This Spring, CMS informed MAOs that offer Medicare Advantage EGWPs (employer group waiver plans) that they were no longer required to submit annual bids for EGWPs. Based on CMS’s explanation of why it adopted this change, it seems that the final score is CMS 2, EGWPs 1 or perhaps 0. CMS scores two points by reducing its own administrative burden because it no longer needs to review EGWP bids and it reduces costs because EGWPs will now be paid less (at least 2.5% less). EGWPs score one point because they are free of the administrative and actuarial burden of submitting a bid to CMS, but at what cost?

Under the new payment methodology, EGWPs will longer be paid based on their bid and applicable benchmark, rather they will be paid an amount established by comparing non-EGWP bids to the applicable benchmark (all adjusted for location, Star Ratings, and risk scores). This change was proposed for 2017, but CMS delayed the full implantation until 2018. For 2017, to ease EGWPs into the payment change, their payments will be based on comparing both non-EGWP and EGWP 2016 bids to the applicable benchmarks. This blended comparison should result in a smaller payment reduction in 2017.

Some of the statistics in CMS’s explanation and responses to comments suggest that the change in 2018 (and forward) could be financially significant. For example, in its February Advanced Notice, CMS explains that in 2014, the average bid for individual MA plans was 86% of the applicable benchmark, while EGWPs average bid was 95% of the applicable benchmark. Similarly, in 2015, individual MA plan bids were 94% of the FFS rate, whereas EGWP bids were 105% of the FFS rate. Without reference to numbers, CMS suggests multiple times in both the Advanced Notice and the Announcement that it believes that EGWPs inflate their bids so that they receive more federal funding which they use to either reduce costs to employers, enhance supplemental benefits for members at lower costs to employers, or to achieve higher margins.

Based on the differences that CMS cites in bid prices for individual MA plans and EGWPs, it is not surprising that many parties interested in EGWPs submitted comments expressing their concern that CMS had not taken into consideration various operational differences between EGWPs and individual MA plans that help explain the bid differences. For example, many EGWPs are PPOs rather than HMOs and PPOs are inherently more expensive products because they offer broader networks. Additionally, while EGWPs benefit from service area waivers allowing them to serve their members in areas without a contracted network, this results in a percentage of EGWP services being provided by non-contracted providers which drives up costs to the plan. CMS acknowledged the differences between PPOs and HMOs, but is moving forward with its payment methodology that closely ties EGWP reimbursement to predominantly HMO MA plans (including SNPs).

CMS’s repeatedly states that it believes that EGWPs will be paid enough. (See pages 34 – 37 of the Announcement where CMS states “there is sufficient funding under the methodology being finalized to sustain the offering….”) CMS also believes that its new methodology will possibly result in employers being able to better negotiate with MAO’s that offer EGWPs because employers will know how much funding the MAO receives for the EGWP. CMS thinks this transparency will force MAOs that offer EGWPs to compete by offering better “access, quality, customer services, and wrap-around benefits.”

With almost 20% of MA enrollees enrolled in an EGWP, millions of Medicare beneficiaries will now have to wait and see how this payment change will affect their coverage and costs.