The Centers for Medicare and Medicaid Services, part of the U.S. Department of Health and Human Services, announced a growth rate for Medicare Advantage of 3.3 percent for 2014, instead of the rate released last February of a decrease by 2.2 percent.
Carl McDonald, Citi managed care analyst, told clients in a report in February the typical for-profit managed care plan targets profit margins of only 5 percent, and non-profits even less, therefore the original anticipated cut to Medicare Advantage would "turn almost every plan in the industry unprofitable," Forbes magazine reported.
Karen Ignagni, chief executive officer of America's Health Insurance Plans, the national trade association representing the U.S. health insurance industry, applauded the reversal by CMS.
"By being responsive to the more than 160 members of Congress from both parties who raised concerns about the impact of the proposed payment rate on seniors, CMS has taken an important step to help stabilize Medicare Advantage at a time when the program is facing significant challenges," Ignagni said in a statement.
America's Health Insurance Plans' Coalition for Medicare Choices represents more than 1.3 million Medicare Advantage beneficiaries who since 1999 participated in dozens of town hall meetings and rallies involving members of Congress and staff, wrote hundreds of letters to the editors of newspapers and made more than 1 million contacts with their members of Congress, AHIP said.
In February the Coalition for Medicare Choices initiated a TV ad campaign that featured seniors with Medicare Advantage plans sharing their concerns about what cuts to Medicare Advantage would mean to them.
In response to the ad, more than 40,000 Medicare Advantage beneficiaries contacted Congress urging their representatives to contact CMS to oppose the cut before it was to be finalized April 1, AHIP said.
Alyene Senger, research assistant for health policy studies at the Heritage Foundation in Washington, said the Medicare Modernization Act of 2003 offered Medicare beneficiaries Medicare Advantage plans, provided by private health insurance companies, instead of receiving their benefits via the original Medicare plan Parts A and B.
However, in 2003 the physician fee cuts were perceived as too high and ever since then, Congress has overridden the legislation -- with the so-called doc fix. For the last 10 years the physician fee reduction was overridden by Congress, compounding each year, with a 25 percent reduction expected for next year, Senger said.
CMS incorporated the assumption that Congress would later this year override the physicians' fee reduction because it was a more reasonable expectation than the reduction required under sustainable growth rate formula, Senger said.
"The CMS decision to not cut Medicare Advantage the expected 2.2 percent allows the plans and benefits to stay pretty much the way they are for now," Senger told United Press International. "However, one of the parts of the Affordable Care Act was to bring Medicare Advantage costs down to the cost of traditional Medicare by 2017."
The GOP-controlled Congress allowed private HMOs to compete for Medicare patients under the rationale that the efficiency of private business and the competition among many private health insurance plans would reduce the expenses for the healthcare of seniors better than traditional Medicare run by the government.
However, these savings never materialized so Congress boosted the reimbursement to Medicare Advantage, which now gets paid 114 percent what traditional Medicare gets paid to care for a patient. This extra 14 percent -- a taxpayer subsidy -- cost the government from $795 per beneficiary in 2004 to $1,138 in 2009, a study by George Washington University found.
The share price of private health insurance companies Humana, UnitedHealth Group, Aetna, Cigna and WellPoint -- the private health insurance companies that provide most of the Medicare Advantage plans -- rose from 4 percent to 8 percent Tuesday, CNN/Money reported.
Justin Simon, an analyst for Washington research firm Heights Analytics, said the government's decision to cancel the Medical Advantage cut was done to curry favor with U.S. Senate Republicans to clear the way for the confirmation of CMS acting Director Marilyn Tavenner, CNN/Money reported.
CMS has had six acting administrators since 2006, but none was confirmed by the Senate, and with the Affordable Care Act going into effect later this year it's critical a CMS chief be confirmed as soon as possible, Simon said.
"Medicare Advantage is a beloved program of the Republican Party," Simon told UPI. "Medicare Advantage is polarized and partisan and for better or for worse the GOP showed the ability to defend the program from some fairly significant cuts."