The $6.7 billion infusion could head off service cuts that would have been a headache for Obama and Democrats in next year's elections for the White House and Congress. More than half the roughly 11 million Medicare Advantage enrollees are in plans rated average.
The insurance industry says the bonuses will turn what would have averaged out as a net loss for the plans in 2012 into a slight increase. The HHS decision means 4 out of 5 Medicare Advantage enrollees are in plans now eligible for a bonus. Under the tougher approach Congress took in the healthcare law, only 1 in 4 would have been in plans getting the extra payments.
HHS' nearly $7-billion bonus program is temporary. In 2015, the cuts called for in the healthcare law will kick in again.
In a recent letter to HHS Secretary Kathleen Sebelius, two prominent GOP lawmakers questioned what they termed the administration's "newfound support" for Medicare Advantage. The shift "may represent a thinly veiled use of taxpayer dollars for political purposes," wrote Sen. Orrin Hatch of Utah and Rep. Dave Camp of Michigan. Camp chairs the House Ways and Means Committee. Hatch is ranking Republican on the Senate Finance Committee.
Seniors are among the deepest skeptics of the new healthcare law. A recent AP-GfK poll found that 62% disapprove of Obama's handling of healthcare, as contrasted with 52% approval among Americans overall. The poll also found that seniors are more likely to trust Republicans than Democrats on health.
The administration says the reason for the bonuses is quality improvement, not politics, and the program will be evaluated as it goes along. "We are looking at whether an alternative payment incentive structure would lead to broader quality improvements across all Medicare Advantage plans, by giving incentives for a broader range of plans to improve," said Medicare spokesman Brian Cook.
About one-fourth of Medicare beneficiaries are signed up in Medicare Advantage plans that offer lower out-of-pocket costs and more comprehensive benefits than the traditional program. The healthcare law cut $145 billion over 10 years from Medicare Advantage, partly to correct a widely acknowledged problem with overpayments to the plans. Those cuts start off modestly in 2012 and build up. Insurers were expected to shift the burden to beneficiaries in the form of fewer services and higher out-of-pocket costs, triggering an exodus back to traditional Medicare.
"The net result is that the boat didn't get rocked," said Dan Mendelson, president of the information firm Avalere Health. "It's fair to say that (Medicare) could not tolerate dislocation, given the political climate." But Mendelson also said he agrees with the administration that the new money will get more plans thinking about how to improve quality, if they want to remain profitable. "They are giving the plans training wheels to improve their quality," he said.
The healthcare law itself tried to soften the impact of Medicare Advantage cuts by providing quality bonuses for highly-rated plans that received four or five stars in a government grading system. Then, in a policy shift quietly completed this month, HHS decided to grade on the curve. Average-quality plans garnering just three or three-and-a-half stars would also get bonuses, although at a lower percentage than top-tier plans.
Medicare has classified the bonuses as a demonstration program, relying on broad legal authority Congress gave the agency to experiment with quality improvements. It's the costliest demonstration program in Medicare history. The money will come from the Medicare trust fund.