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Medicare Advantage Rate Hikes Draw Fire From Sebelius

By John Reichard, CQ HealthBeat Editor

Feb. 19, 2010 -- HHS Secretary Kathleen Sebelius Friday seized on a study showing double-digit premium increases charged by Medicare Advantage plans as a new example of punitive pricing by insurers.

"While seniors are suffering, insurance companies are doing better than ever," Sebelius said in a post on the White House health care overhaul blog.

Her comments follow a scathing Obama administration attack Thursday on big new rate hikes in the individual insurance markets. The White House is gearing up for a new effort to push through a health care overhaul, arguing that the failure to act would mean many more such rate hikes in the future.

The study referenced by Sebelius was conducted by the Washington, D.C., consulting firm Avalere Health. It found that the private health plans in Medicare that offer prescription drug coverage charge monthly premiums this year that are 14 percent higher than in 2009. Those premiums average $39.61 this year, the study found.

The rate increases varied according to the type of plan in Medicare Advantage, the private health plan side of Medicare. One type known as "private fee for service plans" has rate hikes averaging 31 percent this year. The rate hikes for HMOs in Medicare Advantage that offer drug coverage averaged 11 percent while those for local PPOs averaged 4 percent.

As a result of policies that were in place when 2010 rates were set, most plans saw their payments cut by 3 to 5 percent in 2010, the study also found.

Centers for Medicare and Medicaid Services spokesman Peter Ashkenaz said in a statement that while Medicare Advantage enrollment is rising, "these plans continue to be paid, on average, 13 percent higher" than providers in traditional Medicare. He added that "plans need to explain their premium increases to their enrollees."

Sebelius said in her blog that "Humana earned $452.3 million in the fourth quarter of 2009 from its Medicare Advantage plans, compared with $267.3 million a year earlier, a 70 percent increase. At the same time, these companies are being vastly overpaid by the federal government, making huge profits and sticking seniors with higher bills."

Separately, Sen. Dianne Feinstein, D-Calif., said Friday that she'll introduce legislation next week to establish a federal Medicare Insurance Rate Authority that would give HHS the power to prevent "unfair" rate increases in the private insurance market. HHS would have that power in states where state regulators lacked authority to reject unfair increases.

Companies would have to justify unreasonable premium increases using a process established by the HHS secretary, she said. The secretary would have the power to "deny or modify health insurance rate increases that are found to be unjustified."

Robert Zirkelbach, a spokesman for America's Health Insurance Plans, said "this is an example of what happens when Medicare Advantage payments are cut. Last year, Medicare Advantage payments were reduced and that resulted in higher premiums for seniors. Now Congress is considering more than $100 billion in additional cuts to Medicare Advantage that will result in higher premiums and reduced benefits for more than 10 million seniors in the program - breaking the promise that those who like their coverage can keep it."

CMS on Friday released a report suggesting that payment rates paid to Medicare Advantage plans in 2011 would rise 1.4 percent.

Zirkelbach issued the following statement concerning Feinstein's planned bill: "Premium increases are driven by soaring medical costs and a weak economy that is causing younger and healthier people to drop their coverage. Health plans in every state are required to provide actuarial justification for any premium increases. Creating a new duplicative layer of federal regulation would add complexity and increase costs."

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