Medicare advantage cuts may disrupt market 03272014

Medicare Advantage Cuts May Disrupt Market March, 2014 BLOG POST

Continued Reimbursement Cuts Could Increase Premiums, Decrease Benefits, and Lower Enrollments; Long Term Benefits May Follow Medicare Advantage (MA), part of the Medicare program, allows private health plans to provide medical coverage to seniors and other Medicare beneficiaries. As of 2013, the majority of the 52 million seniors on Medicare are in the traditional Medicare program, while 28 percent are enrolled in a MA plan because of better services, higher quality of care and add-on benefits these plans provide. MA is considered an important option for low-income and minority Medicare beneficiaries and seniors who choose to enroll in MA generally derive high satisfaction due to better coverage and benefits.

Total Medicare Private Health Plan Enrollments, 1999–2013

14.4

($ millions)

13.1

9.7

10.5

11.1

11.9

8.4 6.9

6.8

6.2

6.8 5.6

5.3

5.3

5.6

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 % of Medicare Beneficiaries

18%

17%

15%

14%

13%

13%

13%

16%

19%

22%

23%

24%

25%

27%

28%

Source: Kaiser Family Foundation

Traditionally, Medicare pays MA plans a per enrollee fee to provide all Part A and B benefits.

Additionally, Medicare makes a separate payment to plans for providing prescription drug benefits under Medicare Part D. The Affordable Care Act (ACA) of 2010 produced a shift in payment policy by reducing federal reimbursements to MA plans over years, bringing them closer to the average costs of care under the traditional Medicare program. Beginning in 2014, it also allowed for new bonus payments to plans based on quality ratings, and required plans beginning in 2014 to maintain a medical loss ratio of at least 85 percent, restricting the share of premiums that MA plans can use for administrative expenses and profits.

Continued Series of Medicare Reimbursement Cuts In February 2014, the Centers for Medicare and Medicaid Services (CMS) issued an advance notice, which included proposed changes to MA payments for 2015. According to estimates, if these changes are finalized it would result in a 5.9 percent cut to MA payments. These reductions are on top of approximately 5 percent payment cuts made in 2014. Once the new changes proposed by CMS are Medicare Advantage Cuts May Disrupt Market

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implemented, the MA program would be hit by a double-digit cut over just a two-year period, causing cost increases and benefit reductions for seniors in the range of $65-$145 per month.

Medicare Advantage Rate Cuts

2 Year Cut (proposed)

9.9%– 11.9%

2015 (proposed)

5.9%

$65– $145

$35–$75

2 Year Impact (proposed)

2015 (proposed)

$30–$70

2014

2014

4%–6%

Amount of Cuts (%)

Monthly Impact in Higher Costs or Benefits Cuts

Source: America's Health Insurance Plans (AHIP)

According to America’s Health Insurance Plans (AHIP), the ACA already includes more than $200 billion in payment cuts, the vast majority of which have not gone into effect yet, and imposes a new health insurance tax that begins this year. These were real cuts in payments – not reductions in rates of projected growth.

ACA’s Payment Cuts – Majority of the cuts have not gone into effect yet

Jan 2019

$6.1

Jan 2018 $135.5 Bn ( $ Billions)

Jan 2017 $97.1 Bn

Jan 2014 $11.3 Bn

Jan 2015 $35.5 Bn

Jan 2016 $64.4Bn $4.6

$42.2

$37.3

$33.0

$28.1

$4.4 $3.2

$5.3 $5.4

Jan 2020 $226.4 Bn

$24.5

$21.0 $11.3 2013

2014

2015 ACA Cuts

2016 Health Insurance Tax

2017

2018

2019

Total Cuts

Source: America's Health Insurance Plans (AHIP)

Medicare Advantage Cuts May Disrupt Market

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Impact on Existing members and Potential Enrollees According to AHIP’s analysis of CMS data, seniors in MA will see, on average, more than 5 percent increase in premiums next year. Moreover, beneficiaries in over 2,000 counties across the country in which more than 60 percent of all enrollees live will have fewer plan options compared to 2013 and many will face higher out-of-pocket costs for Medicare benefits. As a result of these proposed cuts, there could be a high degree of disruption in the MA market, including the potential exit of some MA plans, reductions in service areas, reduced benefits, changes in provider network, and potential disenrollment of MA plans. Seniors will see the impact of any new payment cuts in late October 2014, when they begin enrolling in their 2015 MA coverage. According to the Congressional Budget Office (CBO) estimates, MA enrollment in 2019 could drop from 13.9 to 9.1 million, almost a 35 percent decline in enrollment based on current projections resulting in a loss of 4.8 million seniors. Moreover, the average value of additional benefits provided by MA plans may decline from $135 in 2019 to $67, a 50 percent decline.

Impact of Reimbursement Cuts Still Arguable According to Kaiser Foundation, health policy experts and advocates for seniors say most Medicare health plans have largely kept costs and benefits stable and believe the industry is exaggerating the impact of cuts. Despite similar predictions in 2013, enrollment is still rising overall in the private MA plans, up nearly 9 percent. Moreover, as part of Medicare bonus payment formula, the MA plans will be required to limit their administrative costs and general overhead to 15 percent, with an 85 percent medical loss ratio devoted to medical care and services. Any plan that can’t make the benchmark after three years will be prohibited from enrolling new members until it is in compliance. After five years of noncompliance, those plans would be terminated. It is likely that this type of regulations and payment structures will force payers to be more efficient and drive greater collaboration between payers and providers to contain treatment costs and increase quality of care outcomes which will eventually benefit the MA program in the longer term.

Medicare Advantage Cuts May Disrupt Market

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