(Adds comment from analysts, lawmakers)
By Caroline Humer and David Morgan
April 7 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
"Although CMS has scaled back some of the new proposed cuts,
much more work needs to be done to protect our seniors," Hatch
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
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,"
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