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Medicare Flexes New Muscle to Hold Down Private Health Plan Premiums in 2011

By John Reichard, CQ HealthBeat Editor

September 21, 2010 -- If the health care overhaul is going to decimate the Medicare Advantage program as Republicans insist, don't look for it to happen next year—premiums are falling, benefits are holding steady and enrollment in the program will rise five percent next year.

So said Obama administration officials in a telephone conference call with reporters on Tuesday, noting that premiums on average will drop 1 percent in 2011 for the private health plans that make up the Medicare Advantage (MA) program.

"Despite a lot of predictions of doom and gloom, the Medicare Advantage program is stronger than ever before," said Kathleen Sebelius, secretary of the Department of Health and Human Services.
Medicare Advantage "remains strong and a robust option for millions of seniors who choose to enroll or stay in a participating plan today and in the future," added Donald Berwick, administrator of the Centers for Medicare and Medicaid Services (CMS).

Officials in the briefing attributed the attractiveness of these plans to consumers to the explicit authority the overhaul law gives CMS to reject plans' bids.

CMS initially denied about 300 plans that had wanted to increase out-of-pocket costs for beneficiaries, Berwick said. After being told they had to do better, the plans boosted benefits by some $150 million, he added. Some 2,100 plans filed bids.

Industry sources confirmed the far tougher negotiating tactics by CMS during bid reviews. John Gorman, CEO of the Gorman Health Group, a consulting firm, said he wasn't surprised premiums dropped, "especially after the beat-down they gave plans this season. This was night-and-day different from the Bush years."

Another industry source, a former MA plan executive who requested anonymity, said "plans either reduced their margins or reduced supplemental benefits, or costs shifted to the beneficiaries where they were able. The CMS reviewers demanded cuts in bids, sometimes giving plans a few hours to respond, but would not tell the plans where the cuts had to be made," the former executive said. "This became a game of CMS saying 'you shoot the arrow' and we will throw up the target afterwards."

The tough tactics didn't cause many plans to quit the Medicare Advantage program, however. "That didn't happen yet," Gorman said. "What we did see is most plans sacrificing margin to hold onto market share."

In the end, only three sponsors offering seven plans dropped bids after they were rebuffed by CMS, CMS Deputy Administrator Jon Blum said.

But officials at the America's Health Insurance Plans (AHIP) still predict major cutbacks in benefits and increases in costs in the coming years.

"Medicare health plans are doing everything they can to keep coverage as affordable as possible for the more than eleven million seniors in Medicare Advantage,'' said Karen Ignani, president and CEO of AHIP. "Nevertheless, as deep cuts go into effect in the coming years, government experts have forecasted that millions of seniors will experience higher costs, reduced benefits and fewer choices."

Congressional Republicans have predicted that reimbursement cuts in the overhaul law would result in many plans dropping out, belying President Obama's claim that people will be able to keep their current coverage under the health overhaul law.

CMS officials said that of the 11 million or so beneficiaries in the Medicare Advantage program, roughly the same percentage will have to find a new plan next year as has been the case in the past several years, officials said.

CMS said in a news release that "about five percent of non-employer beneficiaries enrolled in Medicare Advantage and stand-alone Prescription Drug Plans will need to choose a new health plan or original Medicare." And only 2,300 Medicare Advantage enrollees will have no Medicare Advantage options whatsoever because of plan withdrawals, officials added. Those beneficiaries, in Utah and Colorado, are primarily in private fee-for-service plans, a type of Medicare Advantage plan that fewer and fewer companies have sponsored because of a 2008 law that required them to create actual networks of providers.

But Medicare officials did not specify in the press call or in their news release the exact number of beneficiaries who will have to find a new plan next year, or have to return to traditional Medicare because their current Medicare Advantage plan is leaving the program. A CMS spokesman said later Tuesday that about 900,000 will fall in those two categories, compared to 637,000 last year.

The spokesman said that "in large measure" the 900,000 consists of enrollees in private fee for service plans, the type of plan hit hard by the 2008 law.

The relatively good news for the Obama administration on the Medicare Advantage front may not last long, however. Medicare payment levels to plans held steady in 2011 compared to 2010—but in 2012 and beyond reimbursements will be cut.

"I think you'll see a lot of withdrawals next year," Gorman said, referring to announcements by plans about their intentions for 2012. Gorman predicted a drop of about 30 percent by 2013 in the number of plans participating in Medicare Advantage.

But Sen. Charles E. Grassley, R-Iowa, said in a statement that the Obama administration is sugar coating what is happening in the Medicare Advantage program. "One million seniors will be forced out of their current Medicare Advantage plan next year" he said, noting that "more cuts are on the way." Grassley said that "the Administration may be trying to persuade seniors that everything is fine, but the millions of Medicare beneficiaries who will lose their current coverage or see fewer benefits in the coming years will disagree."

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