Key Take-Aways

• New lower premiums and higher enrollment numbers for Medicare Advantage (MA) plans do not reflect the imminent negative trajectory of the program.
• The Administration’s taking credit for improving MA program numbers is highly disingenuous.
• In reality, the president’s government takeover of healthcare law will significantly reduce the attractiveness of the MA plans able to survive the law’s deep cuts to the program. 

  Only a few days ago, Centers for Medicare and Medicaid Services (CMS) official Jonathan Blum speaking at a conference told his audience, “I personally predict [Medicare Advantage (MA)] [1] is going to continue to grow for the next several years at the same trend rate [10 percent a year]…We at CMS have to believe there will be more beneficiaries in private plans in the future than there are today…We have to be focused on the private side of Medicare given that we expect to see the vast majority of growth going to that side of the program.”

   And earlier this year, CMS announced proudly that MA premiums had fallen by 7 percent and enrollment had increased by 10 percent since February 2011.  Specifically, premiums had fallen from $33.97 in 2011 to $31.54 in 2012 while enrollment increased from 11.7 million in 2011 to 12.8 million in 2012.

  “The Medicare Advantage program is stronger than ever,” said HHS Secretary Kathleen Sebelius.  “Premiums are down on average, enrollment is up, and thanks to the Affordable Care Act we have unprecedented new tools to ensure that seniors and people with disabilities are getting the best value out of their coverage.”

  Really?  With all this rhetoric supporting a bright future for MA under the current administration, you’d never know the bottom will fall out of MA in short order.  Even the Congressional Budget Office (CBO) has predicted that MA enrollment would peak in 2012 and then decline sharply.

  The Heritage Foundation recently elaborated on the findings of an earlier report from the Medical Industry Leadership Institute and Carlson School of Management which explains with a state-by-state analysis how access for Medicare beneficiaries will change dramatically for the worse as a result of billions in payment cuts to MA plans in the president’s government takeover of healthcare law.

  Kathryn Nix of Heritage explains “the catch is these cuts haven’t kicked in yet.  Obviously, you cannot cut a program by $145 billion and expect there to be no consequences…Phased in between 2012 and 2017, the MA cuts will substantially restrict the ability of Medicare beneficiaries to choose the health plans that best meet their needs and will results in substantial reductions in coverage for many millions of seniors and disabled Americans.”

  So where is the disconnect between the administration’s glee over MA’s alleged bright future and what, in fact, is surely coming to the detriment of MA beneficiaries? 

  “The fact that premiums fell this year in no way disputes that this will be the future of Medicare Advantage,” says Nix. 

  The Medical Industry Leadership Institute and Carlson School of Management report explains “MA plans will have to cut healthcare benefits, increase cost sharing, or increase premiums (or some combination thereof)…with lower payments and fewer enrollees, fewer MA plans will be able to stay solvent…Medicare beneficiaries will either lose their MA coverage altogether…or be faced with higher out of pocket costs and/or benefit reductions.”

  Here’s the catch.  The MA cuts were scheduled to begin in 2012 but the Administration put the brakes on, no doubt because of election year politics.[2]  Instead, through a temporary “demonstration” program, CMS doled out billions in bonuses to hundreds of MA plans thereby cancelling out what would have been the early impacts of reduced payments.  According to a recent GAO report highly critical of the program (recommending Secretary Sebelius cancel it altogether), 71% of the cuts will be undone in 2012, compared to just 32% in 2013 and 16% in 2014.  It’s not surprising then that a recent New York Post op-ed titled “An 8 billion dollar trick?” observed that the demonstration program is a calculated attempt by the president to avoid upsetting seniors before the November election.[3] 

  But, as Nix from Heritage suggests, “once the Obamacare cuts to Medicare Advantage are actually implemented and fully phased in by 2017, their damaging effects will be obvious.  For now, the Administration’s claims that it somehow saved or strengthened Medicare Advantage are laughable.”

  Indeed, the Medical Industry Leadership Institute and Carlson School of Management report concludes “by 2017, when the changes are fully phased-in, enrollment [in MA plans] is expected to be 50 percent lower, the average would-be beneficiary will lose $3,700 in benefits…and the number of [MA plan] choices available in the average county will be reduced by about two-thirds.”  Even Medicare’s own Actuary predicts MA enrollment could be cut in half by 2017 as a result of the cuts (from projected 14.8 million enrollees to only 7.4 million).

  “The left has done little more than ‘take credit for a popular program [they] really want to kill’” says Nix quoting health policy expert Robert Laszewski.

  The administration would do well to level with the American people about its massive cuts to the Medicare Advantage program rather than to suggest disingenuously that it may flourish under the president’s government takeover of healthcare law. 

  
  

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  [1] Medicare Advantage (MA) plans are private plans which receive capitated monthly payments (adjusted for demographics and health status) which generally offer expanded benefits and lower cost sharing compared to traditional fee-for-service (FFS) Medicare.  The popularity of MA plans as an alternative to FFS Medicare is evident in its enrollment more than doubling between 2005 and 2012 from 5.3 million to 12.8 million.

  [2] The Associated Press previously reported on the MA demonstration last year, noting that the program “could head off service cuts that would have been a [political] headache for Obama and Democrats in next year’s elections.” 

  [3] The op-ed suggests, “Congress should immediately launch an investigation into this unprecedented misuse of taxpayer money and violation of the public trust, which certainly presses the boundaries of legality and may very well breach them.”