2011 Medicare Advantage premiums: methinks this isn’t the full story

From Robert Pear, in today’s NY Times:

The Obama administration announced Tuesday that average premiums paid by individuals for private Medicare Advantage plans, which insure about one-fourth of all beneficiaries, would decline slightly next year, even as insurers provide additional benefits required by the new health care law. […]

The announcement on Medicare came as something of a surprise. Some members of Congress and some health policy experts had predicted that insurers would increase average premiums for Medicare beneficiaries in private plans. […]

Medicare officials said they had held down premiums and co-payments by negotiating with insurers, which sponsor the Medicare Advantage plans.

This is an insufficient explanation. “Negotiating” is not a magic process. You can’t just “negotiate” your way to whatever you want. To reach an outcome to your liking via negotiation you need some leverage. There must be something the opposition wants that you can provide. That is, there is some reason why MA plans want to remain in the program and in the good graces of the Administration. The reason, I’m sure, has to do with money.

Here’s one hypothesis: Base MA payments are going down in the coming years. However, quality bonuses are being implemented. MA plan offering firms may be thinking they can do far better under the new payment regime than the Administration (or CBO) thinks. Perhaps the level of quality necessary for bonus payments won’t be so hard to achieve.

If MA plans want to stay in the program because the future actually looks bright, then that’s a source of leverage for the Administration. After all, a plan that expects to exit next year would not willingly give up profit this year in exchange for good rapport.

Well, that’s my hypothesis anyway. I could be wrong. But there must be some source of leverage. Otherwise “negotiating” is just “begging,” and if the Administration could beg its way to lower premiums it would have done so in prior years.

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