Senate Developments on Medicare Advantage Payments to Health Plans and the State Children's Health Insurance Program (S-CHIP) Reauthorization

The Senate is back to work and two important developments occurred last week in the debate over Medicare Advantage payments to health plans and the reauthorization of the State Children's Health Insurance Program (S-CHIP).

First, the Senate Finance Committee held a hearing where its chair, Senator Max Baucus (D-MT) and ranking Republican, Chuck Grassley (R-IA), both expressed concern about the potential reduction in Medicare Advantage payments to the health plans. This is not unexpected. Both Baucus and Grassley were part of the original group responsible for passing the 2003 Medicare Modernization Act that created both Part D and the private Medicare Advantage program.

More, both are Senators in rural states that have fought hard to bring their constituents the same kind of access to private plans seniors in many of the larger markets had enjoyed for years before the 2003 Medicare Act.

Grassley and Baucus weighing in on this is just a reminder that the likely outcome of this debate is not going to be either a full cut for the health plans in what the CBO and MedPAC both called "overpayments," nor will the health plans escape any adjustments.

There are enough Democrats, particularly in the House, that will insist on some cuts at least as a means of funding S-CHIP reauthorization and as a means to fix at least some of the Medicare doctor fee cuts--slated to be 10% in 2008.

The Senate parliamentarian this week also ruled that Democratic plans to spend $50 billion over five years on a big S-CHIP expansion (beyond reauthorizing the existing scope of the program) cannot be done as part of the budget process but must stand on its own.

This is important because, since it will not be a budget vote, it will be subject to standard Senate procedures that have the effect of requiring 60 votes to pass the $50 billion expansion of S-CHIP.

That Senate ruling will likely significantly undermine Democratic attempts to expand S-CHIP so dramatically. The likely outcome will be something that looks a lot more like a $15 billion (five year) extension of the current program at existing funding levels. That reality will ultimately make the budget process easier--by $35 billion. That will have the effect of reducing how much money the Congress needs to find for the new budget.

When the day is done, the Congress will have as its first health priority the extension of the existing S-CHIP program, at least significantly easing the pending 10% doctor cuts, and then it will need to cut Medicare Advantage payments to help pay for both.

Will the Congress cut Medicare Advantage plans by the full 10% to 12% they are told the program is overpaid? Not likely. But they will have to cut the programs enough to make a big difference.

The Congress needs the money. Putting a new spin on what the old bank robber said, Medicare Advantage plans are where the money is.

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