The CMS will reduce some payments to Medicare Advantage insurers by about $4 billion over the next five years, following a "technical correction" in the health-risk data used to set 2006 payment rates in April. Medicare Advantage rates have been adjusted by a "budget neutrality" factor since 2003 to prevent overall payments from being reduced while directing higher, risk-adjusted payments to health plans that enroll more costly, chronically ill members. Earlier this year, President Bush's budget estimated that budget-neutrality payments would total $9.2 billion before being phased out in 2011. A new analysis conducted this summer, however, found a much smaller difference between the reported health status of enrollees in Medicare Advantage and in traditional Medicare. Based on those data, the CMS said budget-neutrality payments would total $5.3 billion through 2011. That doesn't mean aggregate payments to Medicare Advantage plans will drop $4 billion, the CMS said. That's because as plans enroll sicker members, the underlying rates they receive will rise to account for enrollees' greater health needs. In a research note, Prudential Securities analyst David Shove estimated health plans would lose $218 per member in annual premiums in 2007. "Managed-care companies will likely experience a financial impact in the coming years," Shove said. -- by Laura B. Benko
CMS lowers estimate of pay increases to Medicare plans
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