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Don’t Believe the Hype About New Cuts to Medicare Advantage Rates

The federal government is expected later this month to announce the preliminary 2015 payment rates for private “Medicare Advantage” plans that serve some Medicare beneficiaries.  The health insurance industry’s trade association, America’s Health Insurance Plans (AHIP), has launched a preemptive campaign against the expected rates, implying that the announcement will likely include new payment cuts proposed by the Administration — on top of the cuts that health reform and other current law provisions already require.

In reality, as was the case last year, the Administration likely won’t propose any new payment reductions.  It will likely just announce how it will apply existing law, reflecting the combined impact on Medicare Advantage payment rates of health reform and the continued slowdown in growth in Medicare costs.

The expected announcement from the Centers for Medicare & Medicaid Services (CMS) will provide preliminary information on Medicare Advantage payment rates and policies for 2015 (CMS will likely finalize the rates in April).  Changes under health reform in how much Medicare pays Medicare Advantage plans — which began phasing in cuts to the overpayments that such plans receive in 2012 — will again affect the rates for 2015, just as they did last year.  And as it does every year (including pre-health reform), CMS will take into account the estimated per-beneficiary cost of providing Medicare services when calculating the preliminary rates.

As we have noted, Medicare spending has grown slower in recent years than originally estimated and is expected to continue growing slower than previously projected, due to lower-than-expected costs per beneficiary.  If CMS again revises its per-beneficiary cost assumptions downward, those revisions would lower 2015 preliminary payment rates but they would not constitute any new cuts.

Medicare Advantage insurers are continuing to lobby to repeal or scale back the health reform provisions that rein in excessive Medicare Advantage payments over time and require all insurers (not just Medicare Advantage plans) to pay an excise tax to help pay for the health reform’s coverage expansions.  Their preemptive attacks on CMS’s routine payment notice could advance that effort by creating the incorrect impression that the Administration is trying to make further cuts in reimbursements to Medicare Advantage plans.

These health reform provisions, however, are sound, and the Administration and Congress should resist any attempts to undermine them.