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Medicare Advantage Cuts May Be Tough Row to Hoe

By John Reichard, CQ HealthBeat Editor
March 23, 2007 -- In a move that portends resistance from rural-state senators to possible Medicare payment cuts to private health plans, Utah Republican Orrin G. Hatch fell one vote short Friday in an attempt to require a reserve fund to pay for wider coverage of uninsured children and other Medicaid and Medicare changes.

Hatch's amendment to the fiscal 2008 Senate budget resolution would have required the reserve fund to expand the State Children's Health Insurance Program (SCHIP) and other "improvements" without reducing benefits to Medicare Advantage enrollees or coverage options in Medicare.

"Essentially, my amendment protects Medicare beneficiaries' coverage choices, especially coverage choices for those beneficiaries living in rural areas," Hatch told managed care executives Friday morning.

House Democrats have clarified that they view cuts to Medicare Advantage, the private health plan side of Medicare, as essential to paying for coverage of more uninsured children through SCHIP. Insurers warn that cuts will cause plans to trim benefits or leave the Advantage program, a result Hatch's amendment aims to prevent.

Senate Finance Chairman Max Baucus, D-Mont., hasn't said he will try to cut Medicare Advantage payments, but appears to be headed in that direction as he seeks ways to fund wider coverage of uninsured children. He said Advantage cuts are "on the table" and has pressed HHS Secretary Michael O. Leavitt on why the administration is seeking fiscal 2008 cuts on the fee-for-service side of Medicare while sparing Medicare Advantage plans.

Baucus canceled a scheduled speech morning at the same Friday meeting, which was sponsored by America's Health Insurance Plans, the nation's largest health insurance lobby. Baucus cited the fact the Senate was debating the budget resolution.

Hatch, a member of the Finance Committee, said he doesn't think the panel would support Advantage cuts. "I don't see the votes there right now," he said. A Senate Finance Committee aide said the cuts "are not an uncontroversial change."

After Hatch offered his amendment on the Senate floor, Baucus urged his colleagues to reject it, saying he plans to take a careful look at Medicare Advantage cuts.

"On April 11 the Finance Committee is going to be holding a hearing on Medicare Advantage plans and other providers' plans that affect Medicare," Baucus said. "We want to do this right. We want to do this in a very thoughtful, considerate way."

Baucus also said "the more thoughtful way is not to hamstring the committee" before the hearing by adopting an amendment preventing it from making changes "to these programs," an apparent reference to Medicare Advantage.

Senate action on another amendment to the budget resolution theoretically could ease pressure for Medicare Advantage cuts to pay for wider coverage of children through SCHIP reauthorization later this year. In a 59-40 vote, the chamber agreed to adjust the resolution to allow for an increase in federal cigarette taxes by no more than 61 cents per pack. The amendment assumes the revenue would be used to reauthorize SCHIP. The language isn't binding, however, and it's unclear whether the White House would go along with such a tax hike.

A tobacco tax hike would be a welcome development for health plans and hospitals that might otherwise have a harder time ducking the budget axe. And it might mean less health care lobbying pressure on lawmakers. "Better to chew on tobacco than to get chewed on by the American Hospital Association," said D.C.-based health care consultant Alec Vachon.

According to one managed care industry executive, Advantage plans could still take cuts with the tax hike but not as quickly. "If the price on SCHIP goes down, then maybe you phase in payment reductions over years," the executive said.

But the executive said all Medicare Advantage plans remain at risk of taking a major hit because of apparently strong support for covering more kids through SCHIP, despite Friday's positive developments for the HMO industry.

While some plans actually are paid less than fee-for-service providers despite overall average payments to MA plans that are 112 percent higher than those to traditional providers, "in the dark all HMOs look the same" to Hill staffers, the executive said. "They don't want to recognize the difference between the plans."

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