The Obama administration announced on Monday that it would be reversing scheduled reductions to the Medicare Advantage program, dealing a huge victory to private insurers and the bipartisan group of lawmakers who advocated for maintaining the higher reimbursement rates that President Obama claimed only padded company profits.
The Affordable Care Act is supposed to reduce excess payments to private insurers participating in Medicare Advantage, saving the government $156 billion over a decade. The effort to bring Medicare Advantage in line with traditional Medicare began in 2012, and payment reductions were scheduled to take place each year until 2017. But 2015 is the second year that the Center for Medicare and Medicaid Services (CMS) has cancelled the scheduled cuts following political pressure. Instead, insurers will see a slight increase in payments.
Throughout the health care debate, Democrats maintained that while the health care law would not reduce seniors’ traditional Medicare benefits, scaling back overpayments to private insurers participating in the Medicare program was necessary because the government was paying private insurers 14 percent more on average to provide the same benefits available under the traditional Medicare program. While some Medicare Advantage plans do offer seniors additional benefits efficiently, a number of government reports and independent estimates found that other insurers used the additional payments to increase profits. A recent analysis from three economists the Wharton School, for instance, concluded “that only about one-fifth of the extra reimbursement gets passed through to patients in the form of lower premiums, better care or more services.”
Obama repeatedly criticized the overpayments in his public comments and sought to reassure seniors that the reductions would extend the life of the Medicare trust fund.
“[W]e’ll eliminate billions in unwarranted subsidies to insurance companies in the Medicare Advantage program — giveaways that boost insurance company profits but don’t make you any healthier,” Obama told an AARP town hall in 2009. “So what we’ve said is let’s at least have some sort of competitive bidding process where these insurance companies who are participating, they’re not being subsidized on the taxpayer dime; if they got better services — they have better services that they can provide to seniors rather than through the traditional Medicare program, they’re free to participate, but we shouldn’t be giving them billions of dollars worth of subsidies.”
But in February, after the Department of Health and Human Services announced cuts totaling approximately 5 percent, private insurers launched their “largest-ever mobilization.” Though a Barclay’s report found that plans “have ample room to adjust benefits downward while maintaining benefit levels that are better for their members than the traditional (Medicare) fee for service program,” the industry ran ‘seniors are watching’ ads and, joined by a bipartisan group of lawmakers, argued that that any reductions would raise costs and reduce services. Republicans in particular began to use the cuts as a way to attack Democratic candidates in the upcoming midterm elections.
“In many parts of the country, including New York, Medicare Advantage works very well. They’ve shouldered their share already and this proposed cut would have been disproportionate, hurting seniors who would lose doctors or pay more,” Sen. Chuck Schumer (D-NY) said in a statement following the reversal. “We’re glad the administration heeded our call and reversed the policy.” The Republican National Committee, however, promptly labeled the change “political cover for vulnerable Democrats.”
Lawmakers who voted against the ACA had initially predicted that lowering the subsidy to private insurers would force companies to stop offering coverage, causing 10 million seniors to lose their Medicare benefits. Republicans introduced numerous amendments instructing Congress to remove the cuts to the Medicare Advantage program and Sen. John McCain (R-AZ) even urged seniors to rip up their AARP cards in protest of the organization’s support for the reductions.
Those predictions did not come to pass. Enrollment in Medicare Advantage has grown every year since the ACA was enacted in 2010, premiums have decreased, and 99.1 percent of beneficiaries maintained access to their desired plans. The government’s overpayments to private insurers also decreased over this period from 14 percent on average when the law passed to 6 percent on average today.
Medicare Advantage plans earned an average profit of 4.5 percent in 2011.