Strategizing to Operationalize the Medicare Advantage and Part D Final Rule

by Anne W. Hance, Joel L. Michaels and Kate McDonald

CMS’s February 12, 2015 final rule further implements the last of the programmatic changes initially set out in the January 2014 proposed rule.  Prompt attention and advance planning will facilitate Medicare Advantage Organizations’ and Part D Plan Sponsors’ implementation of requirements effective for contract year 2016.

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Enacted Health Care Legislation: Effect on Employers

The Facts

The Patient Protection and Affordable Care Act was enacted on March 23, 2010, and the Health Care and Education Affordability Reconciliation Act is expected to be enacted shortly.  This health care legislation contains provisions that will strongly impact employers.  These provisions include the requirement that employers with 50 or more employees offer qualifying health coverage or pay a penalty of $2,000 per uncovered employee, elimination of the Medicare Part D subsidy tax exemption and imposition of a 40 percent excise tax on health coverage that exceeds certain thresholds.  In addition, the legislation limits health care reimbursement account contributions to $2,500 per year and no longer allows over-the-counter drugs to be reimbursed through health reimbursement accounts or health savings accounts unless prescribed by a physician. 

The legislation also requires group health plans that cover dependent children to extend coverage to such dependents until age 26.  Beginning in 2014, this coverage must be extended regardless of whether the dependent has access to other employer-provided coverage.  Further, group health plans can no longer impose lifetime or restrictive annual limits on plan benefits or impose pre-existing condition exclusions on children under age 19, and no pre-existing condition exclusions are allowed beginning in 2014.

What’s at Stake

These provisions will cost employers monetarily and increase employers’ administrative burdens.  Employers have many more compliance issues to monitor as a result of this legislation.  Failing to comply with these requirements could result in additional expenses by way of substantial penalties. 

These provisions also have the potential to decrease employer-provided benefits.  For example, employers will find it much more expensive to provide retiree benefits without the prescription drug coverage subsidy tax exemption and active medical benefits, with the threat of a 40 percent excise tax on health coverage beyond the stated threshold and with the new restrictions on plan terms, such as no lifetime limits or pre-existing condition exclusions.  This extra cost may serve as a deterrent to providing some benefits.   

Steps to Consider

  • Take steps to ensure all requirements are met to avoid penalties. 
  • Review effective dates for requirements pertaining to benefits and take action as necessary.
  • Evaluate the impact of future requirements on benefits and take preemptive action.
  • Modify open enrollment materials, summary plan descriptions and plan documents as necessary.

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House Energy and Commerce Bill Would Authorize Government Part D Price Negotiation

The Facts

Health reform legislation approved by the House Energy and Commerce Committee on July 31, 2009, includes an amendment to strike the so-called Part D “non-interference” clause, which prohibits the Secretary of the U.S. Department of Health and Human Services (the Secretary) from interfering with negotiations between pharmaceutical manufacturers, pharmacies and Part D Plan Sponsors.  Click here for an overview of the underlying legislation.

The amendment would authorize the Secretary to directly negotiate with pharmaceutical manufacturers the pricesincluding discounts, rebates and other price concessions that may be charged to Part D Plan Sponsors for covered Part D drugs. The negotiated prices would apply beginning in CY 2011, and would not prevent Part D Plan Sponsors from obtaining further reductions or discounts.

What’s at Stake

Inclusion of this amendment renews debate on the role of competition within the Medicare prescription drug benefit, and whether the federal government or private health plans are better suited to achieve greater reductions on prescription drug costs for Medicare beneficiaries (and taxpayers).  That this concept is part of health reform legislation also is noteworthy for potentially signaling a first step towards federal price setting for pharmaceuticals.

Steps to Consider

Part D Plan Sponsors, pharmacies and pharmaceutical manufacturers alike should closely watch reconciliation of the Energy and Commerce Committee’s bill with the bills adopted by the two other House committees of jurisdiction to see the fate of this clause. Whether the Senate Finance Committee includes such a provision in its draft legislation also will be significant. 

Senate Health Care Reform Policy Options: Medicare Advantage

The Facts
On April 29, 2009, the Senate Finance Committee released the first of three anticipated health reform option papers. The Committee’s white paper includes four proposals to “promote quality, efficiency and care management” in the Medicare Advantage (MA) Program: modifying the MA Plan payment system, increasing payments for chronic care management, linking payment to quality and simplifying the supplemental benefits offered to Members.

What’s at Stake
The Committee sets out two alternate reform proposals for the MA Plan payment system that would take effect beginning in 2012. One approach would reduce the existing benchmarks to which MA Plan bids are compared, and the other would change the methodology by which the benchmarks are determined to that used in the Medicare Part D Program. The Committee also proposes to pay bonuses for evidence-based care management programs for chronic conditions. A Medicare Advantage Organization (MAO) that does not currently target chronic illnesses with care management activities should consider implementing such programs now so that it only has to incorporate adjustments to receive the bonus payment. Finally, the Committee proposes to tie a portion of MA Plan payment rates to quality performance. An MAO would need to ensure that its processes for collecting and submitting data are refined to capture all relevant data that may affect quality measures, and thus payment. 

Steps to Consider
The changes are proposed to take effect in 2012, meaning MAOs would have to position themselves to respond to the changes in time for the June 2011 bid submission deadline. In anticipation of these or similar reforms, an MAO should begin to analyze its plan benefit packages, provider payment arrangements and member population, and to discern the extent to which the MAO can modify its operations and/or develop and implement new initiatives. Health care providers can identify those MA Plans that represent a material portion of the providers’ patient population and initiate a dialogue to explore potential new areas of collaboration that will help improve quality outcomes while managing costs.