Defying GOP Predictions, Insurers Say They Will Continue Providing Medicare Advantage To Seniors

One of the most common Republican narratives about the new health care reform law argued that eliminating the subsidy to private insurers participating in Medicare Advantage would force insurers to stop offering coverage, causing 10 million seniors to lose their Medicare benefits. Throughout the debate, Republicans introduced numerous amendments and motions instructing Congress to remove the $136 billion in cuts to the Medicare Advantage program. Sen. John McCain (R-AZ) was so sure that the cuts would leave seniors dry, he urged them to rip up their AARP cards to protest the organization’s support for the bill.

Immediately after reform became law, however, some industry observers saw indications that the fears were overblown. Earlier this month, BNet’s Ken Terry wrote that “If these companies were really concerned about the impending cuts, they’d be heading for the exits right now.” “The insurers’ decision to stick with Medicare Advantage undermines Republicans’ assertion during the reform debate that the Medicare cuts would hurt seniors.” Indeed, now even insurers are admitting that they may very well survive the cuts. From Business Week:

Stephen J. Hemsley, chief executive officer of UnitedHealth Group Inc., told analysts on an earnings call this week that reduced payments won’t keep the company’s products from competing with Medicare insurance offered directly from the government. Kathleen Sebelius, the Health and Human Services secretary, told a House Appropriations subcommittee that she expects “a robust array of choices for Medicare recipients.” […]

“Sebelius is right” about Medicare Advantage, said Elizabeth A. McGlynn, associate director of Rand Health at the Rand Corp., a research institute in Santa Monica, California. “We’re going to see a variety of responses from plans. We may see plans that choose to go out of the business, and I think we’ll see plans that get very creative in how they choose to position themselves.”

The expectation is that the competitive bidding requirements eliminating the subsidy will force inefficient Medicare Advantage plans to follow the model of the efficient ones. Insurers may respond to the cuts by pressuring providers to lower their prices and take advantage of the law’s bonus payments but few will simply pull out and leave the market. Under reform, Medicare Advantage plans that provide quality benefits efficiently, would receive a 5 percent bonus on top of their competitive bid to pay for extra benefits.


Even with the loss of the subsidy, insurers aren’t exactly going bankrupt. As Terry observed, “The $13 billion a year reduction isn’t so much if you compare it to the insurers’ total revenues or consider all of the new business they’ll get as baby boomers start signing up for Medicare. The shortfall will also be covered by increased business from people under 65 who will have to buy insurance under the reform legislation. That windfall will start in 2014, right around the time that the decrease in Medicare Advantage payments starts to bite.”