The Health Law’s Massive Medicare Advantage Cuts

Published September 13, 2010

The Daily Caller

See also a longer paper on this subject, “Reductions in Medicare Advantage Payments: The Impact on Seniors by Region.” For a county-by-county analysis of Medicare Advantage reductions, click here.

President Barack Obama has repeatedly promised Americans that if they like their current health insurance plans, they will get to keep them under the legislation he championed and Congress passed earlier this year. But that's demonstrably not true for millions of senior citizens who are enrolled in Medicare Advantage (MA) plans today.

MA plans are the private insurance options available to Medicare beneficiaries. The Medicare program pays these plans a fixed monthly fee to provide Medicare services to plan enrollees. Most MA plans also offer better coverage and lower co-pays and deductibles than provided by traditional Medicare.

The new law will impose deep cuts in the payment rates for MA plans, beginning with a payment freeze in 2011. Beginning in 2012, the law modifies the formula for making payments to MA plans by tying maximum rates to what Medicare's administrators estimate it costs to provide coverage through the traditional fee-for-service (FFS) Medicare program at the county level. These cuts are phased in differently for different regions, but will be fully implemented in every region of the country by 2017. The chief actuary of Medicare expects this formula change to cut MA payments by about $145 billion over ten years.

But that's not the end of the reductions. The new law also imposes large, indiscriminate payment cuts on hospitals and other suppliers of medical services through FFS, and these cuts also automatically get passed through to MA plans as well, in the form of even lower maximum MA rates.

We have estimated what these cuts will mean for Medicare beneficiaries — those who are in MA today and will be in the future, as well as for those who would have enrolled if not for the cuts — when fully implemented in 2017. The results are staggering.

The average nationwide per capita reduction in the value of coverage for MA and would-be MA enrollees will total about $3,700 annually by 2017, or a nearly 27 percent cut from what would have occurred without the new law. At the state level, the average cut ranges from $2,020 (21 percent) in Nevada, the state with the smallest cut on a per capita basis, to $4,693 (36 percent) in Hawaii, the state with the highest reduction in the per-capita value of MA-covered benefits. All together, the aggregate cut in payments to MA plans in 2017 will reach $55 billion.

At the county level (among counties with at least 100,000 residents), the smallest cut on a per enrollee basis — Tuscaloosa, Alabama — will see a cut of more than 15% in the value of services provided. Other densely populated counties will see much larger reductions — 45% in Ascension, Louisiana — in the value of health care services provided to their MA and would-be MA enrollees.

When these cuts are imposed, MA plans will have no choice but to scale back their offerings to seniors to avoid insolvency. That will mean higher premiums, increases in deductibles and co-payments, and elimination of coverage for things like preventive services not covered by Medicare and vision and dental care. Some MA plans will exit markets entirely because of the cuts, leaving some Medicare enrollees with no choices whatsoever.

Robert A. Book, Ph.D., is a Senior Research Fellow at The Heritage Foundation. James C. Capretta is a Fellow at the Ethics and Public Policy Center. Their new study of Medicare Advantage reductions is being released at an event sponsored by

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