals, Insurers, and Patients

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Anthony Raphael
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New Medicare Advantage Rule: Implications and Impact on Hospitals, Insurers, and Patients

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Understanding the Medicare Advantage Plans

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Medicare Advantage plans are emerging as the leading form of Medicare coverage, with nearly half the Medicare beneficiaries enrolled in these plans as of 2023. This number is projected to surpass the half mark of total Medicare enrollment by 2025. These plans come in different types including HMOs, PPOs, Private Fee for Service plans, Medicare Medical Savings Accounts, PACE plans, and non-risk bearing cost plans. However, compared to traditional Medicare, enrollees have access to a more limited network of providers and most need to obtain prior approval or authorization for coverage of certain treatments or services. This can lead to coverage denials based on medical research and standards of care.

The Two-Midnight Rule

Beginning this year, private Medicare plans are now required to cover members' hospitalizations at a higher inpatient rate if their doctors predict they'll stay beyond two midnights. This is the same rule that traditional Medicare has adhered to for a decade. The change was implemented after it was discovered that Medicare Advantage plans were regularly denying coverage for necessary services. Consequently, the federal government decided these plans should be held to the same standard when it comes to hospital care. As per financial projections for 2024, this change could have a significant effect on hospitals and health insurers' finances. For patients with Medicare Advantage plans, this could mean better access and smaller out-of-pocket costs following a hospitalization.

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Adding Transparency to the Prior Authorization System

The Federation of American Hospitals has proposed a quality measure in the Medicare Advantage star ratings system that would necessitate health plans to report prior authorization denial rates. This proposition is aimed at adding transparency and preventing health plans from exploiting the prior authorization system. The proposal is backed by a MedPAC analysis that discovered Medicare Advantage plans overturned initial denials 80% of the time in 2021, and an Office of Inspector General report that revealed 13% of denials would have been covered by traditional Medicare.

Proposed Reduction in Medicare Advantage Base Payment Rate

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The Centers for Medicare and Medicaid Services have suggested a reduction in the Medicare Advantage base payment rate, aligning with President Joe Biden's efforts to limit overpayments and protect beneficiaries. This has sparked lobbying from the health insurance industry for relief. The Medicare Advantage enrollment has been consistently growing, making it more and more attractive for insurers, but this has ignited concerns about government spending and disparities with traditional Medicare.

Proposed Drop in Medicare Advantage Rates for 2025

The CMS has proposed a 0.2% decrease in Medicare Advantage rates for 2025. This would result in a slight drop in payment rates for health insurers. However, analysts believe regulators will likely improve the payment rate in the final notice. The drop in rates for the second consecutive year is anticipated as the regulators aim to control escalating costs in the program. This rate change is attributed to seniors utilizing more care than anticipated, leading to insurers grappling with hurdles in the program.

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