Medicare program gets harder to cut

Medicare program gets harder to cut
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Medicare Advantage is becoming entrenched and harder to cut as support for the insurance program grows in both parties and enrollment numbers climb. 

The Obama administration has repeatedly proposed cuts to the program, but has twice backed away under pressure from the health insurance industry and lawmakers from both parties.


Opposition appears to be growing. Only 22 senators signed letters opposing the administration’s plan to cut payments under the program in 2013. The number grew to 40 last year, and 53 in 2015.

Medicare Advantage was backed by former President George W. Bush and approved by a Republican Congress in 2003 to introduce more competition in the insurance market for seniors.

Under the program, the government contracts with private insurance companies to provide coverage for seniors. Instead of the government directly paying doctors under Medicare, seniors who choose Medicare Advantage select a private insurer that then pays for services.

Initially, there was more of a partisan edge to the debate over Medicare Advantage; Democrats were wary of a program launched by Bush that they saw as a giveaway to insurance companies.

But as time has passed, support has grown in both parties for the program.

“The worst fears were not materialized,” said Rep. Gerry Connolly (D-Va.), who signed the letter this year against the cuts. “It’s growing in popularity among our constituents and it provides an option.”

Republicans like the program for their own reasons, arguing that it harnesses the power of the private sector to make Medicare more efficient. 

For health insurers, Medicare Advantage provides revenue.

Humana, for example, receives about two-thirds of its revenue from Medicare Advantage. 

And the insurers make their voices heard in Washington. The health insurance industry made at least $28 million in federal campaign contributions across the 2012 and 2014 cycles, according to the Center for Responsive Politics. 

America’s Health Insurance Plans (AHIP), the insurance trade group, has mounted an intense lobbying campaign in recent years each time the administration has proposed cuts. It has run ads arguing the changes would hurt seniors, and arranged for beneficiaries who like the program to meet with members of Congress. 

The Obama administration has not been immune to the lobbying.

“They are very cognizant of the lobbying they've gotten from Congress, from AHIP,” said Ipsita Smolinski, managing director of Capitol Street, a healthcare consulting firm. “They're not immune to that.”

In 2013, a proposed 2.3 percent cut to insurers ended up as a 3.3 percent increase.

Last year, the Centers for Medicare and Medicaid Services (CMS) proposed limiting home healthcare visits, arguing there was little evidence that they improved care. The visits often led to higher payments for insurers, even if no added care was provided, when they uncovered new ailments in patients that could be factored into a formula that pays insurers more for sicker patients.   

In the final announcement, though, the CMS dropped the proposal. 

“I think there is a growing recognition about the effect of cuts to the program,” said Clare Krusing, an AHIP spokeswoman.

This year, officials initially only proposed a cut of less than 1 percent to the program, because they did not estimate that healthcare costs for insurers would grow at a high rate.

On Monday, the CMS reversed itself and proposed a 1.25 percent increase to Medicare Advantage after new data showed healthcare costs would rise more than expected this year.

Significant cuts to Medicare Advantage have been approved as part of ObamaCare, which will reduce $156 billion in spending under the program over 10 years. 

In the run-up to the passage of ObamaCare, President Obama and other Democrats argued that Medicare Advantage was inefficiently paying too much to insurance companies. 

Under the healthcare law, payments have now come down from about 13 percent more than traditional Medicare to about 2 percent more, according to the Medicare Payment Advisory Commission. 

AHIP responds that insurers’ bids are 6 percent lower than traditional Medicare. The difference between the bids and the actual payments is used to provide extra benefits, which help the program prove popular with seniors. 

Indeed, more and more seniors are signing up. Enrollment has grown from around 5 million people in 2004 to around 16 million, which is almost one-third of all Medicare beneficiaries.

Connolly argues the growth shows Republican criticism that ObamaCare would end Medicare Advantage has proven to be wrong. 

“One of their criticisms was it would destroy Medicare Advantage,” Connolly said. “So what’s happened? Medicare Advantage has grown by millions.”