Decoding the High-Stakes Debate Over
Medicare Advantage Cuts
Final 2015 Medicare Advantage rates
are expected to be released Monday
By Jay Hancock, KHN Staff Writer
This KHN story was produced in
collaboration with the
April 7, 2014 - Health insurers
often try to influence Washington through quiet persuasion in plush
offices. To fight potential government cuts for private Medicare plans,
however, they’ve hit the streets. The Obama administration has proposed
reducing what insurers collect for Medicare Advantage plans - HMOs and
PPOs, mainly - that cover about 15 million seniors. (Regular Medicare,
which still covers most seniors, pays doctors and hospitals directly.)
The rate change, part of the
Affordable Care Act, is the next step in winding down a subsidy that
pays Medicare Advantage plans substantially more than what traditional
Medicare costs. Proponents say the move will end what they call an
industry windfall and pressure insurers, hospitals and doctors to
deliver care more efficiently.
The industry, which maintains the
cuts will raise costs and reduce consumer benefits, has launched a
massive national counterattack, running numerous “seniors are watching”
ads, getting beneficiaries to pepper politicians with calls and letters,
and lobbying the administration to back off.
The final 2015 Medicare Advantage
rates are expected to be released Monday. Here are some common questions
about the controversy.
I’m not in a Medicare Advantage
plan. Does this affect my traditional Medicare?
No. Fewer than a third of Medicare
beneficiaries use Medicare Advantage. Nor do proposed cuts affect
“Medigap” policies that supplement regular Medicare coverage.
The stakes are enormous and
Democrats in Congress and the Obama administration are seen as more
susceptible than usual to pressure. It’s an election year. The
Affordable Care Act remains unpopular. And threats to Medicare often
motivate older voters.
“For a lot of these vulnerable
Democrats, one, they need the seniors. Two, there’s a lot of money that
could go for or against them” in November, depending on what the
administration does Monday, said Lee Drutman, a lobbying expert with the
Sunlight Foundation, a Washington, D.C.-based organization focused on
Ads criticizing Democrat Alex Sink for supporting “deep cuts to
Medicare Advantage… to pay for Obamacare” helped her lose a special
congressional election in Florida last month, analysts said. (The U.S.
Chamber of Commerce sponsored the spot. AHIP, which
has given the chamber money in the past for advocacy, didn’t pay for
it, said AHIP CEO Karen Ignagni.)
What are the stakes?
The nonpartisan Congressional
Budget Office estimates the health law would reduce Medicare Advantage
by $156 billion over a decade. In February the Department of Health
and Human Services announced tentative cuts that most analysts
calculated to be around 5 percent, which would reduce insurer payments
by $7 billion next year alone.
At UnitedHealth Group, one
insurance giant, Medicare Advantage plans account for a fourth of all
profits, said Ana Gupte, an industry analyst for Leerink Partners.
Another, Humana, owes two-thirds of its profit to Medicare Advantage,
“It’s a big deal. It’s huge,” she
said of Monday’s expected announcement. “2015 earnings are very, very
dependent on what the rates look like.”
Why do insurers say more
Medicare Advantage cuts would hurt seniors?
The extra 6 percent that Medicare
Advantage costs taxpayers compared with traditional Medicare pays for
things that benefit members such as gym memberships, care coordination
and better health outcomes, insurance executives say.
Lower government payments would
induce them to offer fewer Medicare Advantage plans and raise costs for
members, they say.
Last year, similar pressure on
payments caused “reductions in benefits, increases in out-of-pocket
costs and changes in provider networks,” said Ignagni. “A number of
seniors are living in areas where they’ve had a reduction in choice” of
plans. Others see little change.
Did last year’s changes hurt
Medicare Advantage’s popularity?
No. Medicare Advantage membership
grew 9 percent last year. Nearly 100 percent of beneficiaries have
the option of choosing a Medicare Advantage plan where they live.
While some carriers withdrew from
some markets, others expanded. The number of Medicare Advantage plans
stayed about the same from 2012 to 2013, according to the Medicare
Payment Advisory Commission.
“Enrollment growth suggests that
Medicare Advantage continues to be attractive,” said Gretchen Jacobson,
associate director of the Kaiser Family Foundation’s Medicare policy
program. (KHN is an editorially independent program of the foundation.)
What happens if my Medicare
Advantage plan leaves town?
You’re still eligible for regular
Do Medicare Advantage plans
really offer higher-quality care?
Evidence is mixed. Some studies
higher clinical quality on several measures and more appropriate use
Other research suggests that results for Medicare Advantage plans
seem better only because gym memberships and other perks attract members
who are substantially younger and healthier.
How profitable are Medicare
Advantage plans for insurance companies?
The plans earned an
average profit of 4.5 percent in 2011. Policies covering more than
half the members that year would have met new requirements to spend a
minimum on medical care rather than administration and profits,
according to the Government Accountability Office.
A new paper by economists from the
University of Pennsylvania's Wharton School finds that the higher rates
HHS pays for Medicare Advantage
contribute more to insurer profits and advertising spending than
“It doesn’t seem obvious to me that
we should do any delaying in the cuts on Medicare [Advantage]
reimbursement,” said Mark Duggan, one of the authors. “It appears that
it will cause minimal adverse effect to consumers.”
If the Affordable Care Act says
to cut Medicare Advantage payments, how much room does HHS have to do
HHS has broad administrative power
to adjust what insurers get for Medicare Advantage beyond changes
required by law. For example, the agency’s decision to
temporarily increase bonuses for plans that met “star” quality
targets starting in 2012 counteracted some of the mandated cuts.
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