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Medicare and Medicaid News

Obama Administration Proposes 1.9 Percent Cut in Medicare Advantage Payments

News release by Centers for Medicare & Medicaid Services on several changes for 2015 is published below this news report

By Mary Agnes Carey, KHN Staff Writer

"Impact Of Medicare Advantage Cuts On Seniors Sharply Disputed" - go to story

Feb. 24, 2014 - An Obama administration announcement about payment rates for Medicare Advantage plans in 2015 has set off a dispute about how large – or small – the changes really are. Late Friday, the Centers for Medicare & Medicaid Services announced proposed rates that officials said could mean payment reductions of 1.9 percent for the private plans in the program.

But insurers, who have led a fierce lobbying campaign against payment reductions, say the Medicare Advantage plans would sustain a far deeper cut. That's because the lower payment rates will be combined with new health law fees on health plans, a phase-out of the "star rating" system that helped buffer the reductions for Medicare Advantage plans in prior years and Medicare cuts in the automatic federal spending cuts known as "sequestration."

One insurance industry official, who asked to be not identified Sunday because his organization was still analyzing the impact of the CMS announcement, estimated that Medicare Advantage plans would see their rates drop by a total 6 percent next year.

CMS said Friday its preliminary estimate is "the combined effect of the Medicare Advantage growth percentage and the fee-for-service growth percentage."

In a statement, the industry group America’s Health Insurance Plans' (AHIP) also noted that a number of factors impact Medicare Advantage payment rates. "The growth rate percentage included in the rate notice is only one factor and does not represent what the total cut will be when other factors are included," AHIP said.

Despite industry concerns in recent years about cuts in federal funding, the program continues to grow. Enrollment in Medicare Advantage plans rose in 2014 by 8.9 percent to 15.9 million enrollees, up from 14.6 million in 2013, according to a new analysis from consulting firm Avalere Health. Approximately 30 percent of Medicare beneficiaries are enrolled in the plans, which are offered by private insurance companies.


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The government provides payments to the insurers for Medicare-covered benefits, such as hospital and physician services, but the plans often offer extra benefits, such as hearing aids or gym memberships, that are not available in traditional Medicare. Most Medicare Advantage plans require that beneficiaries receive care from physicians, hospitals and other providers that contract with those plans. Traditional fee-for-service allows beneficiaries to visit any doctor or provider that accepts Medicare.

Insurers and other Medicare Advantage advocates said earlier this month that cuts could cause premium increases and benefit reductions.

For years, Medicare Advantage plans were paid on average more per beneficiary than what Medicare paid for beneficiaries enrolled in traditional fee-for-service. The health law aims to equalize that federal spending over time, so the government pays the same amount whether a beneficiary enrolls in Medicare Advantage or traditional Medicare.

Cuts to Medicare Advantage plans are part of the $716 billion in Medicare spending reductions the health law calls for over the next decade.

Those cuts were strong ammunition for Republicans in the 2010 congressional midterm elections when the GOP recaptured the House and in the 2012 presidential contest. In a recent flurry of letters to the administration, both Democrats and Republicans have expressed concerns about the impending cuts.

Republicans wasted no time Friday criticizing the proposed cuts. "The hard truth is now apparent – millions of seniors who rely on the Medicare Advantage program will lose the plans, benefits, doctors and financial protection they currently have,"  said Rep. Dave Camp, R-Mich., chairman of the House Ways and Means Committee. 

Sen. Orrin Hatch, R-Utah, the ranking Republican on the Senate Finance Committee, said the proposed reductions "threaten a successful program for seniors, and must be overturned.  Medicare Advantage is extremely popular for a reason – run through the private market, seniors gain access to high-quality and coordinated care with additional benefits that they otherwise wouldn't get.  Regrettably, this administration continues to undermine this critical program."

But others say the payment changes are needed. "The reductions should continue to go into effect in order to ensure more parity between [Medicare Advantage] plans and traditional Medicare with respect to how much is spent on beneficiaries," the Center for Medicare Advocacy wrote Thursday. 

"Further, if overall Medicare costs continue to grow more slowly than expected, which is good news for Medicare and the federal budget, [Medicare Advantage] payment should be adjusted accordingly. There is no reason [Medicare Advantage] payment should increase at the same time that overall Medicare costs are slowing," it added.

The costs of plans – and the additional benefits they may offer -- vary widely around the country.  Insurers UnitedHealthcare and Humana make up more than 40 percent of Medicare Advantage enrollees.

Last year, Medicare officials initially proposed reducing Medicare Advantage payments by 2.2 percent, but after another strong industry lobbying campaign, the administration switched gears and raised the rate by 3.3 percent, although an AHIP analysis found the combined effect of other factors in the health law combined to produce a 6 percent rate cut in 2014.

Some analysts predict the Obama administration again will be under intense political pressure to moderate the proposed 2015 payment rates when they are finalized in April. 

“Seniors make up a higher percentage of voters in non-presidential election years than in presidential election years,” said Paul Heldman, senior health policy analyst for Potomac Research Group, a Washington policy analysis firm for institutional investors. “Cuts mean plans may drop out of certain areas or cut certain benefits, which is a political liability for Democrats in tough races.” 

The costs of plans – and the additional benefits they may offer -- vary widely around the country. Insurers UnitedHealthcare and Humana make up more than 40 percent of Medicare Advantage enrollees.  

AHIP has already begun a grassroots lobbying effort that includes television and print advertisements with seniors reminding members of Congress that they are a potent voting bloc. The group also funded a study that shows the cumulative effect of the expected cuts, coupled with other federal spending reductions,  means that beneficiaries could face premium increases and benefit reductions of $35 to $75 per month, or $420 to $900 if Medicare Advantage payments are reduced by 6 percent in 2015.

This report is reprinted from with permission from the Henry J. Kaiser Family Foundation. You can view the entire Kaiser Daily Health Policy Report, search the archives and sign up for email delivery. © Henry J. Kaiser Family Foundation. All rights reserved.

Some analysts say it makes no sense to cut payments to a popular program. "Our concern is that if the program is not sustainably funded, it may not be able to keep up with a demand that is only going to increase," wrote Douglas Holtz-Eakin and Kenneth Thorpe, co-chairs of the Partnership for the Future of Medicare, a bipartisan group that advocates for programs to make Medicare secure. 

In their Feb. 11 letter to Centers for Medicare & Medicaid Services Administrator Marilyn Tavenner, Eakin and Thorpe  also wrote "our fear is that additional cuts to the [Medicare Advantage] program in 2015 could mean that millions of [Medicare Advantage] beneficiaries will lose access to their preferred health plans and doctors and drive more beneficiaries into the flawed fee-for-service system."

Holtz-Eakin is a former director of the Congressional Budget Office who now heads the American Action Forum, a right-leaning think tank.  Thorpe is chairman of the Partnership to Fight Chronic Disease and chairs the Department of Health Policy & Management at Emory University.  During the Clinton administration, Thorpe was deputy assistant secretary for health policy at the Department of Health and Human Services.

Final Medicare Advantage payment rates for 2015 are scheduled to be released April 7.

KHN staff writer Phil Galewitz contributed to this report by Mary Agnes Carey

This article was produced by Kaiser Health News with support from The SCAN Foundation.

>> Link to proposed rates CMS sent to insurance companies.

Below is News Release Issued by CMS on Friday, Feb. 21, 2014

CMS proposes 2015 payment and policy updates for Medicare Health and Drug Plans

Greater quality and value for Medicare beneficiaries and improved payment accuracy

Beneficiaries can get greater protections, value, and care in the Medicare services they receive through the proposed policies released today by the Centers for Medicare & Medicaid Services (CMS). The 2015 Advance Notice and draft Call Letter takes important steps to improve payment accuracy for Medicare Advantage (Part C) for 2015.  The proposed changes for 2015 are smaller than those implemented in 2014 – a year in which CMS expects to exceed its 5 percent enrollment growth projection in Medicare Advantage for 2014.

Since the Affordable Care Act was passed in 2010, Medicare Advantage premiums have fallen by 10 percent and enrollment has increased by nearly 33 percent to an all-time high of approximately 15 million beneficiaries.  Today, nearly 30 percent of Medicare beneficiaries are enrolled in a Medicare Advantage plan.  Furthermore, enrollees are benefiting from greater quality as over half of enrollees are now in plans with 4 or more stars, a significant increase from 37 percent of enrollees in such plans in 2013. 

“The Affordable Care Act helps strengthen Medicare Advantage and the Prescription Drug Program by providing improved benefits and keeping costs low for Medicare beneficiaries,” said Jonathan Blum, CMS principal deputy administrator.  “We believe that plans will continue their strong participation in the Medicare Advantage program in 2015 and beneficiaries will continue to have a wide array of high quality, high value, low cost options available to them while at the same time we are making certain that plans are providing value to Medicare and taxpayers.”

Proposed guidance in today’s Advance Notice and draft Call Letter increases value and protections for beneficiaries:

• Lower Out-of-Pocket Drug Spending: Beneficiaries in the Part D prescription drug coverage gap, or “donut hole,” will benefit from greater savings on prescription drugs. As a result of the Affordable Care Act, in 2015, enrollees with liability in the donut hole will receive coverage and discounts of 55 percent on covered brand name drugs and 35 percent on covered generic drugs, an increase from 52.5 percent and 28 percent, respectively, in 2014.  The Affordable Care Act’s Coverage Gap Discount Program has provided discounts to more than 7 million Medicare beneficiaries, an average of $1,200 each.

• Improved Notification for Beneficiaries Regarding Changes in Medicare Advantage Plan Networks: The call letter identifies as a best practice greater notification to enrollees regarding any changes to provider networks and indicates CMS’ intention to consider rulemaking that would broaden its authority to limit such changes to certain times during the year.  

• Greater Protection for Beneficiaries: CMS intends to again use its authority, provided by the health care law, to protect Medicare Advantage enrollees from significant increases in costs or cuts in benefits, and, for the 2015 contract year, proposes reducing the permissible amount of increase in total beneficiary cost to $32 per member per month (down from $34 per member per month for the 2014 contract year). CMS proposes to maintain existing limits on beneficiaries’ out-of-pocket spending, but clarifies existing guidance that enrollees’ dollar contributions towards these limits are transferable when they move to any plan, regardless of plan type, offered by the same organization. CMS also continues to require plans to refine their offerings so that beneficiaries can easily identify the differences between their options.

• Improving Access to Preferred Cost-Sharing: CMS may request that Part D plans increase the number of pharmacies offering preferred, or lower, cost sharing as we are concerned that some plans that offer preferred cost sharing do not provide beneficiaries with sufficient access to the lower cost sharing at select network pharmacies.  The intent of this policy will be to ensure that beneficiaries are not misled into enrolling in a plan only to discover that they do not have meaningful access to the advertised lower cost sharing.

• Improved Coordination of Care: CMS intends to expand plans’ ability to use technologies that enable health care providers to deliver care to beneficiaries in remote locations.  The use of remote access technologies as a care delivery option for Medicare Advantage enrollees may improve access to and timeliness of needed care, increase communications between providers and beneficiaries, and enhance care coordination.

Other proposals include those aiming to closely align payments in Medicare Advantage with fee-for-service Medicare (Parts A and B), and to improve payment accuracy:

• Preliminary estimate of the combined effect of the Medicare Advantage growth percentage and the fee-for-service growth percentage is estimated to be -1.9 percent.  This historically low growth in Medicare per-capita spending is tied, in part, to successful initiatives undertaken to promote value over volume and help curb fraud, waste, and abuse in the Medicare fee-for-service program in recent years.

• Continue to implement changes under the Affordable Care Act to reduce overpayments and improve quality, by phasing in alignment of MA benchmarks with Medicare fee-for-service (FFS) costs.  Before the Affordable Care Act, Medicare Advantage plans were overpaid by more than 10 percent compared to traditional Medicare, costing the program more than $1,000 per person each year, while quality and health outcomes were similar to those enrolled in traditional Medicare.  The changes underway reduce overpayments to Medicare Advantage plans, while incentivizing quality improvements by basing part of Medicare Advantage payment on plan quality performance.  

• Change in how we estimate the annual trend used to adjust for risk score growth to account for the increasing proportion of baby boomers entering Medicare, who overall tend to be younger and healthier than the general Medicare population.

• Continue to adjust for diagnostic coding differences between Medicare Advantage plans and Medicare fee-for-service providers.  In compliance with statutory requirements, CMS proposes applying a 5.16 percent adjustment for 2015 to MA plan payments, a 0.25 percentage point increase over 2014.

• Continue to calculate risk scores in 2015 using the same methodology in effect in 2014.

The Advance Notice and draft Call Letter may be viewed through: and selecting “Announcements and Documents.” Comments on the proposed Advance Notice and draft Call Letter are invited from the industry and the public and must be submitted by March 7, 2014. The final 2015 Rate Announcement and Call Letter including the final Medicare Advantage and FFS growth percentage and final benchmarks will be published on Monday, April 7, 2014.


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