The Impact of the Sequester on Private Plans

Medicare Advantage (MA) plans and Part D plans are slated for a 2 percent cut beginning in FY 2013 now that the Super Committee has failed to recommend any changes that cut the deficit.  This is probably a better deal than private plans would have faced if $1.2 trillion in cuts were recommended and adopted.  The Part D cuts will affect the direct subsidy and not low income subsidies or reinsurance.  We would expect plans to submit higher bids next year to make up the difference.  MA plans that include drugs will have a double hit.  Even though the Budget Control Act specified that beneficiary cost sharing would not be impacted by a sequester, the reality is that plans will increase premiums and out of pocket costs paid by enrollees. If fee for service providers increase volume to offset their 2 percent cut, then Medigap plans will pay more and their costs will also increase.