Print Friendly

On February 21, 2014, the Centers for Medicare & Medicaid Services (CMS) issued its draft 2015 Call Letter to Medicare Advantage (MA) and Part D plan sponsors, which includes a proposed rate for MA payment for 2015.[1]  Much anticipated, the draft Call Letter, which will be finalized in April, was preceded by an aggressive advertising campaign by the insurance industry to influence the proposed rate.[2]  A week before the proposed rate was released, a letter was sent to CMS by forty U.S. Senators from both parties urging CMS to "maintain payment levels that will allow MA beneficiaries to be protected from disruptive changes in 2015."[3]

Once the draft Call Letter was published, the proposed MA payment rates were variously reported as a 1.9% cut,[4] a "major cut" of 3.55%,[5] or, according to America's Health Insurance Plans (AHIP), the health insurers' trade group, a cut of 5.9%,[6] which "would be devastating to the more than 15 million seniors and people with disabilities that have chosen to enroll" in MA plans.[7]   As noted by the Center on Budget and Policy Priorities, however, the proposed rate includes no new "cuts" – just implementation of current law.[8]  The proposed payment rate continues to move MA plans closer to traditional Medicare rates.  Making sure that MA plans are paid more fairly and in line with traditional Medicare is a worthwhile goal that will help all Medicare beneficiaries by better safeguarding Medicare funds.

The Affordable Care Act (ACA) Reins in MA Overpayments

Medicare beneficiaries have had the option to enroll in private health plans since the 1970s.  Prior to the Balanced Budget Act of 1997 (BBA), which formalized private plan options by creating the "Medicare+Choice" program under Part C of the Social Security Act, Medicare paid plans 95% of average traditional Medicare costs in each county.[9]  The Medicare Modernization Act of 2003 (MMA) further revised the Part C program, now known as Medicare Advantage, including establishing a payment system that uses a bidding process that compares plan bids to benchmark amounts that are set by a statutory formula and vary by county or region.[10]

The payment system established by the MMA led to Medicare paying private plans in virtually every county across the country more than the costs for the same beneficiary in traditional Medicare between 2006 through 2010.[11]  According to research at George Washington University,[12] in 2009 per-enrollee payments were, on average, 13% higher for MA plans than for traditional Medicare; a total of $12.7 billion in overpayments in 2009 alone.   Further, the costs of extra Medicare payments to MA plans in excess of costs in traditional Medicare fee-for-service were projected by the Congressional Budget Office (CBO) at just more than $150 billion over 10 years in 2009.[13]

In an effort to rein in overpayments to MA plans, the Affordable Care Act of 2010 (ACA) has begun the process of bringing MA payments closer to what traditional Medicare spends on a given beneficiary.  By 2017, extra payments to MA plans will be reduced to a national average of 101% of the costs of traditional Medicare.[14]  So, even when the ACA payment adjustments to MA plans are fully implemented, MA plans will, on average, still be paid more than traditional Medicare costs.

Slower Growth in Medicare's Costs Also Reflected in MA Payment

Both Medicare cost growth and national health expenditures have grown at historically small rates over the last several years.[15]  Slower cost growth in Medicare is factored into payment rates for Medicare Advantage.  As noted by the Center on Budget and Policy Priorities,

As it does each February, the Administration disclosed the preliminary calculation of two key factors that help determine Medicare Advantage payments for the coming year, both of which are based on the estimated per-beneficiary cost of providing Medicare services in traditional Medicare.  With Medicare per-beneficiary spending continuing to grow slower than previously projected, CMS again revised downward its cost assumptions, which lowers these two factors and which, in turn, lowers 2015 payment rates.  (These factors have been used to calculate payment rates since well before health reform.)[16]

Thus, as cost growth in Medicare slows, payment increases to MA plans also slow, to reflect actual costs.   This slower growth in Medicare costs is good news for Medicare financing and the federal budget.   Some policymakers, along with the insurance industry, call for MA payment rates to be held "flat" by maintaining current funding levels, or even increased.  Not only would keeping MA payment levels flat or increasing such payment contradict current law, private insurers that choose to offer Medicare plans should not be insulated from market forces that are reducing the rate of growth of Medicare and health care costs. To do otherwise would give preferential treatment to private plans by continuing to overpay them – extra costs that would continue to be subsidized by the majority of Medicare beneficiaries who choose not to enroll in MA plans.

Many Policymakers Who Decry MA "Cuts" Not Only Voted for the Same "Cuts" But Push Other Policies That Would Restrict Coverage for Medicare Beneficiaries

During the last federal election cycle, and very likely the upcoming one, the Affordable Care Act in general has played an outsized role.  The ACA's changes to Medicare, in particular, reining in Medicare Advantage overpayments, has been widely misconstrued and mischaracterized.[17]  The ACA's Medicare savings, estimated at $716 billion over 10 years (a large part of which are reductions in MA overpayments), continues to be a popular target of the ACA's opponents.  Some of the most vocal ACA opponents have also been some of the most vocal proponents of the MA program, and have strongly criticized any payment reduction to MA plans.

Many anti-ACA, pro-MA policymakers, however, have voted for budgets that include the very same MA payment reductions that are part of the ACA.[18]  At the same time, many of the same policymakers, ostensibly out of concern for Medicare's long-term finances, have pushed for proposals that would save federal dollars by shifting costs directly onto Medicare beneficiaries, including increasing premiums and deductibles across the board, further income-relating Medicare premiums that would increase costs for middle-income individuals, instituting a home health benefit copay, and diminishing the value and/or increasing the cost of Medicare's primary alternative to MA plans, Medigaps (also known as Medicare supplemental insurance policies) by prohibiting or taxing certain "first-dollar" Medigap policies.[19]


Despite insurance industry protestations, reducing wasteful overpayments to Medicare Advantage plans is not driving beneficiaries away from them. MA enrollment grew nearly 9% from 2013 to 2014,[20] and, according to the Congressional Budget Office, MA plan enrollment is projected to grow in the coming years, from 13 million in 2013 to 18 million by 2019.

The Affordable Care Act's Medicare Advantage payment adjustments should continue to ensure more parity between private MA plans and traditional Medicare.  Further, MA plans should not be insulated from slower cost growth in the Medicare program. Paying MA plans more fairly – more in line with traditional Medicare – will help all Medicare beneficiaries by leading to more equitable and effective stewardship of Medicare's finances.  Conversely, preserving inflated payment rates for MA plans, while simultaneously pushing proposals that would directly shift additional costs onto Medicare beneficiaries, would harm the Medicare program and those is serves.  

[1] See CMS Press Release (2/21/14), with link to 2015 draft Call Letter, available here:
[2]  See, .e.g., articles describing the Coalition for Medicare Choices, an insurance industry-backed campaign to prevent payment reduction to MA plans: Wendell Potter, "Don't Be Fooled By Latest Medicare Scare Campaign From an Insurance Front Group", Huffington Post (1/27/14), available at:; and Brett Norman, "Insurance Industry Ad Blitz to Prevent Medicare Cuts" (1/14/14), Politico, available at:  
[3] Letter to CMS Administrator Tavenner, (2/14/14), available at:
[4]  See, e.g., Inside Health Policy, "CMS Proposes 1.9 Percent Cut in 2015 MA Rates After Having Signaled Rates Could Be Flat" (2/21/14).
[5] Brett Norman, "Major Spending Cut Proposed for Medicare Advantage" PoliticoPro (2/21/14).
[6] Brett Norman, "Report Pegs Medicare Advantage Rate Cut at 5.9 Percent" PoliticoPro (2/27/14).
[7] Inside Health Policy, "CMS Proposes 1.9 Percent Cut in 2015 MA Rates After Having Signaled Rates Could Be Flat" (2/21/14), quoting AHIP Press Release.
[8] Edwin Park, Center on Budget and Policy Priorities, "As Expected, No New Medicare Advantage Cuts" (2/24/14), available at:
[9] See, e.g., Kaiser Family Foundation, Medicare Advantage Fact Sheet (November 2013), available at:
[10] Id.
[11] See, e.g., Senate Aging Committee, 1/22/14 hearing "Medicare Advantage: Changing Networks and Effects on Consumers", testimony of Prof. Brian Biles, available at:
[12] Senate Aging Committee, 1/22/14 hearing "Medicare Advantage: Changing Networks and Effects on Consumers", testimony of Prof. Brian Biles, available at:
[13] Id.
[14] Id.   For more information about MA payment, see, e.g., MedPAC "Medicare Advantage Payment Basics"  October 2013
[15] See, e.g., CMS Press Release 1/6/14:
[16]Edwin Park, Center on Budget and Policy Priorities, "As Expected, No New Medicare Advantage Cuts" (2/24/14), available at:  
[17] See, e.g., the Center for Medicare Advocacy's "Facts & Fictions" regarding the Affordable Care Act and Medicare, available at:
[18] Robert Pear, "U.S. Proposes Cuts to Rates in Medicare Payments" (2/21/14),  New York Times, available at:  Also see, e.g., Ezra Klein, "Paul Ryan's Budget Keeps Obama's Medicare Cuts. Full Stop." (8/14/12)  Washington Post, available at:;           also see Bipartisan Policy Center analysis of Ryan Budget FY2014, available at:  Here is a link to the vote tally for the FY2014 House Republican Budget (aka "Ryan Budget"):    
[19] See, e.g., previous Center Alerts, including: "Center for Medicare Advocacy Submits Joint Testimony to Congress on Medicare Reform Proposals" (5/24/14):, and  "Translating DC-Speak: What Deficit Proposals Mean for Medicare Beneficiaries: (2/15/13):  Also see various issues briefs published by the Leadership Council of Aging Organizations (LCAO), available at:    
[20] Avalere Health report cited in Brett Norman, "Major Spending Cut Proposed for Medicare Advantage" PoliticoPro (2/12/14). 



Comments are closed.