HHS announces new Medicare cuts

The Obama administration ignited a new election-year controversy Friday when regulators handed down fresh cuts to Medicare Advantage (MA).

Next year, plans in the program will see their payments cut by at least 2 percent on average between ObamaCare and a regular annual update, the announcement stated.

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The Centers for Medicare and Medicaid Services (CMS) argued that the reductions will help to strengthen the program — an increasingly popular alternative to traditional Medicare — and guard against waste.

"We are making certain that plans are providing value to Medicare and taxpayers," said CMS principal deputy administrator Jonathan Blum in a statement.

Though widely anticipated by the healthcare world, Friday's reductions represent a blow to insurers and Republican lawmakers. The two groups had lobbied hard in recent weeks to ward off any changes to MA payment rates.

Now, the prospective reductions are sure to fuel Republican campaign attacks as the GOP seeks to bolster its appeal among older midterm voters.

"Nearly every week we hear about another group Americans harmed by ObamaCare," said Senate Minority Leader Mitch McConnell (R-Ky.), who is facing a primary challenge, in a statement.

"Today, it is America's seniors … While some Senate Democrats may have second thoughts, these are the same Democrats who voted to impose these cuts on seniors in the first place."

Cuts to Medicare Advantage always come with political heat for Democrats, just as premium-support proposals for Medicare have dragged down Republicans.

The MA program covers roughly one-third of Medicare beneficiaries, and thanks to GOP-backed policies, receives more funding per patient on average than traditional Medicare.

Democrats have traditionally sought to rectify this imbalance by cutting what they consider "overpayments" to Medicare Advantage. ObamaCare helped to achieve this goal by reducing the program's funding by $200 billion over 10 years.

But by piling on reductions, the administration invites conflict with a powerful foe — health insurance companies — and creates another talking point for Republican candidates in a year when the party hopes to gain control of the Senate.

Healthcare experts noted that while 2 percent represents an average cut across the board, each MA plan will experience a different reduction based on factors like quality and location.

Jennifer Kowalski, vice president at Avalere Health, said a major factor will be whether plans succeeded at improving their ratings before a quality bonus demonstration ended.

"The questions for plans in 2015 are: did you achieve the four-star threshold necessary to receive the bonus? And if you didn't, how are you positioned relative to other plans in your marketplace?"

A report from Bloomberg News indicated that Humana and UnitedHealth Group could face a cut of up to 3.55 percent in 2015. 
 
Karen Ignagni, president and CEO of America's Health Insurance Plans (AHIP), a major trade group, responded to the proposed payment cuts in a statement. 

"The new proposed Medicare Advantage cuts would cause seniors in the program to lose benefits and choices on which they depend," Igagni said.

"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."
 
The insurance industry had sought to prime the pump for Friday's announcement with a seven-figure lobbying and advertising effort arguing that MA cuts will directly harm seniors.

In addition to circulating letters and research, AHIP opposed further reductions with television advertisements designed to highlight the issue's political potency.

"You know, we vote," said an elderly woman, identified as a Medicare Advantage patient, in a TV spot.

Opponents of the cuts argue they will lead to premium increases and reduce benefits for seniors. MA plans are known for their extra perks, like free eyeglasses.

But some healthcare experts questions whether the program will actually suffer under reduced payments. The cuts will be finalized in rules due out April 1.

"I think we will continue to see the program remain very strong, even despite these payment pressures," Kowalski said.

"We've been phasing in the [Affordable Care Act] cuts over several years now, and plan participation has remained consistent."

In research published Friday, Avalere found that MA plan enrollment rose by 8.9 percent for 2014, raising the program's total share of Medicare beneficiaries to 30 percent.

The Obama administration frequently touts findings like this one to argue that Medicare Advantage is succeeding despite cuts. Premiums have fallen and plan choices have remained stable, officials report.

But these arguments are not likely to overcome the growing crescendo of GOP attacks.

Immediately following Friday's rate announcement, the Republican Party of Virginia slammed Sen. Mark Warner (D-Va.), who is up for reelection.

"Mark Warner could have stopped this [cut] with one word," the party tweeted. "But he didn't. He chose Barack Obama over Virginians."

The National Republican Congressional Committee made a similar move Friday, blasting a long list of Democrats by tying the proposed Medicare cut to ObamaCare.

The issue is likely to see action on Capitol Hill in the coming weeks.

House Republican Leader Eric Cantor (Va.) announced Friday that his party will tackle MA reductions in the "near future" as part of a wider siege on the healthcare law.

Updated at 6:34 p.m. and 8 p.m.