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Critical Condition

NRO’s health-care blog.

The Assault on Medicare Advantage



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The Obama administration has been trying since March to convince America’s seniors that the new health care law will be good for them. The Department of Health and Human Services (HHS) has distributed a mailer to all Medicare beneficiaries touting the supposed benefits of the new law for the retired and disabled. Similarly, HHS also launched a television advertising campaign featuring Andy Griffith, apparently hoping that delivering the same message in a soothing, Mayberry-esque accent might hoodwink some viewers into believing the sales pitch.

It’s not working. Senior citizens remain as opposed as ever to the health care law — and for good reason. The new law will impose steep cuts in Medicare to pay for another federal entitlement expansion. And the Medicare cuts are of the kind that leave seniors with no way out. The cuts will reduce their choices, impair their access to care, and increase their costs.

The law’s cuts in Medicare Advantage payments will be particularly burdensome for Medicare beneficiaries, as Robert Book and I document in a new study released this week by the Heritage Foundation. (We presented our findings at a public event on Tuesday sponsored by ObamaCareWatch.org, of which I am project director.)

Medicare Advantage (MA) is the private insurance option in Medicare. Beneficiaries can voluntarily elect to get their Medicare coverage through MA plans, and, when they do so, the MA plans get paid a fixed monthly amount by the program to provide at least Medicare-covered benefits for their enrollees. Most MA plans provide additional benefits and lower cost-sharing than provided by the traditional Medicare program. Today, about 10 million Medicare beneficiaries have opted to get their Medicare benefits through MA plans.

The cuts in MA begin right away, with payment rates frozen in 2011 at their 2010 levels. But that’s just the beginning of it. Between 2012 and 2017, the law phases in a new formula for setting maximum MA payments by region, which will dramatically lower MA payments in every region of the country. The new law also makes large cuts to the payment rates for hospitals and other medical providers in the government-managed fee-for-service Medicare program, and a portion of these cuts automatically gets passed through to MA plans as well in the form of even lower maximum rates.

Facing these steep cuts, MA plans will have no choice but to make adjustments in their coverage, raise their premiums, increase their deductibles and co-payments, and eliminate some benefits. Some plans will exit markets entirely, leaving Medicare beneficiaries with far fewer options. Before Obamacare, the chief actuary for Medicare expected MA enrollment to increase to about 14.8 million in 2017. Now, however, he expects MA enrollment to fall to just 7.4 million in 2017, or 50 percent below what it would have been without the cuts.

On a dollar basis, the average nationwide per-capita cut will total about $3,700 annually by 2017 (nearly 27 percent), from the combined effect of the MA formula changes and the pass-through of cuts in traditional Medicare. We estimate the aggregate MA cut will total $55 billion annually by 2017.

The level of MA reduction differs substantially by region — but no region is spared. Among counties with at least 100,000 people, the smallest cut is 15 percent (in Tuscaloosa, Alabama) and the largest is 45 percent (in Ascension, Louisiana). At the state level, the average MA cuts range from a low of $2,020 (or 21 percent) in Nevada to a high of $4,693 (or 36 percent) in Hawaii. A detailed, county-by-county analysis of the impact of the MA cuts is available here. (In the near future, we intend to organize the data by congressional districts.)

The deep reductions in MA payment rates and services covered will hit low-income seniors disproportionately hard. Many retirees who have worked for large employers or state and local governments have access to retiree wraparound plans that cover what Medicare does not. Other retirees with sufficient income can buy Medigap coverage. But lower-income seniors do not have such options. For them, Medicare Advantage has offered better coverage and lower out-of-pocket costs than traditional Medicare — and without the expense of another premium payment. Consequently, these lower-income seniors are much more likely than higher-income beneficiaries to sign up with an MA plan, and the cuts will hit them especially hard. We estimate that a full 70 percent, or $38.5 billion, of the MA reductions will fall on seniors with incomes below $32,400 annually (in today’s dollars).

The president has promised repeatedly that the health care plan he pushed through Congress would not force people out of the plans they like today. But that is demonstrably not true for Medicare Advantage enrollees. The new law will force millions of seniors out of the private plans they prefer and back into the government-managed program, where they will get less coverage and face higher costs. In the process, these beneficiaries will lose billions of dollars in the value of what Medicare provides for them.

That’s not the kind of change they can believe in.



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