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The New Health Care Law and Medicare Advantage

Your questions answered

I’ve heard that the payments from the government to Medicare Advantage will decrease or be stopped altogether. Is this true? This is a great program. Why take it away from us?

A. The new law changes the way the government reimburses insurance companies that offer Medicare Advantage plans to seniors. But it doesn’t abolish the program. The nation’s top health official, Secretary of Health and Human Services Kathleen Sebelius, blames “misinformation” for the impression that “we were getting rid of Medicare Advantage.”

Instead, what’s being gradually reduced are excess payments to Medicare Advantage plans, the sweeteners they were originally paid to come into the Medicare market.

Now, Sebelius tells the AARP Bulletin, “the market is stable. There are plenty of companies and over 1,600 plan choices.”

About one in four people in Medicare—some 10 million out of 45 million—are enrolled in these plans. On average, the subsidies mean care for people in Medicare Advantage plans costs 13 percent more than it costs for people in traditional Medicare. But that figure is much higher for some plans—up to 20 percent higher in some areas. This translated into $14 billion added to the cost of the Medicare program last year alone.

So it’s not surprising that these payments have enabled Medicare Advantage plans to offer extra benefits like dental coverage, eyeglasses and gym memberships. As the subsidies are scaled back, some of those may be cut.

But basic guaranteed Medicare benefits cannot and will not be cut, Sebelius says. And seniors have another protection: The new law requires plans to spend at least 85 cents of every dollar they receive from Medicare on benefits.

Last year, the subsidies to these plans averaged $1,138 more for each Medicare Advantage member, according to a study by health policy analyst Brian Biles at George Washington University.

Under the new law, next year’s payments will be frozen at 2010 levels. Then, cuts averaging 12 percent a year will be gradually phased in over six years, bringing payments closer to what traditional Medicare spends to provide medical care. Biles says that works out to about $200 less per Medicare Advantage member per year.

The cuts are not the same for all plans. In fact, plans with excellent track records that earn four or five stars from Medicare’s rating system will get up to a 5 percent bonus.

Overall, Medicare Advantage insurers will be paid $136 billion less by 2019 than they would have received before health care reform, according to estimates by the independent Congressional Budget Office.

Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, a leading insurance trade association, contends that “the last time Congress cut the program, seniors saw benefit reductions, higher premiums, and in some parts of the country they lost their coverage altogether.”

Plans are going to try to minimize the impact on members, he says. But he adds that given the size of the cut, that will be difficult. “It will impact different plans differently,” Zirkelbach says, and it’s still too early to know how.

Whatever the companies do, the changes won’t be dramatic, says Marsha Gold, who has studied trends in private insurance and Medicare as a senior fellow at Mathematica Policy Research. “Everything will come slowly,” she says, because the payments are reduced over several years.

Medicare Advantage is a big business, and the growing number of seniors in Medicare is an important market, Gold adds. Total Medicare Advantage enrollment grew this year even though there were fewer plans. “Beneficiaries still have a lot of choices.”

“My guess is that plans will still be competing for business,” says Sebelius. “They will add or subtract benefits based on where they see a marketplace advantage.”

Susan Jaffe of Washington, D.C., covers health and aging issues and writes the Bulletin’s weekly column, Health Care Reform Explained: Your Questions Answered.