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Obama's Cut to Medicare Program Gets an Estimate: 5.9 percent Obama's Cut to Medicare Program Gets an Estimate: 5.9 percent

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Obama's Cut to Medicare Program Gets an Estimate: 5.9 percent

Industry group sounds alarm over cuts to a semi-privatized—and fully controversial—version of the entitlement program.

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(JEAN-SEBASTIEN EVRARD/AFP/Getty Images)

The insurance industry Thursday protested the Obama administration's planned cut to a Medicare program, saying it would cost seniors when it came time to pay their insurance premiums.

America's Health Insurance Plans, an industry lobby group, estimates a total cut to the Medicare Advantage program of about 5.9 percent, according to a commissioned analysis released Thursday.

 

AHIP argues that those cuts will be passed onto seniors in the form of reduced benefits, costing seniors somewhere between $420 and $900 per year in premium increases.

Medicare Advantage is a plan created in 1997 that uses Medicare funding to enroll seniors in private insurance plans. Roughly 30 percent of Medicare beneficiaries are enrolled in Medicare Advantage plans, and in recent years, program enrollment has been climbing at a rate of roughly 10 percent annually, according to an analysis from consulting firm Avalere Health.

Proponents of the program say Medicare Advantage offers benefits that seniors enjoy. Critics, however, say it has profited the insurance industry without producing savings or better health outcomes.

 

The program has been cut repeatedly through the Affordable Care Act, which reduces the payments Medicare Advantage makes to insurers. At the center of the debate is what impact those cuts will have on seniors.

The Obama administration wants the reductions to come out of industry profits and from efficiency measures that will provide quality care at a lower cost. Industry critics—including in their analysis on Thursday—argue that services will become scarcer and more expensive to seniors.

Last year, plans were cut 6 percent, but the full extent of this year's cuts is not entirely clear. AHIP says they amount to roughly the same in 2015, 5.9 percent, while other estimates have come in as low as 4 percent and as high as 9 percent.

The cuts are preliminary—the Centers for Medicare and Medicaid Services won't release the final rates until the end of the comment period in the beginning of April. Insurers want that 5.9 percent proposed cut to turn into a 0 percent flat rate in 2015, and are rallying the support of a growing coalition in Congress to protect the program.

 

But the CMS cuts are preceded by significant reforms to the program that were instituted by the Affordable Care Act in an effort to rein in historic overspending in the program. Reports that circulated around the time of the health law's passage found that Medicare Advantage plans were paid some 14 percent more than traditional Medicare.

And it's unclear whether the cuts to insurance companies are hurting the program. Seniors continue to enroll, and insurance company Humana saw a bump in stock prices Monday following the CMS announcement last week.

The AHIP report, created by consulting firm Oliver Wyman, weighed the various CMS proposals, including the impact of the reduced growth rate, elimination of the quality bonus program, and insurer fees. Its final estimate of the impact of the proposed cuts falls roughly in the middle of analyses from Wall Street banking and consulting firms that estimated a total negative industry impact of 4 to 9 percent.

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