The Mystery About Obama’s Medicare Cuts

Four days after the proposed 2015 payments were unveiled, no one really knows how much of a cut insurers are facing.

An auxiliary nurse assists a patient in a geriatric unit at the hospital in Angers, western France, on October 23, 2013. The Angers hospital employs 6,000 people including 980 doctors.
National Journal
Clara Ritger
Feb. 25, 2014, 10:32 a.m.

The Obama ad­min­is­tra­tion un­veiled its latest round of pro­posed cuts to the Medi­care Ad­vant­age pro­gram Fri­day, but days later even the in­sur­ance in­dustry isn’t sure how big a blow the ad­min­is­tra­tion dealt.

The pay­ment reg­u­la­tion it­self, and an ac­com­pa­ny­ing press re­lease, didn’t make it easy to fig­ure out ex­actly what the Medi­care agency was pro­pos­ing — aside from the fact that it was def­in­itely a cut, of some mag­nitude. An email sent Monday by the trade group Amer­ica’s Health In­sur­ance Plans, says Wall Street ana­lysts are es­tim­at­ing cuts of any­where between 4 per­cent and 9 per­cent to the pro­gram.

Without its own es­tim­ates of the im­pact, AHIP’s spokes­man Robert Zirkel­bach re­peated the line in­surers have been push­ing for weeks: Any cut is too big.

“The goal here is to keep pay­ments flat, giv­en that the pro­gram just saw a 6 per­cent cut last year,” Zirkel­bach said.

Roughly 30 per­cent of Medi­care be­ne­fi­ciar­ies are en­rolled in private in­sur­ance through the Medi­care Ad­vant­age pro­gram, and ac­cord­ing to con­sult­ing firm Avalere Health, the pro­gram’s num­bers con­tin­ue to swell des­pite the meas­ured im­ple­ment­a­tion of new cuts. Health plans face some $150 bil­lion in Medi­care Ad­vant­age re­duc­tions over the next 10 years due to the Af­ford­able Care Act, as law­makers seek to rein in over­spend­ing in the pro­gram.

At the top of the spec­trum, Bank of Amer­ica/Mer­rill Lynch ana­lysts pegged the total in­dustry im­pact to be about -9.3 per­cent, while Wells Fargo’s gurus es­tim­ate a much lower -3.79 per­cent im­pact.

The Cen­ters for Medi­care and Medi­caid Ser­vices, however, con­tin­ues to push -1.9 per­cent. That num­ber, an agency spokes­man wrote in an email, is the es­tim­ated pro­posed 2015 pay­ment re­duc­tion rate, based on the com­bined growth rates in tra­di­tion­al Medi­care and Medi­care Ad­vant­age.

The growth rate by it­self does not ac­count for cuts im­posed by the Af­ford­able Care Act, the new health in­sur­ance tax, the end of a qual­ity bo­nus pro­gram which in­surers qual­i­fied for through this year, and oth­er changes such as no re­im­burse­ments for home health and re­duc­tions for cod­ing.

Wall Street ana­lysts did factor those ad­di­tion­al pro­pos­als in­to their es­tim­ates. CMS did not provide the com­bined im­pact of its pro­posed policies on the in­dustry, when asked.

Des­pite the pro­posed cuts, in­sur­ance com­pan­ies’ stocks rose Monday. Hu­mana, for in­stance, had ini­tially pre­dicted worse cuts than what it in­ter­preted from Fri­day’s an­nounce­ment.

CMS is ex­pec­ted to re­lease the fi­nal rates on April 7.

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