State officials in Maryland have approved a plan to involve private health insurance companies in funding a transition to a new hospital rate-setting framework. This decision, made by the Health Services Cost Review Commission on Wednesday, aims to address anticipated losses in funding and rate-setting control as the state shifts to the federal Achieving Healthcare Efficiency through Accountable Design (AHEAD) model for Medicare payments.
The changes will not take effect for at least a year, but they are projected to lead to increased premiums for individuals enrolled in private health insurance plans. The new AHEAD model, which is part of a multiyear transition, will alter how hospital rates are determined for Medicare services within the state.
Private insurers have expressed strong concerns regarding the financial implications of this new plan. Matthew Celentano, a representative from the League of Life and Health Insurers in Maryland, stated, “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.”
The previous rate-setting system, known as the Total Cost of Care model, concluded on December 31, 2023, although significant changes in state operations are still pending. This model allowed Maryland officials to regulate hospital costs across all payers, ensuring equitable pricing for patients with different types of coverage, including private insurance, Medicaid, and Medicare.
Maryland has had the authority to set its own Medicare hospital rates for over 40 years. However, under the AHEAD model, this authority will revert to the federal government by 2028. The AHEAD framework also mandates that the state reduce Medicare spending by $435 million annually. Consequently, the recently approved changes are expected to increase hospital rates for private insurers by $87 million each year starting in 2028, which state officials estimate will raise private consumers’ premiums by a total of 1.8% by 2032.
While this increase may seem minimal in isolation, it adds to a backdrop of rising health care costs. Last year, state insurance regulators authorized an average rate increase of 13.4% for 2026 health care plans, primarily due to the expiration of a federal tax credit that had previously supported many Maryland residents in affording health care through the Affordable Care Act marketplace.
The approved changes also aim to stabilize the Medicare Advantage market, which is a supplemental private insurance program providing additional services not typically covered by standard Medicare plans. Approximately 25% of Maryland’s Medicare recipients utilize Medicare Advantage, but many have recently lost coverage as insurers exit the state, citing high operational costs associated with the current hospital system.
To incentivize insurers to remain in Maryland, the new policy permits Medicare Advantage plans to reimburse hospitals at a rate approximately 11.55% lower than standard payments starting in 2027. To compensate hospitals for this financial hit, the Health Services Cost Review Commission plans to increase rates for private insurers. According to state documents, the overall increase in commercial rates is projected to reach 2.55% by 2032, with the most significant single-year hikes expected in 2028.
Jon Kromm, the executive director of the cost review commission, acknowledged the potential for “refinements” and additional changes in future discussions regarding these policy recommendations. Past reliance on state funding to support the Medicare Advantage market is less feasible this year, as state lawmakers are contending with a budget deficit of $1.5 billion.
Gene Ransom, the CEO of MedChi, the Maryland State Medical Society, commented on the approved policy for Medicare Advantage, saying, “It seemed like a reasonable plan to fix it. 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?”
This situation underscores the complexity of Maryland’s health care system as it navigates the transition to AHEAD. An agreement signed by state and federal officials in September 2024 initially aimed to maintain Maryland’s regulatory authority over all payers. However, the Trump administration’s decision early last year to renegotiate these terms initiated the move towards the AHEAD model.
Maryland Health Secretary Meena Seshamani expressed optimism about the transition, stating that AHEAD will guide the state toward a “world-class health care system.” She acknowledged the uncertainty this shift has generated for communities and markets within Maryland.
In response to the challenges posed by the transition, Democratic Governor Wes Moore instructed Seshamani to form a multi-agency workgroup involving the health department, the Health Services Cost Review Commission, state insurance officials, and other health stakeholders. This workgroup is tasked with addressing significant changes under the AHEAD agreement, with cost-sharing and stabilizing the Medicare Advantage market as its initial priorities.
“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 remarked during a recent HSCRC meeting.
As Maryland prepares for these critical changes in its health care funding and administration, questions about the future of the state’s health system remain at the forefront.
