* Action to change February decision followed lobbying
* Shares of health insurers rally after hours; Humana up 8
* Members of Congress mounted opposition to original plan
By Susan Kelly
April 1 In a reversal that followed intense
lobbying from the health insurance industry and members of
Congress, the U.S. government said it will increase the payment
rate for health insurers that offer coverage through the popular
Medicare Advantage program.
The Centers for Medicare & Medicaid Services said on Monday
it will increase the rate by 3.3 percent in 2014, reversing a
2.3 percent cut announced in February.
The turnaround boosted shares of major health insurance
companies such as Humana Inc in after-hours trading.
Medicare Advantage provides care for seniors who select to
receive their Medicare benefits through private insurance plans.
About 14 million Americans are enrolled in the program.
The program has long ensured industry participation by
paying more than the cost of the traditional Medicare program
for the elderly and disabled. The proposed reduction had
followed efforts by the Obama administration to reduce how much
money it pays private insurers as an incentive to participate.
In announcing its final rates for 2014 on Monday, CMS said
the changes came "after careful consideration of public
"The policies announced today further the agency's goal of
improving payment accuracy in all our programs, while at the
same time ensuring program stability and preserving beneficiary
choice," Jonathan Blum, acting principal deputy administrator
for the CMS, said in a statement.
Since the initial rate announcement in February the agency,
part of the U.S. Department of Health and Human Services (DHHS),
has encountered weeks of heavy lobbying by health insurers,
whose share prices dropped sharply on the planned rate cut.
Some insurers hinted they would drop their Medicare
Advantage business for 2014 if the government did not back down.
Lawmakers on both sides of the aisle took those concerns on
board. More than 160 of them joined an effort to reverse the
previously announced rate cut, according to America's Health
Insurance Plans (AHIP), which launded Monday's decision.
AHIP has released several lawmaker letters expressing worry
about the proposed Medicare Advantage payment cuts, including
three last week from bipartisan members of the New York House
delegation; the entire Massachusetts House delegation, all
Democrats; and six other House Democrats.
"We have concerns that if CMS does not make this adjustment,
many Medicare Advantage enrollees in Massachusetts, and across
the country, will face higher premiums and fewer benefits," said
the Massachusetts delegation's letter, which was addressed to
Marilyn Tavenner, acting CMS administrator, and dated March 27.
Earlier in March, a large bipartisan group of senators
highlighted the threat of plans potentially exiting the Medicare
Advantage market altogether.
Meanwhile "The Coalition for Medicare Choice," which is
funded by AHIP and other private insurers, launched a
full-throated attack on the proposed cuts through television
advertising and social media.
It urged seniors to call their U.S. senators to complain,
and posted on its website a study by consulting firm Oliver
Wyman that warned of a "significant amount of upheaval" if the
original 2014 rate plan went through.
"This includes the potential for plan exits, reductions in
service areas, reduced benefits, smaller provider networks, and
reduced Medicare Advantage enrollment as beneficiaries see a
significant decline in plan value," the firm said.
The new growth rate assumes a zero percent change for the
2014 physician fee schedule, the so-called "doc fix," by taking
into account the likely congressional override of a scheduled
physician payment reduction, the agency said.
In the past, proposed Medicare cuts of 25 percent to 30
percent in doctor payments have been overridden by Congress.
The Congressional Research Service on March 26 sent a memo
to Congress saying it believed Health and Human Services
Secretary Kathleen Sebelius had the legal latitude to change her
view on how to calculate the payments, potentially making the
reduction less onerous.
CMS said Medicare Advantage would remain a "strong option"
for beneficiaries, noting enrollment in the program has risen 25
percent, while premiums have fallen, since enactment of the
Affordable Care Act, President Barack Obama's signature
healthcare law, in 2010.
Shares of Humana, a major provider of Medicare Advantage
plans, rose 8 percent in after-hours trading from a close Monday
of $75.02. Shares of UnitedHealth Group Inc climbed 4
percent from Monday's close of $58.97. Shares of Aetna Inc
rose 2.6 percent from their close of $52.38.
"We believe this final rate notice provides insurers with
enough flexibility to produce adequate margins for
participation," BMO Capital Markets analyst Jennifer Lynch said
in a note to clients.