Medicare Advantage HMOs Gearing Up for Payment Cuts--Could They Come as Early as 2008?

Bill Boyles--Publisher of Health Market Survey--returns as a guest commentator. Bill keeps a sharp eye on the Medicare Advantage business and on Capitol Hill. Here's his take on what the Congress--and the health plans --are up to:

We are hearing that the health insurers are getting ready to dump markets in response to the Democratic threat to cut Medicare Advantage payments. But first they will try to stop it. The word is that millions of dollars have already been raised to fund a major grass roots campaign to lobby Congress against making any major cuts to the popular—and profitable—program.

Some of the insurers are not waiting. Some large plans are already starting to pull back from less profitable markets in 2008 to minimize the hit they expect to take in 2009. Budgets for marketing MA plans are being shifted. One of the biggest HMOs is already slowing its growth in the MA product and has told Wall Street to expect a change.

It is likely that 2008 Medicare Advantage rates will not be significantly impacted by any Democratic budget action. The 2008 Medicare Advantage rates will be settled between CMS and the HMOs this summer with final agreement occurring in September. That would be well before Democrats have a chance to cut HMO payments through the annual budget process that will take place later in the year following Senate action.

That timing makes it very likely that the first chance the Democrats will have to change the way Medicare Advantage HMOs are paid – and grab the budget savings -- will be in the 2009 budget.

However, we are also hearing that House Democrats would like to begin the process of cutting Medicare Advantage payments through the budget resolution that is expected within weeks. That is the broad spending roadmap the Congress agrees to prior to filling in all the details later in the year.

If the House and Senate both were to agree to reduce MA payments early in the budget resolution process, that would force CMS to negotiate with the HMOs at the reduced rates this summer. While it is more likely the House will take this course, it is less likely that the Senate would go that far this year. Senate Finance Chair Max Baucus (D-MT) has already told the industry the Senate won’t act until the later date, and he is not inclined to do anything for 2008 -- but that 2009 Medicare Advantage payments may be on the table.

So, it will be important to watch the early stages of the budget process. Right now it appears that Medicare Advantage payments will not suffer any major change in 2008. But the industry is not waiting to find out how deep the cuts will be

Expect to hear more about insurers “adjusting” their Medicare offerings – starting now. But the actual budget savings won’t arrive for at least two years--after the election. That could play out poorly for Democrats if the timing is off and seniors start complaining too soon.



Read more: Why the Democrats Will Cut Medicare Advantage Rates