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Proposed Medicare Advantage Payment Policies: The Sky Isn’t Falling

In testimony today before the House Energy and Commerce Committee, I explain why policymakers should reject calls from health insurance lobbyists to block the Administration’s proposed 2015 payment policies for Medicare Advantage (MA) plans.  AHIP (the health insurance industry’s trade association) and other interest groups argue that the resulting reduction in payment rates will substantially increase costs to MA participants and reduce the choice of plans.  But, as I point out:

The predictions of doom and gloom are greatly exaggerated.  AHIP issued the same warnings about the MA payment cuts made in 2014, but MA enrollment has nonetheless reached record levels.  The Congressional Budget Office projects that MA plans will continue to thrive, despite further payment cuts.  Nationwide, the number of plans available dropped by only 3 percent in 2014, a small change that reflects the offsetting effects of newly entering and departing plans.  Plans also responded to the payment reductions by becoming more efficient.  The unweighted average monthly premium for MA plans with prescription drug coverage fell from 2013 to 2014 and is lower today than in 2011 or 2012.

Wall Street certainly isn’t pessimistic about Medicare Advantage.  In the wake of the CMS announcement, shares of Humana, the second largest insurer in the MA market, recorded their biggest single-day gain in four years and reached their highest value in more than 33 years.  Standard & Poor’s composite Managed Health Care Index also climbed.

Moreover, preventing overpayments to Medicare Advantage plans is sound policy.  Along with the other cost-saving provisions in the Affordable Care Act, eliminating overpayments reduces premiums for all beneficiaries, including the large majority who are not enrolled in MA plans, and extends the solvency of Medicare’s Hospital Insurance trust fund.  If Medicare’s benefits are to be improved, equity requires that they be improved for all beneficiaries — not just the minority who are enrolled in MA plans.

Click here for the full testimony.