Protecting payments

Conflicts and changes loom in 2014 for the fast-growing Medicare Advantage program, which soon will be serving nearly 30% of the nation's roughly 50 million Medicare beneficiaries.

The health insurance industry has geared up a major lobbying campaign to pressure the Obama administration not to cut Advantage payment rates for 2015. The CMS will issue preliminary rates Feb. 21. Many experts say Advantage insurers, which received $136 billion from Medicare in 2012, were overpaid in the past.

Enrollment in Advantage plans has grown significantly in recent years even as insurers have faced reduced payments mandated by the Patient Protection and Affordable Care Act. A preliminary analysis of 2014 enrollments by Avalere Health indicated that growth will be at least 5.5% this year.

But insurers say the cuts have forced them to reduce benefits, increase patient cost-sharing and narrow provider networks. That network narrowing has caused an outcry among seniors, physicians and hospitals, and prompted at least one lawsuit.

Meanwhile, insurers and industry analysts say Advantage has become an increasingly important business for insurers, and major companies are going through a wave of acquisitions and consolidations to expand their footprint in the Advantage business.

There's “huge growth” ahead for Advantage plans as the baby boomers turn 65, Bank of America analyst Kevin Fischbeck said.

Nevertheless, insurers are issuing ominous warnings. Humana, the second-largest Advantage insurer, said in a recent Securities and Exchange Commission filing that it anticipates Advantage payments will be reduced by an additional 6% to 7% for 2015, higher than the 4% to 5% it previously estimated. Similarly, executives at UnitedHealth Group, the largest Advantage insurer, raised concerns with investors this month about how rate reductions could limit profitability.

America's Health Insurance Plans' marketing campaign, “Seniors Are Watching,” is expected to include TV and print advertising, as well as lobbying. AHIP spokesman Robert Zirkelbach indicated that the organization plans to spend “seven figures” on the effort.

But with the continued enrollment growth, some analysts predict it will be tough arguing against further cuts. “Dire predictions” about the impact of previous cuts turned out to be overstated, Citi Research analyst Carl McDonald wrote in a note to investors this month.

Indeed, insurers reported that Advantage enrollment in 2013 was higher than anticipated. Health Net, of Woodland Hills, Calif., for instance, experienced a 5% membership increase after projecting a 5% decline. UnitedHealth Group's Advantage business grew by 17%.

Morgan Stanley analyst Andrew Schenker projected that Humana would enjoy a 9% enrollment increase and Aetna would see a 5% hike this year.

With the passage of the ACA, some in the insurance industry predicted the future for Medicare Advantage would be bleak. Advantage plans faced more than $200 billion in reduced spending on the program through 2019. That led the CMS to project that enrollment by 2017 would total only 7.4 million—half of what it would have been without the cuts.

But four years later, the Advantage program has continued to experience a growth boom that started a decade ago. Between 2010 and 2013, the number of enrollees grew from 11.1 million to 14.4 million, with average annual growth of more than 9%.

In 2011, Advantage plans received an average of $9,893 per beneficiary, 2.7% more than anticipated, according to the Government Accountability Office. Profits totaled $3.3 billion, or 4.5% of premium revenue.

“What we've really seen is the program has actually thrived since the law passed,” said John Gorman, a Washington-based consultant who works with insurance companies.

The continued growth is at least partly because baby boomers are more comfortable with managed-care plans than previous generations, experts say.

Also, the Obama administration—facing strong support for the Advantage program and the need to maintain insurance industry backing for Obamacare—has softened the funding cuts.

Insurers now are ratcheting up warnings about the impact of any additional cuts. AHIP said Advantage plans on average took a 6.5% payment hit in 2013.

Fran Soistman, Aetna's executive vice president for government services, argued that cutting Advantage rates further is a bad idea given all the turbulence in the insurance market under the ACA.

But some experts aren't buying insurers' dire predictions. In 2009, Medicare paid 14% more per capita for beneficiaries in Advantage plans compared with those in traditional Medicare, according to the Medicare Payment Advisory Commission. The ACA-mandated cuts were designed to eliminate that disparity. In 2013, Advantage enrollees still cost 4% more.

Dr. Robert Berenson, a fellow at the Urban Institute and former MedPAC commissioner, argued that Advantage plans “are still getting overpaid a couple of percentage points.”

Insurance industry officials argued that simply looking at spending per beneficiary is too simplistic. There are numerous studies, they say, showing better quality of care for Advantage members compared with seniors in traditional Medicare.

Insurers say the payment cuts are forcing them to narrow their provider networks. That issue is at the center of a federal lawsuit filed by two county medical associations in Connecticut challenging a plan by UnitedHealth Group to eliminate more than 2,000 doctors from its Advantage network in that state. In December, a judge issued a preliminary injunction preventing UnitedHealth from dropping doctors while the case is litigated. The Minnetonka, Minn.-based company has appealed the ruling. Arguments in the case were heard last week before the 2nd U.S. Circuit Court of Appeals.

Consultant Gorman said UnitedHealth's move to narrow its Connecticut network was intended to send a strong signal to providers.

Republicans have used the network reductions as fodder for their attacks on Obamacare, arguing that they prove President Barack Obama lied when he said no one would lose access to their doctor under the ACA. That issue is likely to resurface when the open enrollment period for 2015 approaches ahead of the fall congressional elections.

The payment reductions also are driving other significant changes by insurers. Advantage plans are seeking to raise their Medicare Star quality ratings and boost their star-related bonus payments by eliminating low-quality or expensive providers and increasing preventive services. According to Avalere Health, 43% of Advantage plans offered for 2014 received at least four stars, up from 27% the previous year. Experts say that each half-star improvement can yield $15 to $50 more per member a month.

“It could be the difference between a profitable plan and an unprofitable plan,” said Matthew Eyles, Avalere's executive vice president.

Insurers also are offering fewer Advantage plans. There were 2,014 plans available nationwide for coverage this year, down from 2,800 in 2009, according to the Kaiser Family Foundation.

Kaiser's analysis also found a modest increase in average monthly premiums for Advantage plans, from $34 to $39.

The rate pressures will begin to ease in the coming years, Gorman predicted. “2014 and 2015 are some dreary days for this program,” he said. “In 2016, the sun breaks through the clouds. And then in 2017, blues skies are here again.”

Follow Paul Demko on Twitter: @MHPDemko