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Medicare Advantage provision going smoothly so far

By Amy Goldstein
Washington Post Staff Writer
Monday, November 29, 2010; 10:31 PM

One of the most significant savings envisioned in the new health- care law - limiting payments to the private health plans that cover 11 million older Americans under Medicare - is, so far, bringing little of the turbulence that the insurance industry and many Republicans predicted.

The law, which sets in motion the broadest changes to the U.S. health-care system in decades, will hold down the amount of money the government gives to Medicare Advantage plans, which are available to patients who prefer a managed-care version of the program. The savings is forecast to amount to $145 billion by the end of the decade.

Whether the payment changes are warranted was a contentious subplot in the protracted debate over the legislation. Democrats argued successfully that the private plans were being overpaid and could withstand the changes. Republicans warned that such plans would raise prices, lower benefits or cause defections from the program, stranding the elderly people who rely on them.

Early clues to the actual effects have now materialized, as elderly Americans may sign up for a health plan for 2011 during an enrollment period through the end of the year, and the warnings of swift, serious damage to the program are not borne out. Fewer health plans are available for the coming year, but the decrease is largely for reasons unrelated to the new law. Premiums have not jumped substantially, and benefits have not tended to erode.

Plans drop out

According to federal figures, the number of plans that accept Medicare recipients has fallen by about 13 percent from 2010, or slightly more than 500 plans.

A closer look shows that about half those plans left Medicare because of changes in federal rules that predate the sprawling overhaul law passed by Congress in March, according to the figures from the Department of Health and Human Services' Centers for Medicare and Medicaid Services (CMS). And many of the others left as a result of deliberate efforts by the CMS to merge or eliminate small, neighboring health plans with similar benefits.

Medicare is the federal program that, since the mid-1960s, has given health insurance to Americans 65 and older. For most of its history, Medicare has offered beneficiaries a choice between traditional fee-for-service insurance in which patients can visit any doctor or other caregiver they want, and a private, managed-care version, whose name and details have evolved over time.

Nearly a fourth of the participants are in Medicare Advantage, as the private part is known under a 2003 law. Enacted when Republicans controlled Congress and the White House, the law began three years later to give health plans more money as an incentive to offer extra benefits and, in turn, attract more Medicare patients.

Private plans come and go from the program every year; about 920,000 beneficiaries must choose a new insurer for next year because the one they had is no longer available to them, compared with about 670,000 whose coverage was disrupted a year ago. Even after some plans left for 2011, people on Medicare still have, on average, a choice of two dozen plans in their community, according to the Kaiser Family Foundation, a nonpartisan health policy and research organization. And according to the CMS, only 2,300 Medicare recipients nationwide, all of them in rural Colorado and Utah, lost access to a private health plan and do not have a another one nearby.

Insurers' premiums for Medicare customers are, on average, rising by a smaller amount for 2011 than for this year and in 2009, according to Kaiser. And widespread reductions in medical benefits have not occurred, federal health officials said.

"What we are seeing is a very strong commitment to the program" by health plans, said Jonathan Blum, director of the CMS's Center for Medicare. Blum said that insurance executives with whom he has met have told him they expect to enroll more Medicare patients for the coming year - despite recent predictions by the Congressional Budget Office that enrollment would dip.

Outside the Obama administration, many fear that the smooth experience will not continue for long. "It may be a little early," said David Certner, legislative director for AARP, the influential lobby for Americans 50 and older, which sells coverage to its eligible members under Medicare Advantage. "A lot of these changes . . . don't kick in until next time around. We'll see what the impact is."

A main reason lies in the federal payments. For 2011, the reimbursements to health plans will be frozen at the same level as this year, meaning that the typical plan will be paid 10 percent more than rates to health-care providers in traditional Medicare in the same community - compared with13 percent higher in 2009.

The law's deeper financial impact on insurers is scheduled to begin taking effect in 2012. That is when the law starts to ratchet down the increases in payments- by different amounts in different parts of the country - over several years. "It's not going to be possible to keep currrent benefit levels and premiums where they are today when these massive cuts go into effect," predicted Robert Zirkelbach, spokesman for America's Health Insurance Plans, the industry's main trade group. Congressional budget analysts predict that 3 million fewer people will be in Medicare Advantage by 2019.

Administration officials dismiss suggestions by insurers and the GOP that the payment changes eventually will cause the private side of Medicare to collapse. Obama's health-care aides say Medicare has become a large, entrenched enough share of many insurers' business they are unlikely to penalize elderly customers or drop out.

Temporary reprieve

But in recent weeks, the CMS took an unexpected step that will have the effect of providing at least some temporary financial cushion for most health plans in Medicare. The agency announced that it intends to expand on a system of bonuses, created under the law in an attempt to give insurers a financial motivation to improve their quality.

Starting in 2012, the law will employ a five-star rating system for Medicare Advantage plans that the government created three years ago. The provision gives extra money to health plans to which the CMS has awarded four or five stars - currently about one plan in six. This month, the agency announced it was going further, creating a three-year, $1.3 billion "demonstration" that will give smaller bonuses to any plan with three stars - that is, three-quarters of the plans in Medicare.

Blum said the decision was an attempt to create "a financial ramp" that would strengthen plans' incentive to improve by giving larger bonuses for more stars. But Vicki Gottlich, a senior policy attorney for the Center for Medicare Advocacy, said "the beneficiary community was taken by surprise" by the expanded bonuses. "There is some concern. . . . If the idea is to improve quality in health care, you want to give the incentive to be a four-star plan."

Meanwhile, the political fight persists. With Republicans preparing to move into the House majority, and GOP leaders arguing that the entire health law should be repealed, the party continues to dispute the payment changes to private Medicare plans.

One GOP House committee aide said Republicans would like to restore some or all of the cuts and has asked for budget estimates on ways to offset them - but acknowledged that the $145 billion in expected savings "is a lot of money" in a climate of large federal deficits. Still, the aide said, "however we can get to the point of where every senior, no matter where they live in the country, will have a choice, that's what we will work toward giving them."

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