Obama Administration Retreats On Private Medicare Rate Cuts

Under intense, bipartisan political pressure, the Obama administration backed down for the second year in a row on proposed payment cuts for insurance companies that offer private plans to Medicare members.

Obama Administration Retreats On Private Medicare Rate Cuts

After estimating in February that the cuts required by the Affordable Care Act as well as other adjustments would reduce what it pays insurers next year by 1.9 percent per beneficiary, the Department of Health and Human Services said Monday it would instead give Medicare Advantage plans a raise of 0.4 percent.

America’s Health Insurance Plans, the main industry lobby, said it was still studying the announcement. While it acknowledged that Monday’s action leaves payments higher than what HHS had originally proposed, it disputed the agency’s statement that 2015 rates would rise. AHIP had calculated the originally proposed cuts to be nearly 6 percent, not 1.9 percent.

Adjustments to the February proposals “will help mitigate the impact on seniors,” AHIP CEO Karen Ignagni said in a statement. “But the Medicare Advantage program is still facing a reduction in payment rates next year…”

Ana Gupte, an industry analyst for Leerink Partners, agreed, saying the rates disclosed Monday will cut Medicare Advantage payments by about 3 percent. Still, that’s a smaller reduction than what she calculated to be 5.5 percent in HHS’s first proposal, she said in a note to clients.

The administration, for its part, portrayed the rates disclosed Monday as even better than the flat, year-to-year change that insurance companies sought.

“The industry asked us to use whatever means we could to keep the rates close to parity, to where they are today,”  Jonathan Blum, principal deputy administrator at the Centers for Medicare & Medicaid Services, told reporters. The rates set Monday are “a little higher than what the industry had recommended,” Blum said.

Among other alterations, HHS dropped a plan to abandon the use of home-visit diagnoses for assigning member risk scores that affect payments. That proposal alone would have shaved 2 percentage points off what Medicare Advantage plans get from the government, according to a study commissioned by AHIP.

“There’s a little bit for everybody” in the final policy for 2015, said Anne Hance, a lawyer with McDermott Will & Emery who represents insurers. The administration “tried to work with Medicare Advantage organizations and recognize their concerns,” she said.

Medicare Advantage costs taxpayers about 6 percent more per beneficiary than traditional Medicare, according to the Medicare Advisory Commission. Reducing or eliminating that gap could save the program billions of dollars, proponents say.

Sen. Orrin Hatch, R-Utah, who sits on the Senate Finance Committee, said Medicare Advantage is still threatened from future reductions required by the health law.

“Although CMS has scaled back some of the new proposed cuts, much more work needs to be done to protect our seniors,” he said in a statement.

Medicare calculates what it pays private insurance companies with a complicated formula, including several variables.

Last year 28 percent of Medicare beneficiaries were enrolled in a Medicare Advantage plan run by UnitedHealthcare, Humana or other insurance companies. 

HHS’ initial notice of the 2015 changes prompted a lobbying and publicity offensive by insurance companies arguing cuts would degrade coverage and raise prices for seniors.

Republican lawmakers as well as Democrats urged HHS to rethink the cuts. Democrats up for election this year were deemed vulnerable to accusations that they supported Medicare Advantage cuts in the health law, which remains unpopular.

HHS holds wide latitude to adjust payments beyond the reductions required by the Affordable Care Act, estimated by the nonpartisan Congressional Budget Office to be $156 billion over a decade.

A year ago the administration also softened Medicare Advantage cuts, causing insurance company stocks to soar after the news came out.

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