Obamacare Pounds Medicare Advantage

Seniors looking for health insurance have a choice of whether to enroll in the traditional, government-run Medicare fee-for-service (FFS) program or in an alternative, private option called Medicare Advantage (MA). Today 15 million people – roughly 29 percent of all Medicare patients – voluntarily enroll in an MA plan. Under MA, private health plans receive a capped monthly rate, determined by an annual bidding process, to cover Medicare Part A (hospital) and Part B (physician) services. For most plans, Part D (prescription drug) coverage is included. While private health insurance companies compete to offer MA plans to eligible patients, the coverage is approved by Medicare.

Generally, MA plans offer extra benefits – such as dental, vision, hearing, and wellness – or require smaller co-payments or deductibles than traditional Medicare. Sometimes seniors pay a higher monthly premium to get these extra benefits, but often they are financed through the plan’s savings. Traditional Medicare does not limit patient out-of-pocket spending for Part A and Part B services, causing some seniors to buy supplemental Medicare coverage, called Medigap insurance. People who do not have retiree coverage, or who cannot afford Medigap supplemental insurance, find MA plans not only offer the extra benefits traditional Medicare does not cover, but also protect them from higher than expected out-of-pocket spending.

2015 MA Payment Rates Coming

The Centers for Medicare and Medicaid Services (CMS) is expected to announce its preliminary 2015 MA payment rates this Friday, February 21. Rates are likely to be finalized around April 7. Friday’s CMS notice will establish the MA base payment – called a benchmark. This benchmark sets how much the government will pay a private plan to offer services.

Each year, insurance plans submit bids to CMS estimating what they think it will cost, per patient, to cover Part A and Part B services. CMS then compares the private plan’s bid to a statutorily set benchmark formula that varies by county or region. The benchmark is the maximum amount the government will pay. If a plan’s bid exceeds the benchmark, enrollees pay the difference. The amount is added to their monthly Part B premium. If a bid is below the benchmark, then CMS calculates the difference, gives a portion to the MA plan and gives the rest back to the government. The MA plan’s share is called the rebate. MA plans have to use the rebates either to give seniors additional benefits not covered under traditional Medicare or to reduce patient cost-sharing (lowering copayments, deductibles, the Part B premium, etc).

In February 2013, CMS proposed reducing MA plan payments by 2.2 percent. Stakeholders fought CMS’ assumption, required by law, that cuts to physician payments under Medicare’s Sustainable Growth Rate (SGR) formula would take effect in 2014. Congress has routinely blocked the cut, but CMS assumed it would go into effect and lead to lower MA payment projections. On April 1, CMS said that, for the first time, the agency would remove the SGR assumption from its MA rate calculation. This action caused the annual MA payment rate to increase 3.3 percent. The Administration used both this ‘doc fix’ assumption and a sham rating bonus program to mask MA cuts in 2014. It may not be able to do so again in Friday’s notice.

Obamacare Changed and Cut Medicare Advantage

The Democrats raided a total of $716 billion from a bankrupt Medicare program – not to save Medicare, but to spend it on a failing health care law. Obamacare specifically targeted the successful MA program, cutting payments by $308 billion ($156 billion in direct payment cuts and another $152 in indirect payment cuts).

The health care law also changed the way MA plans are paid – reducing the benchmark formula between traditional Medicare FFS payments and MA payment rates. Lowering the MA benchmark relative to the traditional Medicare FFS spending level reduces incentives for MA providers to offer plans. Before Obamacare, Congress set competitive MA benchmark reimbursement rates to incentivize private plans to compete in the market, giving seniors more choices than the one-size fits all government plan. This was particularly important in rural states where many seniors might otherwise have no access to a private Medicare plan option.

Annual benchmark rate adjustments happen on top of the $308 billion MA cut contained in the President’s health care law. According to a recent actuarial analysis, additional cuts will cause “a significant upheaval in the MA market” Including the “potential for plan exits, reductions in the service areas, reduced benefits, provider network changes and reduced MA enrollment.”

MA Cuts Hurt Seniors

Obamacare’s MA funding cuts will directly affect seniors’ insurance plan choices and benefit options. Even if people can find another MA plan in their area, they may not be able to keep their doctor, they may find their out-of-pocket costs will increase, or they may see their plan benefits reduced. Two independent reports catalog the law’s looming consequences:

• Plan Cancellations. The Kaiser Family Foundation (KFF) estimates 526,000 MA patients will lose their existing coverage in 2014. These people will switch to another MA plan, if one is available in the area, or return to traditional Medicare. According to another analysis, MA plans are responding to the health care law’s cuts “by reducing their footprint in rural markets.” In Iowa, for example, more than 9,200 seniors living in rural areas received cancellation notices.

• Fewer Choices. Health care consulting firm Avalere reports that in 2014 MA will feature 142 fewer plans than last year. KFF estimates a smaller net decrease of 60 plans – it expects 349 plans to be discontinued and 289 new plans to enter the market.

• Can’t Keep Your Doctor. Insurers that continue offering MA plans must find ways to absorb Obamacare’s deep payment cuts. In order to keep premiums down and increase plan options, insurers will negotiate with hospitals and doctors to accept deep discounts from their customary rates. Providers can be paid less, for example, if patients have fewer health provider choices. The health care law’s mandates and regulations left virtually no other options to hold down premiums.

• Higher Costs. KFF analysis confirms that people who decide not to change MA plans will see some premium increases. The report also predicts the average out-of-pocket limit for MA plans will increase from $4,333 in 2013 to $4,797 in 2014, an increase of over 10 percent. Further, 41 percent of MA plans will have limits exceeding $5,000.

• Increase Premiums or Reduce Benefits. According to one estimate, MA payments were cut by four to six percent last year. Another cut of that amount this year would mean seniors could face premium increases and benefit reductions totaling $35 to $75 per month, or $420 to $900 next year.

• Low-Income Seniors Hardest Hit. A new actuarial analysis notes that further MA rate cuts “would disproportionally affect beneficiaries with low incomes, including the 41% of MA enrollees with annual incomes below $20,000 for whom the potential increase in out-of-pocket costs would constitute a significant burden.”

• Taxing Health Insurance Makes It More Expensive. Obamacare imposes a tax on health insurance providers starting in 2014, based on net premiums in the fully insured market. The aggregate tax in 2014 is $8 billion. It climbs to $14.3 billion by 2018, and after that grows by premium inflation. Independent experts estimate the health insurance tax will increase MA premiums $16 to $20 per member, per month in 2014. That figure increases to between $32 and $42 by 2023. The average expected cost increase over 10 years is $3,590.

Sham Demonstration Project Hid MA Cuts

Obamacare’s $308 billion in MA cuts were scheduled to hit seniors starting in 2012. Knowing the MA cuts would cause many seniors to lose their health care plan or see a sharp reduction in benefits shortly before the presidential election, the Obama Administration created a sham $8.35 billion “bonus program” to mitigate the cuts temporarily. This so-called MA Quality Bonus Payment Demonstration project allowed plans with as few as three stars (signifying average performance) to get generous extra payments.

In March 2012, the Government Accountability Office (GAO) issued a report recommending the Centers for Medicare and Medicaid Services (CMS) terminate the bonus demonstration program. Subsequently, in a letter dated July 11, 2012, the GAO’s general counsel questioned HHS Secretary Kathleen Sebelius’ legal authority to create the bonus demonstration project. The program ends this year, so some plans will no longer receive an extra three percent bonus to their benchmark payments. HHS will no longer be able to hide the negative effect Obamacare’s MA cuts will have on seniors’ plan choices and benefits.

Washington Democrats promised their health care law would let anyone who liked their health care plan keep it. That promise was dubbed the “lie of the year.” It wasn’t true for five million people who got cancellation notices in the mail, and America’s seniors are finding out it isn’t true for many of them either. Obamacare’s deep Medicare cuts will hurt many seniors enrolled in the Medicare Advantage program – forcing them to pay higher costs, get fewer benefits, lose their trusted doctors, or see their insurance plan cancelled altogether.

The Obama Administration hoped the public outrage over its disastrous health care law would fade. Instead, it’s just getting started.