Chief Actuary Rick Foster Stirs The Pot With New Medicare Advantage Analysis

Center for Medicare and Medicaid Services (CMS) Chief actuary Rick Foster has sent a letter to Sen. Chuck Grassley (R-IA) arguing that the health law’s reduction in subsidies to private Medicare Advantage plans will eliminate some benefits in the Medicare Advantage program and increase co-payments:

The new provisions are expected to reduce MA rebates to plans and thereby result in less generous benefit packages….Prior to this legislation, the average annual MA rebate was estimated to grow from $1,093 in 2010 to $1,580 in 2019. Under the new provisions, the average MA rebate is expected to decline from its current level to $43 in 2019.

As indicated in the table, the reduction in MA rebates will cause a large increase in the out- of-pocket costs incurred by MA enrollees. This impact will be partially offset, however, by the effect on such costs from the Medicare fee-for-service provisions in the Affordable Care Act, which include reduced cost sharing for Medicare Parts A and B, lower Part B premiums, and the filling in of the Part D coverage gap…. The overall results are a decrease in beneficiary out-of-pocket spending of $30 for 2010 and then significant increases in such costs beginning in 2011 and reaching an estimated $873 in 2019.

To be clear, the government is lowering rebates to Medicare Advantage plans (which receive payments that are on average 19% higher than traditional Medicare) because the extra dollars don’t always lead to improved care. In fact, over the years, a number of government reports and independent estimates have found that some plans use the extra dollars to, pad their bottom lines and expose beneficiaries to serious financial risks. For instance, a recent report from the Government Accountability Office (GAO) concluded that some MA plans used lower premiums to attract healthier enrollees, but then hit them “with high and unexpected out-of-pocket costs.”

The expectation is that by phasing out the subsidy, reform will force inefficient MA plans to become more efficient. Those that do, will receive a 5 percent bonus on top of their competitive bid to pay for the extra benefits.

Regulators will certainly monitor the changes to the system to ensure minimum disruption, but as HHS Secretary Kathleen Sebelius writes in her own letter to Grassley, some of the fears surrounding MA are already unfounded. In fact, despite Foster’s predictions, the actual MA premium bids for 2011 show that “99.7 percent of Medicare beneficiaries who have access to a Medicare Advantage plan today will have access to a a Medicare Advantage plan in 2011.” Premiums will decline by 1 percent in 2011 compared to 2010 and “Medicare Advantage enrollment is projected to rise in 2011 by 5 percent,” Sebelius wrote, noting that “these are not my projections or those of the CMS Chief Actuary; the come from the health plans themselves, which predict that Medicare Advantage plans will offer numerous affordable options with improved benefits often at a lower premium.” (H/T: Politico Pulse)