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AIS's Health Business Daily
Featured Story November 17, 2008 Likely Medicare Advantage Cuts Under Obama Could Prompt Health Plans to Leave Some Markets Reprinted from HEALTH PLAN WEEK, the industry's leading source of business, financial and regulatory news of health plans, PPOs and POS plans. By Steve Davis, Managing Editor, (sdavis@aispub.com) To fund new health coverage initiatives, industry observers agree, lawmakers in 2009 are most likely to target reimbursement levels paid to insurers that operate Medicare Advantage (MA) plans. During his campaign, President-elect Barack Obama (D) regularly cited what he regards as overpayments to MA insurers and implied moving to paying MA plans at 100% of fee-for-service (FFS) amounts. If such substantial cuts occur, plans are likely to leave some MA markets, industry observers tell HPW. The cost of covering beneficiaries under MA is about 12% higher than covering members under Medicare FFS, according to some research studies. That translates to about $7 billion a year, says Uwe Reinhardt, Ph.D., a professor of health economics at Princeton University. "That extra payment made the plans quite a bit of profit margin in recent years as their private book of business shrank," he says. But changes to MA reimbursement levels could be shortsighted if lawmakers don't understand the benefits MA has over traditional Medicare FFS, says Henry Loubet, a senior vice president in the Oakland, Calif., office of Keenan & Associates, an insurance brokerage firm. "The [Medicare FFS] model is somehow seen as superior, but the benefits are so much better under Medicare Advantage." Reimbursement reductions, he adds, could force health plans to curtail benefits. Loubet is a former UnitedHealthcare executive. Last July, Congress successfully overrode a presidential veto to delay until December 2009 a scheduled 10.6% payment cut to Medicare physicians and instead added a 1.1% payment increase over the next 18 months. The bill is funded in large part by slicing $12.5 billion in reimbursements over five years to insurers that contract with Medicare. Industry observers say additional cuts will be made to fund other programs. Some Democratic lawmakers have long seen MA as a giveaway to health plans, says Joe Paduda, a principal at Health Strategy Associates, LLC. While the industry was relatively effective at blocking MA reimbursement rate cuts this year, with Congress and the White House changing hands in 2009, "the bill they stopped this year will look great compared to what they'll get next," he tells HPW. "Expect MA subsidies to be slashed, in what could, and should, be seen as a shot across the bow of the insurance industry." Congressional leadership and the president-elect have noted that the funding for MA plans will be pretty carefully scrutinized. "And if Congress perceives that it's overpaying MA plans at a time when it needs money for other health care initiatives, guess what? They will take money from MA," says Bruce Merlin Fried, a partner at law firm Sonnenschein Nath & Rosenthal LLP in Washington, D.C. Along with targeting reimbursement rates, lawmakers are likely to look closely at how well plans manage care for MA enrollees. Plans that are truly involved in the management of care and have built strong relationships with physicians will be well positioned to deliver the kind of value in Medicare that Obama is looking for, Fried says. At the America's Health Insurance Plans (AHIP) annual Medicare and Medicaid conference in Washington, D.C., in September, former HCFA Administrator Nancy-Ann DeParle said insurers that sell MA plans should be prepared to provide CMS with a rationale for the price differential between MA and traditional Medicare FFS. Fried suggests that instead of just increasing physician reimbursement rates, for example, lawmakers could tie the new rates to compliance with a pay-for-performance model. "There could an opportunity to address the entire way we compensate and incent doctors to perform in traditional Medicare. That's an opportunity that doesn't come around often," he says. Cuts Could Lead to MA Exodus A cut in MA reimbursement levels may well prompt some health plans to pull out of some markets. DeParle, now a managing director of New York City-based CCMP Capital, tells HPW that the effect an MA reimbursement cut would have on health plans would be similar the impact the Balanced Budget Act of 1997 had on insurers that sold Medicare+Choice plans. At that time, about 15% of Medicare beneficiaries were enrolled in such a plan — compared with more than 20% of beneficiaries now enrolled in MA plans. "Congress tried to make [the plans] more widely available, but in doing that, they reduced payment rates for some of them and increased rates for others. As a result, we did see a number of Medicare plans pull out of certain markets," she says, adding that few, if any, completely left the Medicare business. "I think Congress would want to avoid that. I see much stronger support for MA plans than [Medicare+Choice plans] had 10 years ago." She says insurers
that sell MA plans should be prepared to provide CMS with a rationale
for the price differential between MA and traditional Medicare FFS.
She says an argument could be made in favor of paying MA insurers more
under Medicare if they can demonstrate results. MA insurers "have
tools at their disposal" that regular FFS Medicare does not, but
that the evidence of enhanced quality and outcomes for Medicare beneficiaries
in MA plans is mixed. "Plans can and should do a better job of
showing results," she says.
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