from Forbes – by Scott Gottlieb – The privately run Medicare plans known as “Medicare Advantage” have been in the political crosshairs of the Obama White House. Even after facing steep cuts under Obamacare, the Advantage plans are now slated to take a brand new round of reductions in 2015. These new cuts will cause the private Medicare option to shrink further in the next few years, and pressure the insurance companies that offer them.
The latest cuts are the consequence of a slowdown in the overall growth of Medicare spending — some of it owing to reduced utilization of medical services as a result of the slack economy. The Medicare program recently told the private plans that, since per capita costs are trending lower than prior estimates, the feds are now assuming that Medicare Advantage will take another cut in 2015, on top of existing reductions.
This means that in 2015, the rates that the feds pay these plans is slated to go from an earlier 1.7 percent increase to a new, -2.0 percent decrease. This is on top of other cuts that have already been announced or implemented. Combined with these other cuts mandated by Obamacare, the Medicare Advantage plans are looking at significant reductions when they had been expecting small increases.
The slower rate of growth in overall Medicare spending will come as welcome news. Yet basing Medicare Advantage rates off this metric was always flawed. The translation between Medicare’s per-capita costs and beneficiary costs in the Medicare Advantage program was never precise. They don’t track each other well, as the Advantage plans often implement reforms and realize savings in ways that are detached from trends underway in the broader medical marketplace.
These 2015 rate adjustments will affect the investment decisions that the advantage plans make. Now that anticipated increases are turning into cuts, more health plans are likely to skinny down the options that they offer.
Hardest hit are going to be the health plans that have made the biggest investments in Medicare Advantage. At the top of this list is Humana.
Humana has about 2.5 million Medicare Advantage members and 3.3 million participants in Medicare Part D drug plans. The company’s Medicare business accounts for 70 percent of its revenue. So watch the plan as a bellwether for the impacts of these policy trends.
Humana has been making aggressive investments in the way it delivers care to seniors and integrates their medical services. It’s part of a broader effort to improve medical outcomes, and save money on medical costs. But these are long term investments that might not pay off in time to offset the near term cuts. That’s the problem with the way Washington budgets around healthcare. The year-to-year budget adjustments don’t provide enough opportunity for insurers to realize the savings from making longer-term investments in healthcare. If Humana’s Medicare business starts to shrink, or benefits get trimmed in noticeable ways, it will be a reflection of the recent cuts.
All of this begs the question why the private Medicare plans remain a target?
The original gripe that the Obama team had was that the MA plans were being paid more for each beneficiary that they covered than what the government spent on an average senior enrolled in traditional fee-for-service Medicare.
The math on this costs per-beneficiary estimate was always fuzzy. It baked in a lot of fungible assumptions. Nonetheless, Obamacare sanded away any perceived discrepancy, cutting more than $150 billion from these plans.
The net effect of all of these cuts is already expected to shrink the program. The Obama Administration is disproportionately shifting these cuts onto so-called Medicare “special needs” plans. These are Medicare Advantage plans that are specifically designed to enroll patients with certain serious and costly chronic illnesses like diabetes and heart disease. Many of these patients are low income, and dually eligible for both Medicare and Medicaid.
These SNP plans are paid more to effectively siphon these less healthy patients away from other Medicare schemes like Medicare’s fee-for-service program. The idea is that these specialized Medicare Advantage plans will be able to more closely manage these patients, reducing morbidity associated with chronic ailments, and in turn lowering costs to the Medicare program. There is evidence that this kind of focused health plan works to improve clinical outcomes, and reduce costs.
More than 1.5 million seniors were covered by about 500 of these plans in 2013. Avalere Health, a Washington-based health policy firm estimates that at least 13% of these plans will be eliminated as a result of the cuts.
The targeting of SNPs is illustrative of the incongruous nature of the President’s policies when it comes to Medicare Advantage. The White House has been using a “demonstration” project authorized under Obamacare to forcibly turn many of these same patients over to state-run healthcare programs. The states, in turn, are typically enrolling these seniors into the HMOs used by their Medicaid programs. It’s going to be hard to argue that low-income seniors with chronic medical problems will be better off in state-run Medicaid HMOs (getting the equivalent of a Medicaid benefit) than they were in the private Medicare SNPs.
The Obama demonstration program aims to improve the medical management of these seniors. But the SNPs were already doing the same thing that the states are now trying to figure out. And the SNPs are using managed care plans tailored to seniors, and not designed to serve state Medicaid programs. The effort to turn these seniors over to the states always looked like it was more about politics than sound healthcare — a backdoor scheme to cross subsidize state Medicaid programs with money from Medicare.
It can’t help but seem like the real aim of the successive cuts is to shrink the advantage program. Yet more than a quarter of Medicare beneficiaries enroll in the private Medicare Advantage plans. Many of these are low-income seniors who choose these options because they can’t afford the Medigap policies that richer seniors use to plug the increasing gaps in traditional, fee-for-service Medicare. The private Medicare Advantage plans typically have fewer out-of-pockets costs than traditional Medicare, eliminating the need to buy a costly, supplemental health plan.
The Obama team has made a warm embrace of managed care options when it comes to Obamacare and Medicaid. But for Medicare, they want to deny low-income seniors these options. All of the administration’s old arguments on why they resisted these private Medicare plans have been largely mooted, or never materialized. Only one possible reason remains prominent. It’s a Bush era program that sought to privatize aspects of this public program. And it will continue to be opposed largely on those grounds.