Today's MA success soon tempered by rate reductions

March 1, 2012

Despite a looming cut in payments to Medicare Advantage plans, the program is expanding, and enrollment is increasing

The Obama administration is highlighting these developments as evidence that the Patient Protection and Affordable Care Act (PPACA) is saving money and expanding coverage options for consumers. Last month, Health and Human Services (HHS) Secretary Kathleen Sebelius declared that "the Medicare Advantage program is stronger than ever," as seen in a 7% drop in MA premiums for 2012, down from about $34 in 2011 to under $32 this year. At the same time, nearly 13 million seniors have enrolled in private plans, up from less than 12 million a year ago.

White House Advisor Nancy-Ann DeParle recalled that Republicans predicted that PPACA would drive down benefits and "kill Medicare Advantage." Instead, the program is growing: the average Medicare beneficiary able to choose from 26 different plans, and almost all seniors have access to at least one plan.

Yet, insurers are skeptical that the good news will continue, because lower MA rates are just beginning to kick in. The biggest cuts will come in four years and could make Medicare less attractive to plan sponsors.

UnitedHealth Group remains the largest MA provider in 2012, with 19% of the market, according to analysis by Avalere Health. Humana has 17% share, and Kaiser Permanente 8%.

This is the first year in a phased-in reduction in rates, so the true impact has not yet been felt, says Avalere director Jennifer Kowalski. PPACA set a schedule for implementing lower benchmarks over two, four, or six years. Rates based on lower benchmarks this year apply to half the nation-generally high-cost counties calculated to experience smaller decreases in payments. One-fourth of counties have a four-year transition, and the rest, which are expected to be hit by the greatest cuts, have a six-year phase in.

STAR RATINGS

Plans that achieve high quality ratings are eligible for bonus payments that help offset rate cuts. CMS decided to award extra payments to more plans on a temporary basis in order to build support for its revised star rating program. But many plans will feel the impact of lower rates when the broader bonus program expires in 2014.

Insurers warn that MA plan rate cuts-which will total $135 billion over 10 years-ultimately will lead to higher out-of-pocket costs, reduced benefits and fewer plan choices. The Congressional Budget Office has projected a decline in MA enrollment to 7.8 million in 2019.

Yet, Blum says future payment changes are well-known to insurers, and plans still send "very strong signals" that they want to be in the MA market. Many are making investments to improve their star ratings.

Jill Wechsler, a veteran reporter, has been covering Capitol Hill since 1994.