UPDATE 2-U.S. government rolls back proposed Medicare Advantage cut

Mon Apr 7, 2014 6:32pm EDT

(Adds comment from analysts, lawmakers)

By Caroline Humer and David Morgan

April 7 (Reuters) - The Obama administration on Monday rolled back some of the more controversial cuts proposed for privately managed Medicare health plans used by the elderly following pressure from insurance companies and lawmakers.

The Centers for Medicare and Medicaid Services (CMS) said that on average, reimbursement for such Medicare Advantage plans in 2015 would rise 0.4 percent, reversing what is said was a 1.9 percent average reduction proposed in February.

Analysts were still parsing the numbers, but said that the final decision appeared to be a win for insurers, who along with a broad swath of Republicans and Democrats in Congress had lobbied the government to keep payments level. The proposed cuts had also figured into Republicans' criticism of President Barack Obama's healthcare law.

"They were asking for flat (reimbursement) but no one ever thought they would get close to it," said Ipsita Smolinski, managing director of Capitol Street, a healthcare consulting firm based in Washington, D.C.

Shares in health insurers with large Medicare Advantage businesses, like Humana and UnitedHealth Group Inc , were trading slightly higher after the announcement. Their trading has historically been volatile around the annual government announcement as investors assess its impact.

Some in Congress were quick to comment on the shift.

"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. We're glad the administration heeded our call and reversed the policy," Democratic Senator Charles Schumer said in a statement. New York has the most Medicare Advantage members in the country.

But Republican Senator Orrin Hatch said that the move is not enough for seniors whose benefits were already hit by cuts this year.

"Although CMS has scaled back some of the new proposed cuts, much more work needs to be done to protect our seniors," Hatch said.

KEEPING RATES STEADY

Private insurers manage Medicare benefits for about 15 million of the 50 million elderly or disabled Americans eligible for the program. Humana said it was studying the announcement, while other insurance industry officials had no immediate comment.

CMS, part of the U.S. Department of Health and Human Services, said on Monday that it had adjusted several of the factors that had made up the proposed cut for 2015. Insurers' analysis of the proposed reimbursement rates had estimated the reduction at 4 percent to 7 percent.

"They urged us to use whatever means we could to keep the rates close to parity to where they are today," Jonathan Blum, CMS principal deputy administrator, said at a press briefing.

"When you put all these pieces together, we estimate that the average change for a plan will be 0.4 percentage points, a little higher than what the industry had recommended to us," Blum said.

The agency said that costs for Medicare health services have continued to drop, and that it now expected a decline in spending per member of 3.4 percent versus the 1.9 percent on which it initially based its 2015 payments.

Other changes to the payment formula included removing a requirement that insurers perform a costly overhaul of the way they assess the risk from their sickest members. It also made changes to other risk adjustment parameters to account for relatively better health among U.S. baby boomers, a move that will benefit insurers, although some will be helped more than others based on the regions they serve.

The proposed payment rates are a key factor in how insurance companies plan their business for the coming year, including in which markets they will offer health plans, what their medical and administrative costs will be, and at what level to set premiums and doctor visit co-payments.

CMS is mandated by Obama's Affordable Care Act and by other laws to cut Medicare Advantage spending rates to the level of government administered fee-for-service Medicare.

"My impression is that CMS would like to implement these cuts faster than they are ... but they are phasing them in due to political pressure," said Kim Monk, managing director at Capital Alpha Partners, a public policy research firm. (Reporting by Caroline Humer and David Morgan in Washington D.C.; Editing by Michele Gershberg, Jonathan Oatis and Eric Walsh)

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