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Medicare reversed payment cuts, and not many are happy about it

Medicare’s recent reversal of a proposed payment cut to private health plans – the second such reversal in two years – hasn’t won a lot of rave reviews.

Insurance analysts say they still anticipate lower payments to private Medicare Advantage plans in 2015. Some editorial pages and supporters have criticized the Obama administration and lawmakers for easing off on Medicare Advantage cuts ordered by the president's health-care law.

The Affordable Care Act calls for cuts to the Medicare Advantage program, which critics say subsidizes private insurers to cover Medicare beneficiaries at a higher cost to taxpayers. But the politics of cutting Medicare are no doubt getting in the way.

As a quick refresher: Last Monday, the Obama administration turned a proposed 1.9 percent cut to 2015 Medicare Advantage health plans into a .4 percent increase after heavy lobbying from insurers and the Hill. It was the second-straight year that the Medicare agency transformed a proposed rate cut into a raise.

Despite last year’s reversal on the proposed rate cut, insurers say they still saw their Medicare Advantage reimbursements shrink about 6 percent in 2014 plans. And today, Moody’s Investor Service said even after last week’s payment boost, the final 2015 rates are a “credit negative” for Medicare Advantage insurers, who are anticipating an average reimbursement reduction between 3 percent to 4.5 percent next year.

Still, Medicare Advantage enrollment has grown every year since the ACA passed in 2010. In fact, enrollment has increased more than 9 percent each year since 2012, when the ACA’s cuts to the Medicare Advantage started to take effect.

Moody’s cites two reasons for the growth. First, health plans are effectively managing care and designing attractive benefit packages. Secondly, people enrolled in the program – almost one-third of all Medicare beneficiaries — tend to favor it over the traditional Medicare benefit.

Moody’s said it still expects membership growth in 2015, but not “as robust” as the growth rates the past two years.

So, why does Ombacare cut Medicare Advantage in the first place? The law is supposed to cut payments by $156 billion over 10 years because the program has historically reimbursed private insurers at a higher rate than the traditional Medicare program. Private plans are reimbursed at 106 percent of the traditional program, and Obamacare aims to close this gap.

The law’s cuts to Medicare Advantage also helped fund the ACA's coverage expansion, which you might remember was a central part of the GOP attack during the 2012 campaign – that the Obama administration raided Medicare to pay for Obamacare.

“If that was a bad plan, we certainly didn’t hear that from many ACA advocates circa 2010,” writes Austin Frakt at the Incidental Economist today. “Why is it a bad plan today?”

It’s a bad plan today because the politics are bad, as the Morning Consult captured this Sunday. Caving to political pressure on Medicare Advantage raises concerns about government’s larger health-care efforts, Bloomberg View editors recently wrote.

“If the government has this much trouble trimming a useless subsidy for the insurance industry, it will have a hard time being frugal when it comes to health spending that actually matters,” they wrote late last week.

As the Moody’s note today points out, Medicare cuts could have been steeper in 2015. The Medicare agency abandoned a home visit requirement that insurers say would have cut reimbursements by another 1-2 percent.

“Although [the Centers for Medicare and Medicaid Services] decided not to implement this proposal in 2015, it indicated that it may reconsider the reduction for 2016,” Moody’s writes.

Let the lobbying begin.