The proposal, released in a document by a division
of the U.S. Department of Health and Human Services, appeared to cut
payments by more than the 6 to 7 percent the insurance industry had
expected, one Wall Street analyst said.
"Now the lobbying begins: can the plans get Congress to help make
the cut less severe?" CRT Capital analyst Sheryl Skolnick said,
adding that her assessment of the hundreds of pages of information
Friday's notice of proposed rates opens a window for negotiations on
the final ruling, due April 7.
Insurers and lawmakers have said cuts will mean smaller networks of
doctors and hospitals and higher out-of-pocket costs. Insurers have
said they could only maintain benefits if there was no change in
payments for 2015 from 2014.
Many factors go into determining the government's total
reimbursement to insurers. These payments are based in part on the
assumption that Medicare Advantage spending per person will fall
3.55 percent in 2015. Total reimbursement to insurers, however, is
influenced by factors such as payments for patients who are sicker
An executive at one company that manages Medicare Advantage plans
said that insurers are facing cuts in the 8 percent to 10 percent
range when factoring in the per capita spending decline and other
planned reductions. These include a new health insurance tax under
President Barack Obama's healthcare law as well as other risk
Other industry officials said they were still reviewing the Medicare
notice to determine its full impact. Republican lawmakers said any
additional cuts to the program were unacceptable.
"These Medicare Advantage cuts are misguided, threaten a successful
program for seniors, and must be overturned," Republican Senator
Orrin Hatch said in a statement.
"Medicare Advantage is extremely popular for a reason — run through
the private market, seniors gain access to high-quality and
coordinated care with additional benefits that they otherwise
wouldn't get," he said.
The criticism from Hatch and other leading Republicans adds to
pressure from the party over Obama's signature domestic policy
achievement. The Patient Protection and Affordable Care Act, which
aims to extend health coverage to millions of uninsured Americans,
includes provisions to cut Medicare spending.
UnitedHealth Group Inc, Humana Inc and Aetna Inc are among the
insurers who manage private Medicare plans for about 15 million of
the 50 million Americans eligible for Medicare.
The shares of insurers fell in after-hours trading. Humana posted
the biggest loss with a 4 percent decline.
[to top of second column]
PLANNING FOR 2015
The proposed payment rates are a key factor in how insurance
companies plan their business for the coming year, including in
which markets they will offer health plans, what their medical and
administrative costs will be and at what level to set premiums and
doctor visit co-payments.
Insurers have said that 2014 was a difficult year for Medicare
Advantage because of cuts to payments estimated at about 6 percent
overall by the industry group, called America's Health Insurance
"As 2015 payment rates are finalized, we urge the Medicare agency to
protect seniors from facing higher costs and fewer benefits by
keeping Medicare Advantage payment rates flat," AHIP Chief Executive
Karen Ignagni said in a statement.
The Centers for Medicare and Medicaid Services said in a statement
that the proposed changes for 2015 are smaller than those
implemented in 2014.
It also said in the statement that it planned to calculate risk
scores in 2015 with the same methodology as in 2014. It said it
would change a part of its risk payment formula to account for the
increasing proportion of baby boomers entering Medicare, who tend to
have better health.
It was not immediately clear how these and other formula changes in
the document would affect the industry overall or specific insurers.
Medicare Advantage and other government paid-healthcare services
like Medicaid are among the insurers' fastest growing businesses.
But if the costs to insurers of providing the healthcare services
outpace the payments from the government, the difference is paid by
the insurers, undermining their ability to profit from these plans.
"Medicare Advantage plans are fully at risk under this program. So
if their estimate is off, for better or for worse, they are at risk
for that," said Anne Hance, a lawyer at McDermott Will & Emery in
Washington, D.C. who focuses on regulation.
(Reporting by Caroline Humer; editing by
Michele Gershberg, Jonathan Oatis, G. Crosse, David Gregorio and
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