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.

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
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Clara Ritger
Feb. 27, 2014, 8:13 a.m.

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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