The breather was short-lived, but it was a breather nonetheless. Just as health insurers were bracing for a significant overhaul to how the government calculates Medicare Advantage payments, the Centers for Medicare & Medicaid Services (CMS) hit the pause button. For industry giant UnitedHealth Group, the news offered a temporary reprieve from what many analysts expected to be a multi-billion dollar hit to its bottom line. Yet, make no mistake: this delay merely postpones the inevitable pain, rather than eliminating it.
Late last year, the CMS announced it would delay the full implementation of its updated risk adjustment model for Medicare Advantage (MA) plans. This model, known as V28, aims to more accurately reflect the health status of MA enrollees, and by extension, the payments plans receive to care for them. The previous plan called for a rapid phase-in, but the agency now intends to transition more gradually, blending the old model (V24) with the new one over several years.
This move sent a ripple of relief through the managed care sector. For UnitedHealth Group, the largest player in the MA space through its UnitedHealthcare division, the initial prospect of the new model was daunting. Analysts had projected that the changes could reduce MA revenues across the industry by an average of 3.32% in 2024, with some estimates for UnitedHealth Group alone reaching into the high hundreds of millions, if not billions, of dollars annually once fully implemented. The company's vast MA footprint, covering roughly one in four MA beneficiaries, makes it particularly sensitive to such regulatory shifts.
The core of the issue lies in how MA plans are paid. The CMS provides a capitated payment per enrollee, adjusted based on their health conditions – a process called "risk adjustment." Plans submit diagnosis codes from medical encounters, and these codes translate into a "risk score." The higher the risk score, the higher the payment. Over the years, concerns have mounted that some MA plans, and the providers they contract with, have become adept at maximizing these risk scores through aggressive documentation and coding practices, sometimes without a corresponding increase in actual care costs.
This is where Optum, UnitedHealth Group's health services arm, enters the picture. Optum plays a significant role in providing data analytics and risk adjustment services, helping MA plans (including UnitedHealthcare and competitors) optimize their coding. While Optum maintains its practices are fully compliant and focused on accurate patient representation, it has undeniably benefited from the current system. A tighter risk adjustment model could impact not only Optum's service revenue but also UnitedHealthcare's MA profitability.
The CMS's V28 model seeks to narrow the scope of diagnoses that contribute to risk scores and remove certain conditions that might have been prone to over-coding. By delaying its full implementation, the agency is giving insurers more time to adapt their operations, adjust their bid strategies for future contract years, and potentially find efficiencies elsewhere.
However, this is merely a stay of execution, not a pardon. The underlying imperative for the CMS to ensure accurate and appropriate payments for MA plans remains strong. With the MA program projected to enroll over half of all Medicare beneficiaries in the coming years and its costs rising faster than traditional Medicare, government scrutiny is only intensifying.
"The delay offers a crucial window for insurers to recalibrate," noted one industry insider who asked not to be named due to ongoing client negotiations. "But the direction of travel is clear: the days of relying on aggressive risk adjustment for margin expansion are numbered. Plans will need to demonstrate true value and efficient care delivery."
For UnitedHealth Group, a company renowned for its strategic agility, this period of grace will likely be used to double down on clinical programs that genuinely improve patient outcomes and manage costs, rather than just optimizing coding. It also allows time to adjust its extensive provider networks and potentially renegotiate contracts to reflect the evolving payment landscape.
The reckoning, therefore, is still very much on the horizon. When the V28 model is fully phased in, likely over the next three to five years, insurers will face a new reality. Those that have strategically invested in value-based care, robust care management, and genuine health improvement initiatives will be best positioned to thrive. For others, including those who simply hoped the changes would disappear, the pain will be anything but postponed.
