New MA Bill Would Increase Medicare Costs

Last week, the House of Representatives passed the Improving Seniors' Timely Access to Care Act (HR 3173). The legislation would place requirements on how private Medicare Advantage (MA) insurance plans use prior authorization to manage the utilization of health care services. The Congressional Budget Office (CBO) projects the bill would increase spending by $16 billion over the next decade. While some reforms to prior authorization in MA might help patients obtain timely access to health care services, Congress should, at the very least, offset the spending increase. A 0.1 percent annual increase in MA coding intensity adjustments -- reducing only a small fraction of overpayments -- would more than cover the costs.

Prior authorization allows insurers to either permanently or temporarily deny coverage for medical treatments and medications depending on whether the insurance company considers the intervention appropriate at that time. The Improving Seniors' Timely Access to Care Act would create a timeline for MA plans to respond to prior authorization requests and establish electronic usage and data reporting standards and requirements.

CBO projects the legislation would increase spending by $16 billion because it would lead to increased utilization of services, leading MA plans to increase their estimated costs for treating beneficiaries, which increases the payments they receive from Medicare.

Cost of Legislation and Offset Options

Policy Ten-Year Savings/Costs (-)
Improving Seniors' Timely Access to Care Act (CBO) -$16 billion
Offset Options   
Increase Coding Intensity Adjustment by 0.1% a year, up to 6.9% $23 billion
Conduct risk-adjustment validation audits in MA (Obama) $15 billion
Align payments to employer group waiver plans with average MA plan bids (Obama) $15 billion
Eliminate double bonuses from benchmarks (CBO) $30 billion
Total Savings from Offset Options  $83 billion

Sources: Presidential Budget proposals from 2012 and 2016, Congressional Budget Office, and Committee for a Responsible Federal Budget calculations. 

This cost increase is especially concerning since evidence shows MA plans are already significantly overpaid and spending is growing faster in MA than in traditional fee-for-service Medicare.

Lawmakers should at least make small changes to MA in order to offset the bill's spending increase. Since overpayments to MA plans are in large part due to "coding intensity", gradually increasing the 5.9 percent minimum required coding intensity by 0.1 percent per year up to 6.9 percent would be a reasonable way to offset new costs. This would represent only 28 percent of the adjustment suggested by MedPAC and 7 percent of the adjustment we've estimated is appropriate for a neutral system.

Several other offset options exist as well. For example, eliminating geographic-based double bonuses -- which represent a source of overpayments and worsen some inequities in the program -- would save about $30 billion. Requiring risk-adjustment validation audits, as proposed in 2012 by the Obama Administration, would save $15 billion. And aligning payments to employer group waiver plans with average MA bids, as proposed by the Obama Administration in 2016, would also save $15 billion.

There are other more substantial options to reform MA that Congress should consider in the future, but for now, Congress can protect patient health and regulate prior authorization without exacerbating Medicare costs and increasing the deficit. We hope the Senate will do so when considering changes to this legislation,  and use this opportunity to enact reforms to MA that would lower health care costs and help avoid impending insolvency of the Medicare trust fund

Learn more about the status of Medicare Advantage and federal costs by checking out our in-depth analyses: