February 21, 2015 / 1:05 AM / 5 years ago

U.S. proposes 0.9 percent cut in 2016 Medicare Advantage payments

(Reuters) - The U.S. government on Friday proposed a 0.9 percent cut in payments to health insurers for 2016 Medicare Advantage plans, which provide health benefits to more than 16 million elderly or disabled people.

The cut is part of a notice issued by a division of the U.S. Department of Health and Human Services that sets premium rate benchmarks for Medicare Advantage plans. It reflects a 1.7 percent increase in healthcare spending as well as payment rates for factors such as health plan quality ratings, health reform costs, and sicker-than-average customers.

Analysts and actuaries said some of these factors were worse than expected but added the proposal appeared to be near industry forecasts for a proposal that was about flat with 2015.

“It was probably just slightly worse, but it takes the uncertainty away,” Leerink Partners analyst Ana Gupte said. Shares will probably not get a “big pop” on Monday morning, but it does clear the way for investors, she said.

Shares of insurers that provide these plans, such as UnitedHealth Group Inc, Humana Inc and Aetna Inc, were mostly unchanged in after-hours trading on Friday.

The insurance industry’s biggest lobbyist, America’s Health Insurance Plans, urged the health agency not to make any cuts to payments, saying it would risk benefit cuts and higher costs for seniors. Aetna said in a statement that the move could cause some plans to exit certain geographic markets.

Last year, insurers said the government cuts resulted in a 3 percent decline in payments or more, depending on where the plans were located and how sick their patients were. Insurers were able to negotiate the government down from its initial proposed high single-digit percentage cut, and Gupte said it was likely insurers would be able to lobby for changes this year as well ahead of the final policy that is due out April 6.

Under the Affordable Care Act, the government must cut payments for Medicare Advantage to make them on par with the broader Medicare fee-for-service program.

One positive for insurers, analysts and actuaries said, is that the agency said it would not modify its payments related to home health assessments done by insurers.

A negative factor is that the government plans to fully phase in a new method of paying insurers whose customers are sicker than average, they said. HHS documents showed this as being a 1.7 percent decrease in payments in 2016.

“The fact that the agency provided leniency on the home risk assessments is a good thing. However, fully phasing in the risk adjustment model could be detrimental to some plans,” said Ipsita Smolinski, an analyst with Washington, D.C.-based research firm Capitol Street.

When combined with other factors such as medical coding adjustments by insurers, the payments could increase insurer revenue by 1.1 percent, the U.S. Department of Health and Human Services said.

Reporting by Caroline Humer; Editing by Bernard Orr, David Gregorio and Ken Wills

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