State officials this week voted to tap private health insurance plans to make up for an expected loss in funding and rate-setting control as Maryland transitions to a new federal framework for Medicare payments to state hospitals.
The changes approved Wednesday by the Health Services Cost Review Commission will not take effect for at least a year, but will likely mean higher premiums for people on private health insurance plans when they do kick in.
It’s part of a multiyear shift to the new Achieving Healthcare Efficiency through Accountable Design, or AHEAD, model of setting hospital rates for Medicare services in the state.
Private insurers are less than pleased with the new plan.
“We remain concerned that the state relies again and again on the commercial market when unaffordable health care costs already burden Maryland families and businesses,” said Matthew Celentano of the League of Life and Health Insurers in Maryland, in response to Wednesday’s policy approvals.
The state’s previous hospital rate setting system technically came to an end on Dec. 31 — even if major changes in state operation have not yet occurred. The old model, called the Total Cost of Care system, gave Maryland officials authority to regulate hospital costs across all payers in the system, which include private insurance, Medicaid and Medicare.
Total Cost of Care leveled costs for patients across coverage types, so that different patients did not end up paying more for the same services. Those rates are set by the Health Services Cost Review Commission.
Maryland has had the authority to set Medicare hospital rates for more than 40 years, but it will lose that authority under the AHEAD model by 2028, when rate-setting will revert to the federal government. AHEAD also requires the state to reduce Medicare spending by $435 million annually.
The changes approved Wednesday would increase hospital rates for the commercial market by $87 million annually, beginning in 2028. State officials estimate that those rate increase will add a total of 1.8% to private consumers’ premiums by 2032.
That’s not a huge hike in premiums, but it comes on top of growing health care costs generally. Last year, state insurance officials approved an average 13.4% rate increase for 2026 health care plans to account for the expiration of a federal tax credit that helped thousands of Marylanders afford health care in the Affordable Care Act marketplace.
Subsidizing Medicare Advantage
Wednesday’s changes also turn to private insurance plans to fund efforts to preserve Medicare Advantage — supplemental, private insurance that provides coverage such as vision, dental and transportation assistance that may not be covered by standard Medicare plans.
About a quarter of Maryland Medicare recipients also use Medicare Advantage, but thousands have lost that coverage recently as insurers pull out of the state, where they say the current hospital system makes it too costly for them to do business.
In an effort to keep insurers in the state, the changes approved this week would let Medicare Advantage plans reimburse hospitals at a rate about 11.55% less than what they pay, starting in 2027.
To offset the financial loss to hospitals, the HSCRC plans to raise rates for private insurers. State documents say commercial rates are expected to increase by 0.75% “once fully implemented” from the Medicare Advantage stabilization policy.
“Total increases to commercial rates across both proposals will amount to 2.55 percent by 2032, with the largest single-year increases occurring in 2028, at 0.6 percent combined for the two programs,” according to the Department of Health.
Jon Kromm, executive director for the cost review commission, said that both policy recommendations approved Wednesday have the possibility for “refinements” and other changes in future discussions.
Maryland has used state funding in the past to prop up the Medicare Advantage market, but with state lawmakers facing a $1.5 billion budget deficit this year, officials were wary of relying on state dollars again.
“It seemed like a reasonable plan to fix it,” Gene Ransom, CEO for MedChi, the Maryland State Medical Society, said Thursday of the approved Medicare Advantage policy.
“The only question I really have is that we kind of have the problem now. So, you’re kind of waiting until ’27. What happens between now and ’27?” Ransom asked.
It’s one of many questions facing the Maryland health care system as it continues its bumpy transition to AHEAD.
State and federal officials had signed an agreement in 2024 that would have largely kept the state’s authority to regulate all payers intact. But the Trump administration decided early last year to renegotiate the terms of that agreement, the start of the move toward the AHEAD model.
State and federal officials went back and forth over how much authority Maryland should have to dictate hospital rates. Ultimately, the state was allowed to keep much of its hospital payment system for two years, allowing time to implement larger policy changes before revoking the state’s authority to set Medicare rates in 2028.
Maryland Health Secretary Meena Seshamani said that AHEAD will help the state move toward a “world-class health care system,” but there is still “a lot of good work ahead of us.”
“Landing the model with CMS (Centers for Medicare and Medicaid Services) was absolutely a team effort,” she said via Zoom during Wednesday’s HSCRC meeting. “I think we know when this all started, it created a lot of uncertainty for the market, for the communities in our state.”
Gov. Wes Moore (D) instructed Seshamani in September to create a multi-agency workgroup — including the health department, the HSCRC, state insurance officials and other health-related officials — to work on implementing some of the larger changes under the AHEAD agreement.
Cost-sharing and stabilizing the Medicare Advantage market are the first two priorities the workgroup has addressed so far, with more to come.
“We have landed in a place that will be incorporating feedback from everyone and all the perspectives to have something that works for the entire state, from the hospitals to the payers to individuals to Maryland businesses, the physicians,” Seshamani said.