A study commissioned by America's Health Insurance Plans is predicting a second consecutive year of deep payment cuts for Medicare Advantage programs which "could result in a high degree of disruption in the MA market."
America's Health Insurance Plans is projecting a 5.9 percent cut to Medicare Advantage payments in 2015 and the group issued a stern warning Thursday that the reduction in funding would have dire consequences for the popular program.
After taking a 6 percent hit in the current year, an MA payment cut of similar size in 2015 "puts at risk the coverage of millions of seniors," AHIP President and CEO Karen Ignagni said during a conference call announcing a study, which was conducted for AHIP by New York-based management consulting firm Oliver Wyman. "You add something of this magnitude… that is a material impact."
Ignagni said the industry association had commissioned the study to help clear up confusion linked to last Friday's notice letter from the Centers for Medicare & Medicaid Services. "One thing we know is there is a lot of confusion and uncertainty about the impact [of the proposed cut]," she said. "There's no one number in the Friday notice, which is what makes this study so important."
Glenn Giese, principal at Oliver Wyman and one of the authors of the commissioned report, said MA would take a "5.9 percent cut if this payment notice holds up." For beneficiaries, he said the payment cut would result in reductions of MA benefits or increases in MA out-of-pocket costs from $35 to $75. The dollar impact on beneficiaries from the 6 percent MA payment cut in the current year ranges from $30 to $70, according the study.
5-Star MA Plans Bonuses Would be Trimmed
The study includes a detailed accounting of the factors contributing to the projected 5.9 percent cut, with the prime factors as follows:
- PPACA quartile impact: -2.4 percent
- Reduction of bonuses in 5-star rating system: -1.9 percent
- Ratebook change: -1.9 percent
- Projected insurer fee: -0.8 percent
- Risk score normalization factor: +3.2
- Elimination of home assessment diagnoses: -2.0
Projected Effects on the Market
The study's authors conclude that the proposed payment cut poses a threat to the MA program, including a reversal of enrollment growth that has pushed the number of seniors in the program above 15 million.
"We find that the payment policies proposed in the 2015 Advance Notice in combination with the continued phase-in of the ACA cuts and other legislative and regulatory cuts… could result in a high degree of disruption in the MA market," the report states. "This includes the potential for plan exits, reductions in service areas, reduced benefits, provider network changes, and MA plan disenrollment due to declines in plan value from 2014 to 2015."
Ignagni said MA insurers are particularly worried about the 41 percent of MA beneficiaries who have annual incomes below $20,000. "They are on very low incomes and they are very cost-sensitive," the AHIP president and CEO said.
CMS is slated to reach a final decision on the 2015 payment level for Medicare Advantage on April 7.
New Political Battle Line
With the Patient Protection and Affordable Care Act a focal point of this fall's mid-term elections in Congress, the proposed payment cut for Medicare Advantage has sparked a political firestorm in Washington.
On Tuesday, six Republican Senators sent a letter to HHS Secretary Kathleen Sebelius, blasting the proposed payment cut. In addition to Senate Minority Leader Mitch McConnell (R-KY) and Minority Whip John Cornyn (R-TX), the letter was signed by Sens. John Barrasso (R-WY), Roy Blunt (R-MO), Jerry Moran (R-KS) and John Thune (R-SD).
"During the debate on Obamacare, many of us warned about the impact on America's seniors of raiding Medicare to finance a new entitlement program," the senators wrote. "At the time, we cautioned that the steep cuts to Medicare Advantage required by Obamacare would cause seniors to lose access to many of the health plans and benefits that they had liked, contrary to the President's promises."
On Wednesday, the proposed MA payment cut was the inspiration for political theater, as senators from both sides of the isle participated in a C-SPAN spectacle.
Republicans including Cornyn suggested the proposed payment cut would cannibalize Medicare Advantage to prop up the PPACA. "The truth is, these cuts in Medicare Advantage will force many seniors to pay higher premiums and further undermine their existing healthcare arrangements," the Texas senator said.
Senate Democrats fired back, highlighting the most popular PPACA reforms such as providing health insurance regardless of pre-existing conditions. Standing next to a poster listing several early accomplishments of President Obama's hallmark domestic policy initiative, Sen. Chris Murphy (D-CT) defended the proposed MA payment cut. "We were paying private insurance companies 13 percent more than it cost the federal government to run Medicare," Murphy said. "It just didn't make sense."
Christopher Cheney is the CMO editor at HealthLeaders.