Premium hike caused by funding reduction

Posted: June 09, 2014

When it comes to health insurance, Anthony Capone considers himself "on top of this stuff."

So in 2013 when the Mount Laurel businessman turned 65, he pored over Medicare Advantage plans, even visiting a Horizon Blue Cross Blue Shield store to talk details. He eventually bought a Horizon no-premium Medicare Advantage plan.

He liked the policy so much he persuaded his then-89-year-old mother to ditch her plan and go with Horizon. So in the fall, Capone was primed to renew during open enrollment until he saw that his no-premium insurance had removed the "no."

The 2014 version of the plan came with a monthly premium of $153.70.

"I called Horizon and they told me directly that the funds for Medicare Advantage plans had been reduced because of the Affordable Care Act."

It's true. The law calls for a phased reduction in payments to traditional Medicare and to Medicare Advantage programs starting in 2011 and continuing over the next decade. Besides getting more people insured, the ACA also aims to rein in health care costs, including Medicare. In the next 10 years, cutbacks to Medicare Advantage will total $156 billion.

"The reality is that Medicare Advantage plans are going to be confronted with significant payment reductions under the terms of the Affordable Care Act for the next 10 years at least," said Robert Moffit, director of the Heritage Foundation's Center for Health Policy Studies. "The entire Medicare program is going to undergo some significant payment reductions" over the next decade.

Medicare Advantage plans differ from traditional Medicare in that Advantage plans are bought through private insurers that contract with Medicare. Services for people enrolled in Medicare Advantage are paid through the plan, not by traditional Medicare.

Moffit said the payment cuts to Advantage plans were "unprecedented" and that the law also calls for a hard cap and would no longer be automatically funded. "This thing was orchestrated by a liberal Democratic Congress. That was stunning."

"The Medicare Advantage plans are trying to absorb these cuts even as they are trying to service a larger and a fast-growing Medicare population," he said. "Common sense says that if you pay less, you are not going to get more."

The answer, he said, was to "repeal the ACA. Short of that, then gut it."

Not so fast, says Mark Duggan of the University of Pennsylvania's Wharton School. In a recent paper for the National Bureau of Economic Research, Duggan found that the cuts to Medicare Advantage were just slowing the rate of increase.

And "it's not like it translates one-for-one in higher prices," said Duggan, a professor of health-care management. "There is a little bit of a relationship. But if you cut reimbursement by $100, a lot of that comes from insurer profits."

There is no indication that higher premiums are scaring people away from Medicare Advantage. A 2013 report by the Henry J. Kaiser Family Foundation found that more than 14 million people were enrolled in Advantage plans, a 30 percent rise from 2010, when the ACA cuts were announced.

One reason the plans have become so popular, Duggan said, is that Advantage plans are paid significantly more than traditional Medicare. "So reducing the reimbursement makes some sense. If you are going to reduce Medicare spending, Medicare Advantage is a natural place to shine a light."

In the fall, Capone shined his own light on other Advantage plans. He bought an AmeriHealth plan, similar to his Horizon policy, for $26 a month. He's happy with the plan, but not with the system.

"What bothers the hell out of me is that my mother would never be able to go through these plans and figure out what's going on," he said. "There is not a chance that she would be able to make a legitimate decision because of the detail involved."

This story was done in partnership with Kaiser Health News, an editorially independent program of the Kaiser Family Foundation.


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