What happened to offsetting coverage expansion costs?

I’m old enough to remember when a good deal of the Affordable Care Act’s coverage expansion cost was to be offset by cuts to Medicare. I also recall that many critics of the ACA said Congress and the Administration would not uphold those cuts, that they’re politically unrealistic. I agreed with that critique, at least in part.

Now we have solid evidence that critique was on target, at least as far as Medicare Advantage (MA) is concerned. Last week, the Centers for Medicare & Medicaid Services, once again, failed to uphold scheduled cut payments to MA plans, opting instead to raise them. Meghan McCarthy provides the details and context:

Setting Medicare Advantage rates wasn’t always the subject of intense scrutiny outside of the insurance industry. The Affordable Care Act changed that. The health reform law cuts $156 billion from the program over the next ten years, according to the Congressional Budget Office.

But at the same time, the program is growing more popular. Nearly one-third of Medicare seniors have chosen a Medicare Advantage plan. And that means the Obama administration and congressional Democrats are left with a difficult choice and few ways out: Either enact the cuts they passed in the ACA and potentially pay when seniors show up at the polls in November, or find another way out. […]

This year, Centers for Medicare and Medicaid Services principal deputy administrator Jonathan Blum said the final average reduction in rates was 0.4 percent, up from a proposed 1.9 percent cut released in February. This mirrored what happened last year, when CMS proposed a 2.2 percent cut for insurers, only to reverse course and increase rates by 3.3 percent in their final regulation. […]

CMS also chose to delay fully implementing a new, arguably more accurate method for calculating the “risk” of an individual Medicare enrollee. (And ‘risk,’ in insurance lingo, basically means how much money that enrollee is expected to cost, based on their health.) They also delayed a proposal that would make insurance companies get a health professional to sign off on the home health assessments of new enrollees that insurance companies then use to determine the risk scores of their population.

To cover a Medicare beneficiary, MA plans are paid about 106% of the cost traditional Medicare would incur. Though this is down from its peak of 114%, it’s by no means clear that 106% is the right rate. Moreover, reducing that rate is, in part, how coverage expansion is supposed to be funded. If that was a bad plan, we certainly didn’t hear that from many ACA advocates circa 2010. Why is it a bad plan today?

I’ve long argued that MA payment rate setting needs to be further insulated from politics. The much maligned IPAB could serve such an insulating role, governing the MA payment rate setting process (even overseeing a more sound competitive bidding regime). Ironically, it’s attacked from some of the same quarters that question the government’s resolve in upholding ACA cuts to Medicare. It is, of course, possible that the IPAB would fail to implement better policy. But at least its job is to hold the line on Medicare spending growth. As far as MA is concerned, it’s not clear that the existing governing structures are willing and able to do the job.

UPDATE: Read this follow-up.


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