President Barack Obama has repeatedly said, “If you like your health plan, you can keep it.” But is that true?
Most likely not, if your plan is a Medicare Advantage (MA) plan. MA is the “private option” within Medicare in which private health insurers are paid a fixed monthly fee to provide health benefits to their enrollees. They must provide at least the same minimum benefits as traditional fee-for-service (FFS) Medicare, but most MA plans provide more benefits, often with lower co-pays and deductibles, and some provide a rebate of the normal Medicare Part B premium. Medicare beneficiaries may select any MA plan offered in their area, and about 24 percent take advantage of this option. Applicants for MA cannot be rejected, and they pay the same premium regardless of their age, sex, or pre-existing conditions.
One might think that MA is the exactly kind of program that proponents of reform would want to expand. But instead, the new health law cuts it sharply. According to the Office of the Actuary at the Centers for Medicare and Medicaid Services, the MA cuts in the Patient Protection and Affordable Care Act (PPACA) will reduce enrollment in MA plans from 14.8 million to just 7.4 million by 2017. And for those beneficiaries who remain in MA after the cuts, the benefits covered by MA plans will be much less generous than they are now.
MA plans submit “bids” for the monthly amounts they will charge for a standard patient. (Adjustments are made based on the patient’s health status.) The bid is then compared to a “benchmark” amount, which is determined individually for each county in the country. If the bid is less than the benchmark, the “savings” are shared—25 percent to the government and 75 percent to the patient in the form of better benefits compared to standard Medicare, lower co-pays, or rebates of the patient’s Medicare Part B premium. If the bid for an MA plan is higher than the benchmark, patients who choose that plan pay the difference.
PPACA changes the formula for determining MA benchmarks. Under the new formula, the MA benchmark will be a fixed percentage of average FFS spending in a county, with the percentage determined by which “quartile” a county’s FFS spending falls in. Counties with higher FFS spending will have a lower percentage applied to determine their MA benchmarks.
Our recent study shows that these new benchmarks will be lower in every single county in the U.S. Overall, by 2017 when the new formula is fully phased in, the average beneficiary will face cuts of about $3,700, or 27 percent. But these cuts are not uniform at all—ranging from a low of 15.7 percent to a high of 45.4 percent. (You can see detailed results for all counties here.)
With these cuts, MA plans will be forced to make significant adjustments, including reductions in what they cover and passing on more costs to patients. Some MA plans will pull out of markets entirely.
Furthermore, the cuts will hit low-income seniors and the disabled with disproportionate cuts. About 70 percent of the cuts will be imposed on those with incomes below $32,400 a year (in today’s dollars).
In addition, Hispanics are twice as likely to enroll in MA than the average Medicare beneficiary, and African-Americans 10 percent more likely. Therefore, they will sustain a disproportionate share of the cuts as well.
The bottom line is clear: If the “reforms” in Medicare Advantage made by the PPACA are allowed to go into effect, they will inevitably and unambiguously restrict senior citizens and the disabled to fewer and worse health care choices, reducing their access to quality health care.
Co-authored by James C. Capretta.