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CMS increases 2017 Medicare Advantage rates less than expected

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(Bloomberg) — Health insurers that offer private Medicare Advantage plans will get a smaller-than-expected increase in payments next year.

Medicare program managers are raising payments to the insurers by 0.85 percent on average, according to a statement Monday from the Centers for Medicare & Medicaid Services (CMS), down down from the 1.35 percent boost proposed in February. Payments to individual insurers can vary, because CMS gives individual plans quality bonuses and premiums are adjusted based on where enrollees live and how sick they are.

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The smaller increase gives less of an increase to top providers of Medicare Advantage plans such as UnitedHealth Group Inc. (NYSE:UNH) and Humana Inc. (NYSE:HUM) as those providers are deciding whether to participate in either the off-exchange individual commercial health insurance market, or the public exchange market, in 2017.

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Other publicly traded insurers that are big providers of the private Medicare plans include Aetna Inc. (NYSE:AET), Centene Corp. (NYSE:CNC), and WellCare Health Plans Inc. (NYSE:WCG). CMS raised rates by about 1.25 percent for this year, after a cut of about 4 percent in 2015. Medicare Advantage plans are run by private health insurers, and funded and regulated by the government.

The Obama administration has been pushing to contain costs for Medicare Advantage since PPACA became law in 2010. At the time, the U.S. was spending about 10 percent more for each Medicare Advantage beneficiary than for the traditional Medicare program. Spending per Medicare Advantage recipient is about 2 percent higher this year, according to the Medicare Payment Advisory Commission, known as MedPAC, which advises Congress on payment policies.

$170 billion program

About 16.7 million people, or 30 percent of all Medicare beneficiaries, enrolled in Medicare Advantage plans last year. CMS paid Medicare plans about $170 billion for doctor and hospital services that year, according to MedPAC.

Including changes tied to patients’ diagnoses, total revenue for health plans is estimated to increase 3.05 percent in 2017, CMS said Monday. CMS had initially estimated that revenue would increase by 3.55 percent.

In its February proposal, CMS said it would change how employer-linked Medicare Advantage plans are compensated, potentially lowering payments to those plans. In the final rule, the government created a two-year transition that will phase in the rate changes gradually for the employer plans.

When those adjustments are incorporated, actual payments to Medicare Advantage plans may decrease by 0.5 to 3.9 percent, according to an estimate from the consulting firm Oliver Wyman that was prepared for industry lobbying group America’s Health Insurance Plans before Monday’s announcement.

America’s Health Insurance Plans (AHIP) has called on CMS to avoid cutting payments, saying that payment reductions hurt care for Medicare beneficiaries. The lobbying group has highlighted a series of letters from lawmakers in the House and Senate opposing cuts to the program.

AHIP President Marilyn Tavenner, who was the head of CMS before joining AHIP, said today in a statement that a bipartisan group of more than 400 members of Congress has stood up for protecting Medicare Advantage program beneficiaries’ benefits.

“Following this overwhelming bipartisan congressional outreach, CMS took steps to mitigate the negative impact of policy changes related to risk adjustment and encounter data,” Tavenner said in the statement. “Yet, more can be done to ensure stability for more than 3 million seniors who depend on Medicare employer retiree plans. We urge policymakers to focus on policies that will strengthen the Medicare Advantage program moving forward and ensure high-quality, affordable coverage for seniors and vulnerable beneficiaries.”

See also: 

AHIP: Medicare Advantage may underpay for chronic conditions

How Medicare Advantage might change

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