How to Spend: MLR and COVID-19

I am reminded of the effect the public health emergency (PHE) has had on 2020 plan spending on a weekly basis. I field numerous questions on what creative spending would fall in line with the permissible flexibilities previously issued by the Centers for Medicare & Medicaid Services (CMS). In my opinion, the most creative Medicare Advantage (MA) and Part D stakeholders are in sales and marketing, so perhaps those folks need to have a seat at the table!

In a July post, I mentioned benefit enhancements as the topic became more prevalent in my discussions. I am hard-pressed to identify any plan sponsor who could have forecasted the PHE or the benefit utilization stats that are present today.

This leads us to the importance of medical loss ratio (MLR) and the CMS requirements surrounding it. Section 1857(e)(4) of the Social Security Act (“the Act”) requires MA organizations to maintain a MLR of at least 85%. CMS knows this is a concern of the entire industry, and released some Q&As in July regarding spending related to COVID-19.

More recently, CMS issued an enforcement action related to a MA organization’s failure to maintain a MLR of 85% for three years. This does not happen often, but paired with the PHE, it is a stark reminder that many MA organizations may find themselves under the 85% threshold for the first time this year. My tip: field those creative spending solutions, align them with CMS’ permissive actions guidance, and notify your account manager.

COVID-19 Permissible Activities and CMS Enforcement

On May 22 of this year, the Centers for Medicare & Medicaid Services (CMS) informed the industry via memo they will exercise its enforcement discretion and adopt a temporary policy of relaxed enforcement with the prohibition on mid-year benefit enhancements, such as expanded or additional benefits, or more generous cost-sharing, as the enhancements are provided in connection with the COVID-19 outbreak. These enhancements must be beneficial to enrollees and provided uniformly to all similarly situated enrollees. They will do this until is determined that the exercise of this discretion is no longer necessary in conjunction with the COVID-19 outbreak.

What is a mid-year benefit enhancement? Back in the old days, these were permissible changes to a plan benefit. An excerpt from revision 87 of the Medicare Managed Care Manual Chapter 4, dated June 8, 2007 reads:

Excerpt from CMS MMCM manual Chapter 4 defining mid year benefit enhancements

As a result of the public health emergency, many Medicare Advantage Organizations (MAOs) have made the decision to enhance benefits through the end of the year. You see this communicated on plan websites, taking the form of enhanced benefits or waived cost-sharing. However, these permissible activities may only be provided in connection with the COVID-19 outbreak. As it stands now, the current public health emergency has been extended a second time, set to expire on October 23, or earlier if terminated by Secretary Azar.

Mid-year benefit enhancements prior to their prohibition were typically put into effect for the remainder of a contract year. So, the question is if the public health emergency is not renewed after October, will the agency still exercise enforcement discretion relative to a mid-year benefit enhancement put into place through the end of this contract year? Or, will the expectation be that MAOs reconfigure their systems to return back to their original benefit design?

I recently posed this question during CMS office hours. Mr. Demetrios Kouzoukas, Principal Deputy Administrator of CMS and Director of the Center for Medicare, acknowledged this is a question that has been received in the past and the agency is working to develop a response. Without additional commitment or clarity, MAOs should prepare to flip the switch back as the permissible activities are currently only permissible while the public health emergency is in place. Keep your eyes open for additional guidance released by the agency.