There seems to be much confusion surrounding the recent drama of Medicare Advantage’s (MA) 2014 payment rate. Here’s what happened:
In February, the Centers for Medicare and Medicaid Services (CMS) released its advance notice of estimates of the national per capita Medicare Advantage (MA) growth percentage, which is a key factor in determining the MA payment rate for 2014. The notice revealed that MA payment rates were set to decrease by 2.2 percent. The CMS had until April 1 to finalize the rate.
This 2.2 percent reduction would have been on top of the MA reductions included in Obamacare ($156 billion over 10 years) and Obamacare’s new annual fee on health insurers, often referred to as the “premium tax” (costing $101.7 billion over 10 years), which will also hit MA plans.
America’s Health Insurance Plans commissioned the consulting group Oliver Wyman to study the impact of these combined reductions on MA plans. The report concluded, “Virtually all of the 14.1 million Medicare beneficiaries are likely to be affected by these changes, either through increased premiums, reduced benefits, or plan exits from local markets. Many beneficiaries could lose access to MA plans and their approach to care.”
The report found that payment to MA plans would be reduced by an estimated total of 6.9 percent to 7.8 percent and the combined reductions “could necessitate benefit reductions and premium increases of $50 to $90 per member per month.”
The severely negative impact on MA and the 14 million seniors enrolled in MA plans caused bipartisan pushback from Congress: More than 160 Members of Congress wrote letters to the CMS asking them to reconsider the reductions by changing how they calculate the growth rate.
One way to change this calculation is to assume that Congress will pass a “doc fix” to override the sustainable growth rate (SGR), which calls for a 25 percent reduction to Medicare physicians’ payment in 2014. Congress has passed a doc fix to override current law every year since 2003. This significantly increases Medicare spending each year compared to what it would be if the SGR were allowed to take place—thus, assuming a “doc fix” would increase per capita MA spending.
But the CMS has always based its calculations on current law, which includes the large pay cut for Medicare doctors. However, last week, the Congressional Research Service issued a report that stated the CMS had the legal authority to make calculations based on reasonable assumptions instead of current law, meaning the CMS could assume increased Medicare spending for the doc fix.
Thus, on April 1, the CMS issued the finalized rates for MA, changing its calculations to include the annual doc fix, which in turn increased MA rates by 3.3 percent instead of decreasing them by 2.2 percent.
While this is a positive result for the seniors in MA, it is only a small and temporary victory. The Obama Administration’s slow and steady war on MA’s success continues to be implemented via Obamacare. And this is no “tiny haircut”—$156 billion over 10 years is detrimental to MA.
In fact, the Medicare actuary projected Obamacare’s impact when the law first passed: “We estimate that in 2017, when the MA provisions will be fully phased in, enrollment in MA plans will be lower by about 50 percent (from its projected level of 14.8 million under the prior law to 7.4 million under the new law).”
In addition, the premium tax begins in 2014, hitting MA along with every other health care provider. As Oliver Wyman has projected, “In the Medicare market, the premium tax would increase the expected cost of MA coverage per enrollee by $3,604 over the ten-year period.”
So while MA plans did survive the Obama Administration’s knife this time, it is still very much on the chopping block in coming years. Let’s hope there will be bipartisan support to stop those cuts, too.