More cuts to Medicare benefits on the way

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  • Get ready for more cuts to private Medicare plans and more fired doctors.

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  • Under Obamacare, the Medicare Advantage plans are brought into parity with FFS Medicare.

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  • The Obama Admin. funneled money to MA plans during 2012 to offset reductions ahead of the election.

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Get ready for more cuts to private Medicare plans, and more fired doctors, as insurers are forced to cheapen provider networks, and benefits.

That’s the upshot from the announcement by the Centers for Medicare and Medicaid Services that 2015 Medicare Advantage rates will be cut as much as a whopping 8%, once new reductions get baked into the program’s baseline.

Some of the best analysis of the new rate adjustments comes courtesy of managed care analysts at Credit Suisse. In a report tonight, they cobble together the different adjustments to arrive at the 8% figure. With this being an election year, and 15 million seniors (about 29% of all Medicare beneficiaries) getting their care from the program, there’s a chance that some of these cuts will get reduced. The Obama Administration has until April 7th to publish the final numbers.

The total reduction is the sum of a dozen different adjustments. Some stem from statutory variations that are made to the program based on broader fiscal trends in healthcare. Other cuts are a direct result of Obamacare.

One of those Obamacare cuts is a 2% reduction to the rates that CMS pays to the Medicare Advantage plans for each beneficiary they enroll.

Previously, these health plans were paid a premium on the amount of money that each beneficiary is estimated to cost under Medicare’s fee for service program. Under Obamacare, the Medicare Advantage plans are brought into parity with FFS Medicare.

The Obama Administration funneled money to the MA plans during 2012 to offset these reductions ahead of the Presidential election. With the election out of the way, these cuts are finally coming due.

Another piece of the 8% reduction comes from the fee Obamacare imposes on health plans. Starting in 2015, health plans are required to pay an $8 billion (non-tax deductible) fee that will be apportioned to the different insurers based on their share of the total risk-based premiums that the industry collects. This fee accounts for another .6% of the projected 8% cut.

Among the other components of the 8% cut: A 3.55% reduction based on changes in the per capita growth rate; a .25% reduction based on the fact that Medicare Advantage plans typically code better than fee-for-service providers (thus boosting reimbursement to the plans). CMS is using the .25% cut to claw back this money; and a 1.5% reduction from the phasing out of an expanded “bonus” program that CMS used as a way to offset other reductions to Medicare Advantage plans ahead of the last Presidential cycle. The Obama team didn’t want to trigger benefit cuts ahead of the election.

It’s important to note that the 8% figure represents the high end of estimates. A competing analysis from managed care analysts at UBS put the figure in the 4% to 5% range. The swing factor is a change that CMS is making to how it adjusts for the risk in different health plans. That change may have the effect of reducing the cut by about 4% according to some in the health plan community.

That’s still a big cut, although clearly not as draconian as an 8% decrease. Bottom line: There’s still ambiguity when it comes to how hard these plans are being hit in 2015.

Some of that uncertainty also stems from the political response to the latest cuts. Congressional leaders have already expressed concern about the magnitude of the latest round of reductions, and the potential dislocations it will cause. Health plans are going to try and offset the cuts by firing doctors, pulling out of markets, and trimming benefits.

For that reason, and with this being another election year, these reductions are likely to be modified. But any accommodation will forestall just a fraction of these cuts. Even if the final reduction falls in the 4% range, rather than 8%, you can still expect benefit cuts this fall.

You can follow Dr. Scott Gottlieb on Twitter @ScottGottliebMD. For more from the AEI health policy team, follow @AEIHealth.

 

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