Medicare hits plans with another 3% cut

Late today, the Centers for Medicare and Medicaid Services (CMS) revealed new cuts to Medicare Advantage (MA) plans’ payment that could amount to as much as 3.5% for some larger insurers. Lawmakers are phasing in cuts to bring MA rates in line with fee-for-service spending.

Even though the industry was expecting an estimated 6% reduction, any cut is likely to make the market less attractive to private plans.

“We have already seen about one-fourth of plans dropped after only 4% of the Affordable Care Act cuts to MA,” says Doug Holtz-Eakin, former Congressional Budget Office Director and American Action Forum President. “This will exacerbate the situation, which is a blow to seniors who deserve more choices and the chance for a high-value option like MA.”

Holtz-Eakin also leads the non-partisan Center for Health and Economy, which launched in January.

America’s Health Insurance Plans (AHIP) estimates the impact of the new cuts will also come in the form of premium increases for seniors. There is a distinct possibility of plans’ reducing reimbursement to providers in response, who might be less likely to contract with payers.

CMS wants to be certain plans are providing value to Medicare and taxpayers, according to a statement from CMS Principal Deputy Administrator Jonathan Blum. More than $200 billion in MA program reductions are expected.

"Medicare Advantage plans are popular due to financial security and the hundreds of dollars in added benefits MA plans deliver," says Devon Herrick, PhD, senior fellow for the National Center for Policy Analysis in Dallas. "Although relatively modest, this cut in MA payments will diminish seniors' plan options and lessen the added benefits many seniors have come to count on."

Medicare Advantage currently covers 29% of all Medicare beneficiaries-about 15 million people-and earns high satisfaction scores among its members, according to insurers.

Separately, CMS is looking at not-insignificant changes to Part D to reduce spending by $1.4 billion over four years.

“Between the MA cuts and the recent Part D rule, it is hard not to conclude that the administration is waging an ideological war against programs built upon private bidding and competition,” Holtz-Eakin tells MHE. “Unfortunately, these are also our best-functioning safety net programs, so the president has de facto effectively decided to wage a war on seniors.”

Politicians will need air-tight justification for the proposed Medicare changes to win over seniors in an election year.

NEXT >>> Industry Support for Keeping 2014 Rates 

Industry support

A bipartisan group of 40 senators sent a letter to CMS in advance of the cuts, advocating to extend Medicare Advantage 2014 payment levels into 2015 with no reduction, and a number of other industry groups and employer organizations have spoken out as well. Today’s proposal is preliminary, with final rates expected in early April.

Of particular concern is the comprehensive pressure that also comes from added taxes on insurers under the Affordable Care Act and a host of provisions that compromise profitability. According to AHIP, sequestration last year reduced MA funding by 2%, and the American Tax Relief Act of 2012 eliminated an additional $2.5 billion.

AHIP is drawing attention to the issue with its "Seniors Are Watching" grassroots campaign.