Private Medicare Plans Defy Predictions, Growing Despite Health Law Cuts
Medicare Advantage plans expect to earn about $41 a month per member, after paying medical expenses
By Christopher Weaver
Sept. 12, 2011 - The industry of private Medicare health plans is continuing to grow, despite steep
cuts enacted in the 2010 federal health law, according to a
report released Friday by the Kaiser Family Foundation (KHN is an
editorially-independent program of the foundation). Nearly 12 million of the nation’s 47 million Medicare enrollees are now in private plans,
up from 11 million last year.
The health law chopped $136 billion over ten years from the budget for private plans, known as
Medicare Advantage plans, freezing rates in 2011 at 2010 levels. In April 2010, after the law passed, the chief actuary for the Centers for
Medicare & Medicaid Services
predicted enrollment in the private plans would drop to about 7.4 million by 2017
as the cuts unfold.
“If in fact the [health law] is going to lead to a dramatic cut back in Medicare Advantage, it’s not
happening yet,” said
Marsha Gold, a senior fellow at the research firm Mathematica and the lead author
of the report. “But, the verdict is still out.”
Medicare, the federal health program for seniors and disabled people, has traditionally paid
doctors, hospitals and other providers directly for caring for enrollees. But, since the late 1990s, Medicare patients have had the option of
enrolling in the private plans, which receive a lump, monthly sum from the government for providing care for members. The costs per
beneficiary for Medicare Advantage are higher than the costs of traditional Medicare.
Eschewing those higher rates, Democrats targeted the Medicare Advantage program during the health
law debate. Traditional “Medicare does just as good, if not better, at keeping people healthy,”
said President Obama in the fall of 2009 as the health law circulated in
Still, Gold and Kaiser Family Foundation researchers interviewed executives with 14 firms that run
Advantage plans and report the execs’ read on the program remains “cautiously
Even with the cuts, the amount of money that flows to Medicare plans is significant. A single
Medicare enrollee draws about $910 a month for private plans, according to Barlcays Capital analyst Joshua Raskin. Plans expect to earn about
$41 a month per member, after paying medical expenses. That’s more than double the average earnings from commercially insured members,
according to Raskin’s analysis.
Raskin said in a recent interview that he expects plans to continue to remain profitable and grow,
despite the cuts, albeit more slowly than they would have without the health law.
The cuts have also been assuaged by another health law change. The law promised bonus payments to
plans with good performance based on a five-star rating system used by the Medicare agency, the report said. Regulators increased the bonuses
last year, further offsetting the cuts. A health plan executive
told the report authors, “Unless some executive is asleep at the switchboard, I
think everyone is paying attention to quality ratings and bonus payments.”
The projected increase in enrollment in
Medicare Advantage by the Congressional Budget Office in 2007 was driven largely by CBO's expectation of continuing growth in
enrollment in private fee-for-service plans, which rose from 200,000 members at the end of 2005 to more than 1.6 million members in
June 2007 - about 700,000 of whom were added during 2007. By 2017, CBO anticipated, enrollment in PFFS plans will reach 5 million
members, accounting for one-third of all Medicare Advantage enrollment at that time, up from about one-fifth now.
The Medicare agency bumped up the payments because “they were worried we were going to see an exodus
from the program, and they didn’t want that kind of disruption,” said John Gorman, of the Gorman Health Group, a consulting firm that advises
Medicare Advantage plans.
But, with the carrot, came a harsh stick, he said. The agency is not entirely back-tracking the
health law’s move to curb Medicare Advantage plans. In a February letter to private plans, Medicare officials
wrote that organizations that fail to meet the 3-out-of-5 star requirement for
the bonuses “should expect Medicare to initiate action to terminate their contracts.”
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