(Bloomberg) — Health insurers participating in the Medicare Advantage program for elderly Americans, including Humana Inc. and UnitedHealth Group Inc., face a base payment cut of about 3.55% next year, the U.S. government said.

The payment reductions proposed yesterday are subject to negotiations with the industry and aren’t expected to become final until April 7. Insurers have predicted total cuts to the program, including additional adjustments, will be as much as 7%. A lobbying campaign to minimize the cuts had begun already, including a Feb. 14 letter to the administration from 40 senators urging the government to freeze Advantage rates.

“The final cut may be bigger, as the proposed rate doesn’t take into account adjustments required by the Affordable Care Act,” Michael Manns, a Bloomberg Industries analyst, said in a telephone interview.

About 15.9 million people, or about 30% of Medicare beneficiaries, are enrolled in Advantage plans this year, according to February data from the government. Next year may mark a turning point: Medicare’s actuaries estimate that enrollment will decline for the first time since 2004 because payment cuts will cause plans to drop out or reduce benefits.

“Practical and predictable MA payment rates are essential to ensure the continued access to this successful program,” Matt Stearns, a spokesman for Minnetonka, Minnesota-based UnitedHealth, said in an e-mail after the announcement. Stearns declined to comment on what the company expects as a final rate. UnitedHealth is the largest U.S. health insurer.

Advantage expenses

Consumers who choose Advantage plans are opting for managed care with benefits including lower out-of-pocket costs over the traditional government-run Medicare program for the elderly and disabled. Government payments have been under pressure since 2010, when the U.S. health expansion was financed in part by reducing spending on Advantage plans by an estimated $206 billion over a decade. At the time, U.S. spending for Advantage beneficiaries was estimated to be as much as 13% higher than for people enrolled in traditional Medicare, leading to criticism that the Advantage plans were overpaid.

Even after the cuts, the Medicare Payment Advisory Commission, which studies the program for Congress and recommends cost savings, estimates that Advantage plans were paid about 4% more in 2013, per beneficiary, than the cost of the traditional program.

Rate reversal

Last year, the administration raised 2014 base payments for Advantage insurers by 3.3%, after initially proposing a 2.2% reduction. Still, insurers say that other government decisions — including a new tax on the industry under the Affordable Care Act known as Obamacare and budget sequestration ordered by Congress — reduced their Advantage payments about 6.7% in total this year.

“We believe that plans will continue their strong participation in the Medicare Advantage program in 2015 and beneficiaries will continue to have a wide array of high-quality, high-value, low-cost options available to them while at the same time we are making certain that plans are providing value to Medicare and taxpayers,” Jonathan Blum, principal deputy administrator of the Centers for Medicare and Medicaid Services, said in a statement.

Before yesterday’s announcement, insurers said their total payment reduction for 2015 may be as much as 7%. Their lobbying campaign has included posters plastered around Washington that picture an elderly man with a pair of binoculars, with the warning “Seniors Are Watching.”

Lawmakers’ letter

The 40 U.S. senators who wrote to Medicare administrator Marilyn Tavenner asking for payments to be frozen were led by New York’s Charles Schumer, a Democrat, and Idaho’s Michael Crapo, a Republican.

“Millions of American seniors chose Medicare Advantage because the program lives up to its name by delivering clear advantages,” U.S. Senator John Barrasso, a Wyoming Republican, said in a statement after the announcement. “Instead of listening to seniors and investing in a program that works well, the Obama administration is doing everything possible to make sure it fails. Gutting the Medicare Advantage program will ensure that even more Americans can’t keep the health care they like.”

While Medicare actuaries estimate enrollment in Advantage plans will dip next year, the Congressional Budget Office predicted that participation may rise as much as 50% in the next decade to 21 million by fiscal 2023.

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