Health Insurers Brace For Medicare Cuts

By Caroline Humer

NEW YORK (Reuters) – The U.S. government is expected to announce this week the proposed payment rates for insurer-run Medicare plans in 2015, but industry officials say the anticipated cuts will mean higher co-pays and fewer benefits for seniors.

Of the more than 50 million older Americans who receive coverage through Medicare, about 15 million are enrolled in Medicare Advantage plans offered by companies such as UnitedHealth Group Inc, Humana Inc and Aetna Inc. The rest use Medicare fee-for-service programs, in which doctors are reimbursed by the government for patient visits and procedures.

Each February, the Centers for Medicare and Medicaid Services proposes reimbursement rates that it agrees to pay insurers for managing the privately run programs. It publishes a final rate 45 days later.

Insurers are bracing for a proposed cut of around 6 to 7 percent when the government makes the information public in an announcement expected on Friday, according to the latest industry and analyst forecasts. Health insurance executives have been lobbying against cuts of that magnitude, saying they would have no choice but to pass on a significant part to seniors to keep their business intact.

Aetna, which has about 1 million Medicare Advantage members, said that to keep costs in line with cuts in recent years, it has changed its network of doctors and hospitals to be more cost-effective, among other efforts.

“If you can’t solve the reduction based on those activities, then you have to resort to things that are much more visible to the beneficiaries, which can range from benefit reductions, and either premium increases or the introduction of a premium,” said Fran Soistman, executive vice president and head of Government Services at Aetna.

Another possibility for insurers is eliminating plans and withdrawing from certain markets. Many did that last year after the government cut rates by nearly 6 percent.

“The concern is that a second consecutive 6 percent cut to the program will be devastating for seniors,” said Robert Zirkelbach, spokesman for the healthcare industry’s key trade and lobbying group, America’s Health Insurance Plans. Their campaign has included TV, print and online advertising as well as a sign on Washington city buses, telling viewers that “Seniors are Watching” when it comes to Medicare Advantage benefits.


The announcement could put pressure on President Barack Obama’s administration as it defends its signature healthcare law, the Affordable Care Act, from attack ahead of the 2014 elections. Early technical failures hampered enrollment in insurance plans and new fees and healthcare taxes have gone into effect, providing Republican opponents of the law with ammunition to call for its delay.

Insurers, which worked closely with the government to help fix early enrollment problems, are hoping that partnership will help their lobbying effort to influence the 2015 Medicare rates.

The U.S. government has been cutting payment rates for Medicare Advantage as part of an overall reduction in healthcare spending required under the law and as it seeks to bring the program fees closer to the ones it pays through the Medicare fee-for-service program.

CMS is balancing the need for these spending cuts with the potential political backlash. A group of 40 senators, both Republicans and Democrats, recently called on the agency to maintain Medicare Advantage payment levels and prevent disruption.

The rate announcement due out this week has been widely anticipated by insurers and investors this year, after information on last year’s release of the final rates was leaked to investors ahead of time. As a result of that, stocks in insurers with large Medicare Advantage businesses jumped higher just before the market close because the payments were not as low as investors had expected.

A Wall Street Journal report found that a lobbyist who was working for Humana had been involved in the leak. The story prompted investigations by the Department of Justice, Republican Senator Charles Grassley of Iowa, Humana (which fired the law firm of the lobbyist), the Centers for Medicare and Medicaid Services and its Office of the Inspector General.

When asked about any changes the agency is taking this year concerning the announcement, a spokeswoman for CMS said that the agency is “committed to releasing Medicare payment policies in a time and manner that is appropriate and consistent with statutory requirements.” She did not provide a comment on the probe into last year’s incident.

The U.S. Justice Department and the Office of the Inspector General declined to comment.

Humana did not have an immediate response, and Grassley’s office did not return a call seeking comment.

This week’s announcement is unlikely to affect industry stocks unless it comes in far below or far above 6 percent, according to CRT Capital analyst Sheryl Skolnick.

“It is by no means a secret. Everyone knows it is coming and everyone knows it is going to be bad,” Skolnick said.

The final rate announcement is expected on April 7.

(Reporting by Caroline Humer; Editing by Michele Gershberg, Amanda Kwan and Ken Wills)