State officials in Maryland have voted to involve private health insurance plans in funding a new hospital rate-setting framework aimed at addressing anticipated funding losses. The decision, made by the Health Services Cost Review Commission on March 6, 2024, is part of a transition to the Achieving Healthcare Efficiency through Accountable Design (AHEAD) model, which will change how Medicare payments are structured for state hospitals. The new framework is expected to take effect in approximately one year and may result in increased insurance premiums for those on private plans.
The shift comes as Maryland prepares to relinquish its authority to set Medicare rates by 2028, a power it has held for over four decades. Under the previous Total Cost of Care system, the state regulated hospital costs across all payers, including private insurance, Medicaid, and Medicare. This model aimed to create uniformity in costs, ensuring that patients did not face varied charges for identical services.
As part of the AHEAD transition, Maryland must reduce annual Medicare spending by $435 million. Consequently, the approved changes will increase hospital rates for the commercial insurance market by $87 million each year, beginning in 2028. State officials project that these adjustments could lead to a total premium increase of approximately 1.8% for private consumers by 2032.
Private insurers have expressed concerns regarding the implications of the new plan. Matthew Celentano, a representative from the League of Life and Health Insurers, voiced apprehension that the state continues to rely on the commercial market amidst already escalating healthcare costs for families and businesses in Maryland.
The previous system officially ended on December 31, 2023, although significant operational changes are still underway. The AHEAD model has sparked significant debate about the future of healthcare funding in Maryland.
In addition to addressing hospital rate changes, the new measures also aim to stabilize the Medicare Advantage market, a program that provides supplemental coverage for services not typically included in standard Medicare plans. Approximately a quarter of Maryland’s Medicare recipients utilize Medicare Advantage, but many have recently lost coverage as insurers exit the market due to high operational costs.
To incentivize insurers to remain in the state, the new policy allows Medicare Advantage plans to reimburse hospitals at a rate 11.55% lower than standard payments starting in 2027. To counterbalance the financial impact on hospitals, the Health Services Cost Review Commission plans to adjust rates for private insurers, anticipating a 0.75% increase once the Medicare Advantage stabilization policy is fully implemented.
The overall impact of these changes will culminate in an estimated 2.55% increase in commercial rates by 2032, with the most significant annual hikes occurring in 2028.
Jon Kromm, the executive director of the commission, acknowledged that the approved policy recommendations could undergo further refinements in future discussions. Amid the backdrop of a projected $1.5 billion budget deficit in the state, officials are cautious about relying on state funding to support the Medicare Advantage market, which has been a previous strategy.
Healthcare leaders are calling for urgent solutions. Gene Ransom, CEO of the Maryland State Medical Society, emphasized the need for immediate action to address existing challenges before the proposed changes take effect.
The transition to the AHEAD model has been shaped by a complex negotiation process between state and federal authorities, which began with an agreement in 2024 aimed at preserving Maryland’s regulatory power over all payers. However, the Trump administration’s decision to renegotiate this agreement led to the current framework, with the state granted a temporary extension for its hospital payment system.
Maryland’s Health Secretary, Meena Seshamani, highlighted the potential of the AHEAD model to enhance the state’s healthcare system, while acknowledging the substantial work that remains to be done. In September, Governor Wes Moore directed Seshamani to establish a multi-agency workgroup to facilitate the implementation of the new framework, focusing on cost-sharing and stabilizing the Medicare Advantage market as initial priorities.
As Maryland navigates these significant changes, the emphasis remains on finding a balanced approach that serves the interests of hospitals, insurers, and patients alike.
