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No, the Administration Isn’t Proposing New Cuts in Medicare Advantage Payments

The health insurance industry’s trade association, America’s Health Insurance Plans (AHIP), has launched a campaign against the federal government’s recent payment announcement related to the private “Medicare Advantage” plans that serve some Medicare beneficiaries.  AHIP implied that the government is proposing new policies that will cut the payments on top of the cuts that health reform already requires — thus delivering a “crushing blow” to Medicare Advantage enrollees.

In reality, however, there aren’t any new policies.  The announcement merely applies existing law, reflecting the combined impact on Medicare Advantage payment rates of health reform and the recent slowdown in Medicare costs.

The February 15 announcement, from the Centers for Medicare & Medicaid Services (CMS), provides preliminary information on Medicare Advantage payment rates and policies for 2014.  This annual notice includes a calculation of some of the factors that help determine Medicare Advantage payments in a particular county for the coming year; those factors are generally based on the estimated per-beneficiary cost of furnishing Medicare-covered services.  CMS will finalize these rates and policies for 2014 in April.

As expected, changes that health reform made in how much Medicare pays Medicare Advantage plans will affect the rates for 2014.  But so will an unanticipated development:  growth in Medicare spending per beneficiary has slowed to historically low rates.  As a result, the overall payment rates will likely be lower than insurers had forecast.

Similarly, slower growth in health care costs was the main reason why projected Medicare spending over the next ten years has fallen by more than $500 billion, relative to what the Congressional Budget Office projected three years ago.

Medicare Advantage insurers are lobbying 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 expanded coverage.  Their attacks on CMS’s routine payment notice could advance that effort by creating the incorrect impression that the Administration is trying to unduly cut reimbursements to Medicare Advantage plans on multiple fronts.

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