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As Congress Moves To Cut Medicare Advantage Funding, Some Seniors Could Get Reprieve

Oct 22, 2009

Nearly three million of the 10.5 million seniors in private Medicare health plans would be at least partly shielded from the planned cuts to the program under the Senate Finance Committee health overhaul bill, according to a KHN analysis.

Seniors in a Medicare Advantage program work out at the CAC-Florida medical center. (Joe Raedle/Getty Images)

The committee would cut $117 billion from the so-called Medicare Advantage plans over a decade, shifting $10 billion of that amount to temporarily protect beneficiaries in parts of 13 states and reward high-quality plans.

These plans, created in the late 1980s, became increasingly popular as insurers in some areas offered seniors more benefits than the traditional Medicare program run by the government. But the plans on average cost more than traditional Medicare, and the Obama Administration and congressional Democrats want to curtail spending and use the savings to help cover the uninsured.

Some senators on the committee, worried about the impact on seniors enrolled in the plans – and the possible political consequences – acted to cushion the impact on constituents. In the House, lawmakers also slashed Medicare Advantage, but didn't make any exceptions.

Geography is Destiny

Under the Finance Committee bill, plans serving seniors in South Florida, New York City and parts of Louisiana would receive a break over 10 years. This provision would cost $5 billion, but it also includes an unspecified amount for bonuses for high-quality plans operating anywhere in the U.S. That extra money would help the plans continue to offer some of the benefits their members enjoy now, such as zero co-pays for doctor visits and coverage for hearing aids and eyeglasses not offered in traditional Medicare.

This provision affects members who are in these plans as of 2012. But the advantages of the enhanced plans would diminish over time, as the bill would cut funding by five percent each year.

Another $5 billion would be allocated to help prop up falling benefits, but the money would be spread to health plans in parts of a dozen states from 2012 to 2019. Among the metropolitan areas that would benefit are Los Angeles, San Francisco, Minneapolis, Nashville, Tenn., Birmingham, Ala., Denver, Long Island, N.Y., Tampa, Fla., Tulsa, Okla., Pittsburgh, Salt Lake City and Phoenix, Ariz.

Insurers, which are fighting the overall cuts to the program, said temporary protections for selected areas will lessen the impact on seniors. "This will slow the bleeding, but it won't stop it," said Douglas Armstrong, director of policy analysis at the Blue Cross and Blue Shield Association.

Lawmakers benefit, too. "It makes the cuts politically more palatable," said Leslie Norwalk, who was acting director of Centers for Medicare and Medicaid Services in the administration of President George W. Bush.

The major seniors' lobbying group, AARP, favors cutting funding to Medicare Advantage to bring its spending into line with the rest of Medicare, but it is still weighing the need for the exceptions in the bill.

"While we support reducing the excess subsidies for Medicare Advantage, we also want to ensure that plans have time to adjust to any changes that may be made to Medicare Advantage in order to minimize any impact on our members," said Nora Super, a lobbyist for AARP.

Questions of Fairness

The government has been paying private insurers running Medicare Advantage plans 14 percent more, on a per capita basis, than traditional Medicare pays. About 23 percent of seniors are covered by Medicare Advantage plans, though the figure is closer to 45 percent in some parts of the country where plans offer richer benefits, including Miami and New York.

Questions of fairness have plagued the Medicare Advantage program for years because seniors in some areas, such as South Florida and New York, are offered much richer benefits than people living elsewhere. Funding to Medicare Advantage plans varies nationwide because it is based on average Medicare spending by county. The higher the spending level, the more money Medicare Advantage plans receive. The disparities would continue under the legislation.

Seniors in private Medicare Advantage plans in the metro areas highlighted on the map would be spared the harshest cuts in benefits as Congress slashes funding to the program, according to the bill passed by the Senate Finance Committee. (Graphic: Beth Liu)

But making cuts is tricky, says Gail Wilensky, who ran the Medicare program in the early 1990s and is now a senior fellow at Project HOPE, an international health education foundation. "How you try to get to a more level playing field needs to be done carefully because of the vulnerability of the population and the politics involved," she said.

Sen. Bill Nelson, D-Fla., a Finance panel member, had been one of the most outspoken critics of proposals to cut funding to Medicare Advantage plans. But in the end, he struck a deal on an amendment providing the extra funding, which according to his office would help 800,000 of the one million Florida seniors enrolled in the plans. Among others who signed on were Democrats Max Baucus of Montana, the chairman; Ron Wyden of Oregon and Charles E. Schumer of New York.

Nelson spokesman Dan McLaughlin said the senator still thinks the Medicare Advantage program is "too loosely subsidized and needs to be reined in." But, he said, Nelson agrees with Obama's message that "if folks like their current health coverage, they should be able to keep it. And he believes that should also apply to seniors in Florida who signed up for these plans in good faith."

While both the House and Senate committees agree on slashing funding to Medicare Advantage, they approach it in different ways.

The Senate would create a competitive bidding system in which plans would be paid an average of the bids they submit. The House would pay health plans the same per capita fee as in traditional Medicare.

Experts say plans in urban areas likely would fare better under the House plan because they would receive at least the same level of funding as traditional Medicare pays – which is usually higher in these areas.

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