Healthcare Business News
Karen Ignagni, President and CEO America’s Health Insurance Plans
“These cuts will compound the $200 billion in Medicare Advantage cuts and the new health insurance tax included in the healthcare reform law. The Congressional Budget Office projects that the reform law's payment cuts alone will result in 3 million fewer people enrolled in Medicare Advantage.”

—Karen Ignagni
President and CEO
America's Health Insurance Plans

'Crushing blow'

Insurers will likely see Medicare Advantage cuts

By Jessica Zigmond
Posted: February 23, 2013 - 12:01 am ET

HHS has offered a picture of what it expects certain insurance payment and coverage provisions to look like in 2014, and, when it comes to payment rates, insurers don't like what they see.

The first glimpse came when HHS released—after the market closed Feb. 15—proposed Medicare Advantage and Part D plan payment and policy changes that drew the ire of trade group America's Health Insurance Plans and sent health insurance company shares tumbling the following week. Days after the notice, HHS issued its final regulation on the healthcare reform law's essential health-benefits provision that received little reaction from the industry because it largely mirrored the department's proposed rule and earlier guidance.

In an advance notice and comment letter for Medicare Advantage and Part D plans, the CMS announced for 2014 a negative 2.2% growth percentage rate, a metric that is used to help calculate the payment benchmarks for Medicare Advantage plans in counties nationwide. The agency attributed the negative growth rate to “historically low growth in Medicare per-capita spending” that it attributes to efforts the Medicare program has made to combat fraud and promote quality over volume. The CMS also proposed beneficiary deductible levels, out-of-pocket thresholds and coverage limits for Medicare Part D next year.

Insurers took a bleak view of the news, as the estimated negative 2.2% growth percentage rate translates into reduced payment levels for Medicare Advantage plans. In a statement, AHIP President and CEO Karen Ignagni said the proposed changes are a “crushing blow” to about 14 million seniors and people with disabilities who count on Medicare Advantage.

“These cuts will compound the $200 billion in Medicare Advantage cuts and the new health insurance tax included in the healthcare reform law,” Ignagni said. “The Congressional Budget Office projects that the reform law's payment cuts alone will result in 3 million fewer people enrolled in Medicare Advantage,” she said, adding that the cumulative effect of all of these changes will reduce Medicare Advantage payments next year by more than 8%, or about $11 billion.

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In securities filings, insurance company Humana said it expects a “mid-single-digit decline” in its Medicare Advantage benchmark payment rates, changing course from its earlier estimate that benchmark payment rates would be “flat or slightly down.” Meanwhile, shares of the Louisville, Ky.-based company dropped more than 6% immediately after the news, while insurance companies UnitedHealth Group, Health Net and Cigna Corp. also saw their shares fall.

AHIP responded in part by issuing a report from its research and policy center that emphasized how low-income and minority Medicare beneficiaries count on Medicare Advantage for coverage. For instance, the report noted, 28% of all Medicare beneficiaries were enrolled in Medicare Advantage plans, while 31% of African-American Medicare beneficiaries and 38% of Hispanic Medicare beneficiaries were enrolled in Medicare Advantage plans. The report also found that while 37% of all Medicare beneficiaries had incomes of $20,000 or less, 41% of Medicare beneficiaries with Medicare Advantage coverage had incomes at that level or below.

“This is a periodic survey we do, but we're certainly putting it out now because it's important for people to understand who are the people who benefit from the Medicare Advantage program,” Robert Zirkelbach, a spokesman for AHIP, said in an interview.

But Edwin Park, vice president for health policy at the Center on Budget and Policy Priorities, a left-of-center think tank, said there are more efficient ways to protect low-income and minority Medicare beneficiaries. While he did not comment specifically on AHIP's most recent study on this issue, Park and his colleague January Angeles released a study in 2009 that said “only a fraction” of the additional benefits and lower premiums and cost-sharing for private plans actually go to minority and low-income beneficiaries because these groups make up a small part of total Medicare Advantage enrollment.

In an interview last week, Park suggested the best way to benefit low-income and minority Medicare beneficiaries would be to expand Medicaid or enhance benefits for all beneficiaries, not only those enrolled in Medicare Advantage.

In conjunction with the notice, the CMS released a proposed rule that outlined the healthcare reform law's medical-loss ratio requirements for Medicare Part C and D, proposing that at least 85% of revenue in these plans must be spent on clinical services, prescription drugs, quality improvements and/or direct benefits to beneficiaries through reduced premiums. Comments to the CMS for the MLR requirement are due within 60 days of the Feb. 15 notice, while the agency expects comments on the Medicare Advantage and Part D payment and policy changes by March 1.

The agency expects to publish a rate announcement and call letter with the final benchmarks on April 1.

Meanwhile, HHS' final regulation on essential health benefits—a core package of services that health insurance issuers must cover in the individual and small-group markets inside and outside of the exchanges starting next year—was met with little fanfare in the industry, as HHS closely followed what it had mapped out in its proposed rule last November and a bulletin in December 2011.

“The administration continues to show that it wants to provide states the utmost flexibility, allowing states to select the base benchmark plan from several choices and to oversee that benchmark's offering of all the essential benefit categories,” Julie Scott Allen, director of government relations at Drinker, Biddle & Reath, said in an e-mail.

Neil Trautwein, vice president and employee benefits policy counsel at the National Retail Federation, said he's concerned that provisions in the final rule—especially those detailing pediatric and dental coverage, habilitative services coverage and mental healthcare coverage in the small-group market—will make insurance too expensive for employers to provide and for individuals to buy.

Still, Trautwein said he is pleased with some of the provisions, including one that allows insurers to apply “reasonable medical management techniques” to control costs in a way that is not discriminatory to beneficiaries.

For instance, HHS noted in the rule that a reasonable technique would be to require preauthorization for coverage of a shingles vaccine for people under the age of 60.

“I give them credit for trying to navigate between these competing concerns,” said Trautwein, who also serves as chairman of the Essential Health Benefits Coalition. “But I still have to say, I'm worried people won't afford the coverage when it counts in 2014.”

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