Despite Win, UnitedHealth Criticizes Medicare Rates, Eyes Pruning Business

If the Obama administration expected the biggest health insurance company to give thanks for this month’s decision to reverse cuts to private Medicare plans, it was wrong. UnitedHealth Group CEO Stephen Hemsley said Thursday that Medicare Advantage rates are still far too low and that the company may shrink its business of managing care for seniors.

“We did not expect the fastest growing, most popular and most effective Medicare benefit option serving America’s seniors to be underfunded to this extent in 2014,” Hemsley said on a conference call with investment analysts. UnitedHealth’s Medicare Advantage business, he added, “will likely experience market exits as well as in market membership contraction as we reshape Medicare networks and benefits to respond to the continuing underfunding of this program.”

The administration’s decision to reverse cuts for Medicare Advantage, in which private insurers operate managed care networks for seniors, was seen as a significant industry victory. As the biggest seller of Medicare Advantage plans, UnitedHealth was deemed a primary beneficiary. More than one Medicare member in four is in a Medicare Advantage plan.

In February the Department of Health and Human Services surprised insurers by announcing a cut of more than 2 percent per Medicare member for 2014. The industry launched a lobbying and advertising campaign in protest. On April 1, the administration pulled back, announcing that instead of reducing payments it would raise them by 3.3 percent. UnitedHealth’s stock stock rose 8 percent that day and the next.

But in Thursday’s call to discuss the company’s quarterly profits of $2.1 billion on revenue of $30.3 billion, Hemsley said other changes — including the Affordable Care Act’s long-term reduction in Medicare Advantage payments — would still lead to a net reduction next year of more than 4 percent. That’s inadequate when medical costs are rising in the 3 percent neighborhood, he said.

Stuart Guterman, a Medicare authority at the Commonwealth Fund, takes another view, arguing that Medicare Advantage plans run by UnitedHealth and others have never delivered the cost savings expected when the government allowed private carriers with promises of managing expenses into the program.

“Historically Medicare Advantage plans have been paid rates that are substantially higher than the cost for the same enrollees if they had been in traditional Medicare — which is no model for efficiency,” Guterman said. Last year Medicare Advantage members cost Washington 7 percent more — a total of $9 billion — than if they had been enrolled in regular Medicare, estimated the Medicare Payment Advisory Commission.

ACA adjustments starting next year are intended to narrow that gap, but Medicare Advantage is still likely to cost the government more than traditional Medicare by 2017, Guterman said.

Also Thursday, UnitedHealth executives did nothing to change perceptions that the company will adopt something of a wait-and-see attitude to selling policies in the ACA’s online marketplaces next year. With the health law’s mandate that everybody get medical coverage, heavily subsidized online exchanges are expected to steer millions of new customers to the industry.

“We will be very selective in where we participate and do not believe the exchanges will be a significant factor for us, either plus or minus,” Hemsley said.

Said Jeff Alter, a top UnitedHealth insurance boss: “We believe there’s going to be some pacing with the exchanges and it’s not just a ’14 event. It’s a market that will develop and mature.”

This article was produced by Kaiser Health News with support from The SCAN Foundation.