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Insurers win Medicare Advantage battle

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Health insurers have persuaded Medicare Advantage bidding managers to admit that the underlying cost of care is likely to go up about 3 percent in 2014, not fall more than 2 percent.

But other program changes could still make the 2014 bidding process hard on insurers, according to Humana Inc. (NYSE:HUM).

The Centers for Medicare & Medicaid Services (CMS), the arm of the U.S. Department of Health and Human Services (HHS) that runs Medicare, announced changes in the final “national per capita growth percentage” in a Medicare Advantage “final call letter” — a document that gives a complete description of the factors a health carrier must consider when coming up with the products and prices it will offer to Medicare Advantage program managers.

Bids are due June 3.

The Medicare Advantage program gives private health insurers and other private health carriers a chance to sell health plans that serve as replacements for traditional Medicare fee-for-service (FFS) coverage. The private plans now cover about 14 million people.

CMS officials alarmed health insurers in February, when they announced that they would be using a 2014 health care cost “growth percentage” of negative 2.3 percent. Officials are expecting costs to rise 1.6 percent between this year and 2014.

The original 2014 cost reduction projection figure included the effects of a 25 percent cut in Medicare physician pay required by a federal “sustainable growth rate” (SGR) law.

Congress has acted many times to keep the Medicare physician SGR pay cuts take effect in the past. This year, Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, and Sen. Orrin Hatch, R-Utah, the highest-ranking Republican on the committee, joined to ask CMS officials to assume that Congress will continue to take the SGR physician pay cut from taking place.

In the final call letter, CMS assumes that Congress will keep postponing the physician pay cut.

The HHS Office of the Actuary opposed the change.

“Although the Office of  the Actuary agrees that Congress is very likely to override the physician fee reduction, the  assumption conflicts with the office’s professional judgment that, as in all past years, the  determination should be based on current law, not an assumed alternative,” CMS officials said.

Karen Ignagni, president of America’s Health Insurance Plans (AHIP), said her group is still studying the final call letter, but she the news that CMS is changing the growth rate assumption.

“By being responsive to the more than 160 members of Congress from both parties who raised concerns about the impact of the proposed payment rate on seniors, CMS has taken an important step to help stabilize Medicare Advantage at a time when the program is facing significant challenges,” Ignagni said.

Humana, a large player in the Medicare Advantage plan market,  said the effects of other changes in Medicare Advantage program rules, such as a change in the way carriers must calculate enrollee claims risk and a way CMS handles county-by-county variations in health care costs, could wipe out most of the gains insurers got when CMS raised the growth rate assumption.

Bruce Broussard, president of Humana, said the program technical adjustments “may still present meaningful challenges in certain geographies.” 

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