Medicare Advantage in the Spotlight

Medicare Advantage (MA) has been in the news quite a lot recently. HHS issued a press release entitled “Medicare Advantage Remains Strong” reporting that since the ACA was passed, MA premiums have fallen by 10 percent and enrollment has risen by 28 percent. Today, 27 percent of Medicare beneficiaries are enrolled in MA plans. HHS projects that enrollment in MA plans will increase another 11 percent in 2013. The number of plan choices will increase by 7 percent in 2013. Surprisingly, discussion at the recent AHIP Medicare conference revealed that even more plans are in the process of submitting new applications for 2014.

Given recent legislation that has substantially cut MA expenditures including cuts in the ACA and the expected two percent cut beginning next year as a result of sequestration, it is amazing that MA plans on average are only increasing premiums by $1.47 next year. At a Ways and Means Subcommittee on Health hearing on September 21, 2012 GAO described how the $8 billion CMS quality bonus demonstration has backfilled 70 percent of the ACA cuts to date. At the AHIP Medicare conference, Bob Berenson seemed to have an explanation for how MA plans are able to maintain their low premiums noting that MA plans do not experience the same level of fraud and abuse as the FFS program, are able to selectively contract and manage utilization, and peg payment rates to Medicare FFS levels. Berenson questioned why MA costs are not lower than FFS given these advantages. CMS indicated that since the ACA was enacted MA costs have declined from 114 percent of FFS to 107 percent of FFS. MA plans note that their expenses are higher since they provide extra benefits, reduced cost sharing and care coordination programs and have higher administrative costs including marketing costs.

At the Ways and Means hearing AHIP’s Karen Ignani warned that the impact of MA cuts will not be realized until 2014. She also pointed out that the cuts will be compounded by the introduction of a new premium tax that will result in a net cost of $220 per beneficiary in 2014 and a $9 increase in Part D costs.