Medicare Advantage Cuts

The insurance industry launched a second television ad Monday against proposed cuts to private Medicare Advantage plans.

The latest ad features seniors talking into the camera about the “drastic” consequences of losing access to their Medicare Advantage plans. 

“If Medicare Advantage has some cuts to it, I’m going to be in bad shape financially,” one man says in the new ad, which began airing in Washington, D.C. on Monday and will air in Louisiana on Tuesday.

It’s the second television ad America’s Health Insurance Plans (AHIP) has launched in a far-reaching lobbying campaign to block the proposed cuts. More than 100 members of Congress, representing both parties, have also written letters to the Medicare agency protesting the proposed cuts.

The agency recently proposed a 2.2 percent cut in payments to Medicare Advantage — Medicare plans administered by private insurance companies.

The 2 percent cut would come on top of reductions included in President Obama’s healthcare law. All told, according to AHIP, plans would have to find benefit cuts or premium increases worth $50 to $90 per customer if the cuts go through.

The Hill

Medicare Part D – Trouble Brewing

Medicare Part D is on the chopping block.

The much-discussed sequester has taken effect. But federal lawmakers are still trying to find ways to undo the $85 billion in spending cuts it has put in motion.

Medicare Part DIn his state -of-the-union address, President Obama trained his eyes on one of his favorite bogeymen — the pharmaceutical industry. The president has proposed a multibillion-dollar fee on drug companies by requiring them to issue the federal treasury rebates on prescription drugs consumed by low-income seniors.

Other Democrats want to go even further. They’re calling for the feds to essentially dictate prices for drugs sold through Medicare Part D plans. They claim that such a move will save even more money.

But neither plan will deliver the savings its backers claim. Even worse, both will raise costs for seniors, deny them access to drugs they need, and dismantle the structure of the only portion of Medicare that has cost less than government projections — the Medicare Part D drug benefit.

Medicare Part D leverages the power of market competition to deliver prescription drug coverage to seniors. Private insurance plans compete with one another for seniors’ business, offering different premiums, deductibles, and levels of drug coverage. Seniors can pick the plan that best suits their needs and budget, and the feds subsidize their premiums.

Today, the more than 27 million seniors enrolled in Part D can choose from about a thousand plans nationwide. Nearly 11 million people covered by Part D did not previously have prescription drug coverage. Ninety percent are satisfied with the program, according to KRC Research.

The competitive forces built into Medicare Part D have kept costs down. At an average of just $38 a month, premiums are 27 percent below where the government expected them to be. They’ve been essentially flat since 2009, according to the Kaiser Family Foundation.

Low premium costs, in turn, mean less taxpayer money for subsidies. In fact, Part D costs are 40 percent below where the Congressional Budget Office (CBO) initially predicted. Over the past six years, the CBO has lowered its long-term cost projections for Part D by hundreds of billions of dollars.

Try to name one other federal program that can boast such results. Certainly not the rest of Medicare. At the dawn of the program in 1965, Medicare’s Part A hospital insurance program was projected to cost just $9 billion by 1990. The actual cost was more than seven times that — $67 billion.

Despite Medicar Part D’s success at increasing prescription drug coverage at lower-than-expected cost, President Obama and his allies want to fundamentally change the nature of the program.

Obama’s plan would force drug companies to rebate some of the money they make on drug sales to “dual eligibles” — low-income seniors who qualify for both Medicare and Medicaid. They currently receive drug coverage through Part D.

The federal government mandates that drug makers generally give Medicaid a 23-percent discount. By requiring a similar rebate for dual eligibles, proponents claim that the government would save more than $150 billion over 10 years.

But as former Congressional Budget Office Director Douglas Holtz-Eakin has said, “That money has to come from somewhere.” And that somewhere will be other seniors’ pockets.

Holtz-Eakin estimates that the rebate scheme will force Part D premiums up by as much as 40 percent. That would add up to $3.7 billion to seniors’ out-of-pocket costs, as drug companies try to recoup the cost of those forced rebates.

As bad as Obama’s plan is, a coalition of Democratic lawmakers and various activist groups want to go even further — and have the government take over the role of negotiating drug prices from the private insurance companies.

In effect, they want the government to impose price controls on prescription drugs. They argue that Washington bureaucrats could force drug prices down even further, as occurs in the drug benefit for military veterans run by the federal Veterans Administration (VA).

But if the VA is such a great model, why are so many veterans fleeing it? Thirty-eight percent of veterans paid to join Part D in 2010, according to the Department of Veterans Affairs, up from 34 percent in 2006. That’s because the competitive principles that govern Part D have resulted in a marketplace with a wide array of plans that provide access to more drugs than the centralized VA bureaucracy does.

Meanwhile, the CBO has repeatedly said that the government will not be able to deliver the savings it promises, writing most recently, in 2009, “[we] still believe that granting the Secretary of HHS additional authority to negotiate for lower drug prices would have little, if any, effect on prices.”

Medicare Part D has succeeded at expanding coverage at low cost precisely because it’s operated without too much government meddling. In the end, this fight is less about saving Medicare money than it is about giving the federal government yet more control over our healthcare system.

Seniors should hope that the president and his allies don’t succeed in their quest to upend Part D.


Obamacare Medicare Advantage Cuts

Medicare Advantage cutsUS federal ( Obamacare ) rules requiring health insurers to spend 80%-85% of their revenues on clinical services and other benefits are to be extended to Medicare Advantage and prescription drug plans, which will be required to spend “at least” 85% of their revenues on clinical services including prescription drugs.

The change, to be introduced next January, is included in a proposed rule which extends the 2010 Affordable Care Act (ACA)’s medical loss ratio (MLR) requirements, which limit how much insurance plans can spend on marketing, overheads and profit, to Medicare Advantage and Medicare Prescription Drug plans.

Similar MLR requirements are already benefitting consumers in the private health insurance market, says the Centers for Medicare and Medicaid Services (CMS), which has sent the proposed rule to the White House Office of Information and Regulatory Affairs (OIRA).

“We are working to ensure that people with Medicare have affordable access to health and drug plans, while making certain that plans are providing value to Medicare and taxpayers,” said Jonathan Blum, acting principal deputy administrator at the CMS and director of the agency’s Center for Medicare.

The MLR rules note that many insurance companies spend “a substantial portion of consumers’ premium dollars on administrative costs and profits, including executive salaries, overhead and marketing.” The ACA requires health insurers to submit data on the proportion of premium revenues spent on clinical services and quality improvement (which constitute MLR), and to issue rebates to enrolees if their spending on these benefits does not meet the minimum percentages.

The proposed new rule will require Medicare Advantage and Medicare Prescription Drug plans to meet a minimum MLR from the start of next year. “Plans must spend at least 85% of revenue on clinical services, prescription drugs, quality improvements, and or/direct benefits to beneficiaries in the form of reduced Medicare premiums. Enrolled seniors and individuals with disabilities will get more value and better benefits as plans spend more on health care,” says CMS.

Failure to meet these percentage requirements for five consecutive years would lead to a plan’s removal from Medicare Advantage, reports Washington newspaper The Hill, which points to the proposal’s significant financial importance, as it is estimated to carry an economic impact of more than $100 million. However, it is not yet clear what will be defined as “quality care” and what will fall into “expenses and overhead,” and this is very important, it says, quoting healthcare lawyer Bobby Guy, who suggests that how the prescription drug plans deal with the new caps could serve as a model for the rest of the health insurance industry.

– The initial MLR rule, first introduced in 2011, was a factor in the compression seen in health insurers’ margins last year, according to a new report from ratings agency A M Best. The majority of health insurers have positioned themselves to implement strategies that will allow them to adapt to the new operating environment created by the ACA and to maintain profitability, says the firm, although it “has concerns” about the profitability of smaller, more specialised companies, particularly over the near to medium term, given the Obamacare  minimum MLR requirements.


Medicare Cuts – Hospitals Feel the Brunt

As President Obama and Congress try to thrash out a budget deal, the question is not whether they will squeeze money out of Medicare, but how much and who will bear the brunt of the cuts.

Republicans say that some of the savings should come from beneficiaries, and they are pushing proposals like raising the eligibility age or increasing premiums for people with high incomes, who already pay more than the standard premium. Even President Obama has proposed higher premiums, increasing the likelihood that the idea could be adopted. But any significant tinkering with the benefits for older Americans comes with significant political risks, and most Democrats in Congress strenuously oppose raising the age when Medicare coverage begins.

With growing pressure to reach an agreement on deficit reduction by the end of the year, some consensus is building around the idea that the largest Medicare savings should come from hospitals and other institutional providers of care.

“Hospitals will be in the cross hairs for more cuts,” said Lisa Goldstein, an analyst with Moody’s Investors Service, which follows nonprofit hospitals that issue bonds. While hospital executives fiercely defend the payments their own institutions receive, many acknowledge that Medicare is spending too much and growing too fast.

Those executives point out, however, that they have already agreed to $155 billion in cuts over a decade as part of the Affordable Care Act and they face billions more in additional cuts as part of the current negotiations. They argue that such large cuts to hospitals will ultimately affect beneficiaries.

“There is no such thing as a cut to a provider that isn’t a cut to a beneficiary,” said Dr. Steven M. Safyer, the chief executive of Montefiore Medical Center, a large nonprofit hospital system in the Bronx.

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Mr. Obama and Speaker John A. Boehner continued trying on Tuesday to reach an overall budget agreement, which would call for significant savings in Medicare and would avert a deep cut in Medicare payments to doctors, scheduled to occur next month.

Mr. Boehner said that an increase in the eligibility age for Medicare, favored by many Republicans, could wait until next year.

“I don’t believe it’s an issue that has to be dealt with between now and the end of the year,” Mr. Boehner said Tuesday when asked about a possible change in the Medicare eligibility age. “It is an issue, I think, if Congress were to do entitlement reform next year and tax reform, as we envision, if there is an agreement, that issue will certainly be open to debate in that context.”

The starting point for the current negotiations is President Obama’s most recent budget request, which proposed legislation that would save $300 billion, or 4 percent of projected Medicare spending, over 10 years.

By contrast, Republicans in Congress are seeking savings of $400 billion to $600 billion, at least some of which should come from beneficiaries, they say.

Members of the Medicare Payment Advisory Commission, an influential panel that advises Congress, see many opportunities to rein in costs, and they say that financial pressure on providers could make them more efficient without harming the quality of care. At a meeting of the panel earlier this month, one commission member, Scott Armstrong, president of Group Health Cooperative, a nonprofit health system in Seattle, said Medicare spent “too much” on inpatient hospital care — $117 billion last year. “In an efficient system,” he said, “we wouldn’t be spending that kind of money on hospital services.”

Although Congress may leave the details of Medicare savings to be worked out next year, there is already discussion of cutting special payments to teaching hospitals and small rural hospitals. Lawmakers are also considering reducing payments to hospitals for certain outpatient services that can be performed at lower cost in doctors’ offices. Medicare pays substantially higher rates for the same services when they are provided in a hospital outpatient department rather than a doctor’s office. The differential added $1.5 billion to Medicare costs last year, and as hospitals buy physician practices around the country, the costs are likely to grow, the Medicare commission says.

The savings contemplated by Mr. Obama and Mr. Boehner are substantially larger than the Medicare savings that would be produced by automatic across-the-board cutbacks scheduled to start next month if Congress does not intervene. Those Medicare savings have been estimated at $123 billion from 2013 to 2021. Some hospital executives favor the automatic cuts as more equitable — and less painful — than some of the specific reductions being contemplated.

Hospital administrators and others warn of potential hospital closings, shutting down of unprofitable services like hospitalization for psychiatric care and less access to medical care for the most vulnerable if the cuts are too deep. Nancy M. Schlichting, the chief executive of the Henry Ford Health System in Detroit, says severe cuts might make it harder for hospitals like hers to treat patients without insurance. “It’s a big question whether we can continue to do that,” she said. “We would have to make tough decisions.”

Many rural hospitals are worried about a reduction in certain special payments they received because they treat relatively few people and depend heavily on Medicare as a source of revenue. The payments were put in place after Medicare changed the way it paid hospitals in the 1980s and hundreds of rural hospitals disappeared, said Alan Morgan, the chief executive of the National Rural Health Association in Washington.

“We have really struggled in the last couple of years to improve our financial condition,” said Jodi Schmidt, the chief executive of Labette Health, a small hospital in Parsons, Kan. The hospital was able to provide trauma services to people in nearby Joplin, Mo., after a tornado devastated the hospital there. “With more cuts, the reality is we’re going to have to really cut services,” she said.

Urban teaching hospitals, which are already receiving some reduced payments for treating poor people under the federal health care law, say they, too, will have difficulty managing if there are significant cuts to medical education programs to train physicians and to the higher payments they get for outpatient care. Some of the hospitals say they have created integrated systems of doctors and hospitals, already delivering care at lower costs, that will suffer.

And any significant reduction in payments is likely to increase the pace of mergers among hospitals as they combine to become more efficient — and try to negotiate better rates with insurers, industry analysts say.

Other providers that could see cutbacks include home health agencies. Glenn M. Hackbarth, the chairman of the Medicare payment commission, said they provided invaluable services but were receiving “high levels of payment, way above costs” in many cases.

Complicating the negotiations is also a fundamental disagreement over where the savings should go. Republicans want to use Medicare savings to reduce federal budget deficits. By contrast, many Democrats and health policy experts would prefer to use the money to pay doctors.

Under current law, doctors face a 26.5 percent cut in their Medicare fees on Jan. 1. Just to block that cut and freeze payments to doctors would cost $11 billion next year and more than $240 billion over 10 years, the Congressional Budget Office estimates.

Lawmakers are considering other alternatives, including raising the Medicare eligibility age, a top Republican priority. Republicans say an increase in the Medicare eligibility age is justified because life expectancy has increased significantly since the program was created in 1965. Congressional Democrats say the change would shift costs to older Americans and increase the number of uninsured.

Mr. Obama considered such a proposal in budget negotiations last year and again in the last month. On Thursday, the No. 2 Senate Democrat, Richard J. Durbin of Illinois, said he understood that the idea of increasing the Medicare eligibility age was “no longer one of the items being considered by the White House.”

The Congressional Budget Office analyzed a proposal to increase the eligibility age by two months a year until it reached 67, up from the current 65. Under this proposal, the budget office said, the federal government could save $113 billion over 10 years.

Besides hospital cuts, negotiators are considering a proposal that would require drug manufacturers to provide deeper discounts on prescription drugs dispensed to low-income Medicare beneficiaries. Mr. Obama and many Democrats say this could save more than $150 billion over 10 years. But many Republicans and drug companies oppose it as a form of price controls.

Another proposal being debated would impose a surcharge on Medicare premiums for older Americans who buy the most generous private insurance to cover their deductibles, co-payments and other out-of-pocket costs. The White House and some economists say such Medigap insurance encourages the overuse of medical care. But many beneficiaries are willing to pay for the extra protection.

A White House proposal to impose the surcharge on new beneficiaries would save $2.5 billion over 10 years. The Congressional Budget Office says that another option, setting more stringent limits on Medigap policies, could save more than $50 billion.

But hospitals say they are worried that, in the end, Congress will turn to them for a large share of the savings. Montefiore’s chief executive, Dr. Safyer, said hospitals like his had already made significant changes, focusing much more on keeping patients healthy and out of the hospital. “We’ve become much more efficient,” he said. “We’ve had price compression. We’re innovating and changing.” Those changes take time, he said, but he said he was convinced that they would result in lower spending in the long run.

Dr. Safyer refused to speculate on what Montefiore might do if it faced additional cuts, which could easily total 6 percent of Montefiore’s revenue. “This is not crying wolf,” he said. He added, “I don’t have a Plan B.”