Dire predictions by insurers and Republicans that the 2010 health law would cause private Medicare health plans to raise prices and lower benefits on beneficiaries have turned out to be a false alarm — at least for now.
The Obama administration on Thursday said the nearly 12 million senior citizens enrolled in Medicare health plans will see their monthly premiums drop by an average of 4 percent while benefits remain stable next year. In addition, they said, premiums fell by an average of 7 percent, much higher than the 1 percent the government projected a year ago.
The plans, called Medicare Advantage, are offered by health insurance companies as an alternative to traditional, government fee-for-service Medicare.
Enrollment in the plans, which now have about a quarter of all Medicare beneficiaries, is expected to grow by 10 percent in 2012, said Jonathan Blum, deputy administrator for the Centers for Medicare and Medicaid Services. Blum said health plans are also lowering co-payments and deductibles.
He attributed the premium drop to the agency’s strong negotiations with plans as well as the companies’ continuing desire to serve the market.
The average Medicare Advantage enrollee paid about $39 per month in premiums for Medicare Advantage in 2011, according to a report by the Kaiser Family Foundation (KHN is an editorially independent program of the foundation).
Dan Mendelson, the chief executive of consulting firm Avalere Health, said plans are lowering premiums because their costs have fallen as their members have used fewer services in the midst of the economic downturn.
Last month, the Obama administration also announced that premiums for private Medicare prescription drug plans would fall slightly.
Open enrollment in Medicare Advantage plans starts Oct. 15, a month earlier than in past years. It will run through Dec. 7.
Many critics of the federal health law raised fears that Medicare Advantage benefits would shrink and premiums would rise because the overhaul reduced federal payments to the plans by $136 billion over the next decade. "Instead we are seeing just the opposite," said Health and Human Services Secretary Kathleen Sebelius. "Medicare plans are stronger than ever and beneficiaries continue to have access to affordable options."
The plans were targeted by Democrats who complained that the government pays more per capita for beneficiaries in the private plans than it spends on those in traditional Medicare. The billions of dollars cut from the plans were used to help the Obama administration pay for the cost of expanding coverage to 32 million Americans through expanded Medicaid eligibility and subsidies for people buying coverage in new insurance exchanges starting in 2014.
Federal payments were frozen to Medicare Advantage plans this year and are dropping by less than 1 percent in 2012. Larger payment drops are expected to kick in later this decade.
The health care law softens the impact of Medicare Advantage cuts in 2012 by providing billions of dollars for quality bonuses for highly rated plans that received four or five stars in a government grading system.
In a policy shift last fall, HHS decided to lower the bar for bonuses. Average-quality plans garnering just three or three-and-a-half stars would also get bonuses, although at a lower percentage than top-tier plans.
The HHS decision means that nearly 90 percent of Medicare Advantage enrollees are in plans now eligible for a bonus. Under the tougher approach Congress took in the health law, only about 33 percent would have been in plans getting the extra payments.
America's Health Insurance Plans, the industry trade group, said it stands by its predictions that program will soon run into trouble as a result of health law funding cuts. "As these cuts take effect in the coming years, Medicare Advantage beneficiaries will face higher out-of-pocket costs, reduced benefits, and fewer health care choices," said AHIP spokesman Robert Zirkelbach.
He noted that the Congressional Budget Office projects that as a result of these cuts in the health law, Medicare Advantage enrollment will drop to 7.5 million by 2018.
Joe Baker, president of the Medicare Rights Center, said the lower rates are good news for seniors. But he cautioned that seniors still need to review their individual plans and comparison shop to make sure they are getting the best deal. "The overall picture looks good this year," said Baker, "but this does not mean individual consumers don’t have to take a close look at their plans to see if there is a better plan for them."
KHN correspondent Christopher Weaver contributed to this report.