Congress may cushion some cuts in private Medicare plans

Kaiser Health NewsOctober 22, 2009 

WASHINGTON -- Nearly 3 million of the 10.5 million seniors in private Medicare health plans would be shielded at least partly from the cuts planned in the program under the Senate Finance Committee's health overhaul bill, according to a Kaiser Health News analysis.

The committee would cut $117 billion over 10 years from the so-called Medicare Advantage plans, shifting $10 billion of that amount to protect beneficiaries temporarily in parts of 13 states and to reward high-quality plans.

These plans, created in the late 1980s, became increasingly popular as insurers in some areas offered seniors more benefits than the traditional Medicare program run by the government. The plans cost the government more on average than traditional Medicare does, however, and the Obama administration and congressional Democrats want to curtail spending and use the savings to help cover the uninsured.

Some senators on the committee, worried about the impact on seniors enrolled in the plans -- and the possible political consequences -- acted to cushion the impact on constituents. In the House of Representatives, lawmakers also plan to slash Medicare Advantage, but haven't made any exceptions.

Under the Finance Committee's bill, plans that serve seniors in South Florida, New York City and parts of Louisiana would receive breaks over 10 years. That money would help the plans continue to offer some of the benefits their members have now, such as zero co-payments for doctor visits and coverage for hearing aids and eyeglasses not offered in traditional Medicare. This provision would cost $5 billion, and it includes an unspecified amount for bonuses for high-quality plans that operate anywhere in the U.S.

This provision affects members who are in these plans as of 2012. The advantages of the enhanced plans would diminish over time, as the bill would cut funding by 5 percent each year.

Another $5 billion would help prop up falling benefits, but the money would be spread to health plans in parts of a dozen states from 2012 to 2019. Among the metropolitan areas that would benefit are Los Angeles, San Francisco, Minneapolis, Nashville, Tenn., Birmingham, Ala., Denver, Long Island, N.Y., Tampa, Fla., Tulsa, Okla., Pittsburgh, Salt Lake City and Phoenix.

Those areas were selected because they have the richest benefits and therefore those seniors would have the most to lose.

Insurers, which are fighting the overall cuts to the program, said temporary protections for selected areas would lessen the impact on seniors. "This will slow the bleeding, but it won't stop it," said Douglas Armstrong, the director of policy analysis at the Blue Cross and Blue Shield Association.

Lawmakers would benefit, too. "It makes the cuts politically more palatable," said Leslie Norwalk, who was acting administrator of the Centers for Medicare and Medicaid Services in the administration of President George W. Bush.

The major seniors' lobbying group, AARP, favors cutting funding to Medicare Advantage to bring its spending into line with the rest of Medicare, but it's still weighing the need for the exceptions in the bill.

"While we support reducing the excess subsidies for Medicare Advantage, we also want to ensure that plans have time to adjust to any changes that may be made to Medicare Advantage in order to minimize any impact on our members," said Nora Super, a lobbyist for AARP.

The government has been paying private insurers that run Medicare Advantage plans 14 percent more, on a per capita basis, than traditional Medicare pays. About 23 percent of seniors are covered by Medicare Advantage plans, though the figure is closer to 45 percent in some parts of the country where plans offer richer benefits, including Miami and New York.

Questions of fairness have plagued the Medicare Advantage program for years because seniors in some areas are offered much richer benefits than people who live elsewhere are. Funding to Medicare Advantage plans varies nationwide because it's based on average Medicare spending by county. The higher the spending level, the more money that Medicare Advantage plans receive. The disparities would continue under the legislation.

Making cuts is tricky, however, said Gail Wilensky, who ran the Medicare program in the early 1990s and is now a senior fellow at Project HOPE, an international health-education foundation. "How you try to get to a more level playing field needs to be done carefully because of the vulnerability of the population and the politics involved," she said.

Sen. Bill Nelson, D-Fla., a Finance Committee member, had been one of the most outspoken critics of proposals to cut funding to Medicare Advantage plans. In the end, however, he struck a deal on an amendment that would shift additional funding to some states, which, according to his office, would help 800,000 of the 1 million Florida seniors who are enrolled in the plans. Among the other senators who signed on were Democrats Max Baucus of Montana, Ron Wyden of Oregon and Charles Schumer of New York.

Nelson spokesman Dan McLaughlin said the senator still thought that the Medicare Advantage program was "too loosely subsidized and needs to be reined in." However, he said, Nelson agrees with President Barack Obama's message that "if folks like their current health coverage, they should be able to keep it. And he believes that should also apply to seniors in Florida who signed up for these plans in good faith."

While the House and Senate committees agree on slashing funding to Medicare Advantage, they approach it in different ways.

The Senate would create a competitive bidding system in which plans would be paid an average of the bids they submitted. The House would pay health plans the same per capita fee as in traditional Medicare.

Experts say that plans in urban areas probably would fare better under the House proposal because they'd receive at least the same level of funding as traditional Medicare pays, which is usually higher in these areas.

(Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy-research organization that isn't affiliated with Kaiser Permanente.)


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