GAO Faults Medicare Advantage Bonuses

Today’s Managing Health Care Costs Indicator is $8.35 billion

Yesterday the Government Accountability Office (GAO) issued a stinging report on the CMS demonstration project that awards much higher quality bonuses to Medicare Advantage (MA) plans than were outlined in the Affordable Care Act.    The total incremental cost of these bonuses will be $8.35 billion over 10 years.  Most of the increased dollars will go to health plans with “average”  three star ratings (in the five star system).    The remainder of the dollars are spent because these bonuses will prevent loss of membership by MA plans.   The GAO reports that the population covered by bonuses will increase from about 1/3 of beneficiaries to about 90%. This analysis is based on a Kaiser Family Foundation analysis,which notes that 60% of MA beneficiaries were in 3 and 3.5 star plans in 2011.

These quality bonuses will be based on past performance ,  in many instances performance that predated the announcement of the demonstration project. This means that it will be almost impossible to assess the quality impact.  The demonstration project is not budget neutral, and wipes out about 1/3 of the savings that the Affordable Care Act obtained from cutting health plan payments. The total dollar amount exceeds all other CMS demonstration projects combined.

It’s a scathing report –but the stock market reacted not at all.   Humana, United Health Care, Aetna Cigna and Wellpoint all had just small changes in their stock price – not in a consistently downward direction.  It’s possible that Wall Street already knew this information – since the KFF report came out last year.  It’s likely that analysts believe that the Department of Health and Human Services will not follow the GAO recommendations, and this poorly-designed demonstration project with these extra payments will continue.