The Impact of the Election On Medicare Private Plans

Now that President Obama has been re-elected, the Affordable Care Act (ACA) will not be repealed and the ACA provisions impacting Medicare Advantage (MA) plans and Prescription Drug Plans (PDPs) will continue to be implemented.

• For MA plans, 2013 will be the last year of the phase-in of the ACA four quartile payment reform, although some counties have a longer transition period. The star bonuses will continue under the demonstration (which rewards plans with 3 or more stars) through December 2014 and in 2015 the ACA formula (which rewards plans with 4 or more stars) will apply. The coding intensity adjustment will continue and MA plans will be required to meet the 85 percent Medical Loss Ratio in 2014.

• Part D plans will continue to phase in coverage in the donut hole until 2020 when the beneficiary coinsurance will reach 25 percent. And employers will continue shifting their retiree coverage to MA plans and PDPs when the tax benefits of the Retiree Drug Subsidy (RDS) expire in 2013.

The ACA payment formula already reduced MA rates by $132 billion over 10 years, but these reductions have been offset by the higher quality bonuses in the CMS demonstration that according to GAO have “masked” the intended ACA cuts. Next comes the possibility of sequestration which is current law that will cut 2 percent off MA rates in 2013 unless it is repealed. While both parties support repeal, the path to get there by January 1 with a lame duck Congress is not clear and it is possible that the 2 percent cut could take place. More likely is a legislative agreement that will replace sequestration with more targeted budget cuts to avoid the “fiscal cliff”. Various budget proposals discussed last year including the Simpson Bowles proposal and previous Obama budgets (which included an additional $248 billion cuts to Medicare and $72 billion to Medicaid) will form a starting point for the new discussions. These additional Medicare and Medicaid cuts included provider cuts and increased beneficiary cost sharing. While additional MA cuts were not on any lists that we saw last year, it is certainly possible that they will be included. For example a CBO report that came out two days after the election included an option to reduce Medicare payment rates across the board in high payment areas.

Stay tuned.