The Centers for Medicare and Medicaid Services (CMS) may let Medicare Advantage carriers charge a little more in 2012, but the increase likely will be lower than the medical inflation rate, according to an analyst at Standard & Poor’s Ratings Services.

The Medicare Advantage program gives private health carriers a chance to provide Medicare plans.

Program defenders say the program gives participants much richer benefits with much lower out-of-pocket costs; critics contend that the program has ended up costing more per enrollee than the traditional Medicare fee-for-service program.

Steve Zaharuk, a senior vice president at S&P, New York, notes in a commentary that CMS has adopted a complicated 2012 Medicare Advantage payment formula that likely will increase typical rates by about 1%.

S&P analysts have been expected CMS to cut 2012 rates by about 2% to 3%, Zaharuk says.

“Nevertheless, these rates still create a number of challenges for health insurers,” Zaharuk says.

One problem is that 2012 will be the third year in a row that Medicare Advantage rate increases will be below medical inflation, and that could result in a round of benefit reductions or premium increases for Medicare Advantage products, Zaharuk says.

The anticipated 2012 medical inflation rate is about 4% to 6%, Zaharuk says.

Medicare Advantage enrollment grew in 2011, despite benefits cuts, but “the question remains, what is the tipping point at which the cumulative benefit reductions result in membership decreases, as seniors sour on the value of the [Medicare Advantage] product compared with traditional Medicare and disenroll from [Medicare Advantage],” Zaharuk says.

- Allison Bell

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