By Rebecca Adams, CQ Roll Call
February 26, 2016 -- Health insurers that help unions provide retiree benefits through Medicare Advantage plans are lobbying hard against a Feb. 19 rate proposal that could reduce their payments.
The proposed Medicare Advantage call letter from the Centers for Medicare and Medicaid Services (CMS) offered generally positive news to health insurers. But a provision in the proposal troubles the plans that partner with unions to offer coverage to retired workers. Those plans, known as employer group waiver plans, cover almost one-fifth of the more than 17 million seniors in private Medicare Advantage plans.
The provision does not spell out by precisely how much the payments would decline, but Wall Street analysts who picked up on the issue estimated that funding could fall by 2 to 4.5 percent in 2017. The language essentially proposes to tie payments from union plans to payment bids from non-group plans that serve seniors who sign up individually. The non-union plans tend to discount their coverage more deeply than union plans.
Bruce Josten, executive vice president for government affairs for the U.S. Chamber of Commerce, said that coverage in the plans is often more generous than in other types of plans and that if payments decline, seniors could suffer. He warned that if Medicare officials don't change the provision, some plans may have to narrow the number of hospitals or physicians in networks or increase out-of-pocket costs such as deductibles. Low-income people especially depend on generous health benefits, he noted.
"You start to squeeze the people that this program is designed to benefit the most," said Josten.
The changes are similar to a proposal put forward by the Medicare Payment Advisory Commission (MedPAC), which analyzes Medicare policies for Congress, in March 2014. MedPAC noted in its report that employer plans, which are not open to other Medicare beneficiaries, typically ask CMS in their bids to pay close to the maximum Medicare payment, or benchmark, in a geographic area. Union plan bids in 2014 were about 5 percent lower than the maximum payment.
Unlike the plans that are open only to union retirees, the health plans that are open to any Medicare beneficiary often submit bids that are about 14 percent on average below their maximum payments. Those plans have an incentive to bid lower because they are competing for customers. If they bid lower than the caps, the plans can get rebates that they can use to pay for extra benefits that will entice seniors to enroll in their coverage.
MedPAC proposed that payments for employer group plans fall by using a national average ratio of the bids that the nonunion plans submit to the maximum payments. Linking the bids of the union plans to the other plans was expected to decrease Medicare spending between $250 million and $750 million over a year. MedPAC said the insurers could make up for the losses by charging employers more, offering fewer benefits, accepting lower profits and lowering their costs.
Another effect that MedPAC predicted was that some union retirees might switch to a plan with unrestricted membership or to traditional fee-for-service Medicare.
Wells Fargo analysts predicted that the proposed change would hurt Aetna Inc. the most.
Other companies such as UnitedHealthGroup and Kaiser Permanente also would be affected.
Lawmakers in states such as Michigan and New York are paying attention to the issue. Comments from the public are due March 4 and CMS is scheduled to release the final plan on April 4.
"This was not expected," Wells Fargo Securities LLC analysts Peter Costa, Polly Sung, and Brian Fitzgerald wrote in a note to investors. "We believe it will be lobbied hard against by employers and insurers and could be overturned in the final notice."