Various news outlets, such as Kaiser, Bloomberg, U.S. News, and others are reporting Medicare Advantage plan payments to private health insurers will be frozen at 2010 rates throughout all of 2011. This is one of the results from the new health care laws signed by President Obama last month.
For those of you unfamiliar with the situation, you should know that the new health care laws mandate $130 billion in cuts over the next decade to Medicare Advantage. Politicians who voted for the cuts often defend their decisions by citing a report from Congress' Medicare Payment Advisory Commission that found the government compensated insurers 14% more that it spends on its own to cover people in traditional Medicare.
Since next year's payments will not match ever rising health care costs, many experts expect insurance companies to offset the loss of payment increases by raising premiums on customers. The freezing of the pay rate is actually better than what many insurance analysts expected - a 4% rate cut.
In other Medicare Advantage news, CMS also recently announced that it issued a final regulation requiring the elimination of duplication among MA drug and health plans. This means MA and prescription drug plan sponsors must have significant differences between their products with regard to plan types, client out-of-pocket costs, premiums, and formulary offerings. The goal of this regulation is to enhance protection from discriminatory cost sharing and the ability to compare plans in 2011. It is also consistent with the new PP&AC Act that requires Medicare Advantage to no longer impose more expensive cost-sharing requirements than those charged for traditional Medicare.
Along with the aforementioned changes the PP&AC Act does allow for bonus payments to be made to insurers who offer high-quality Medicare Advantage plans. The criteria for what the government considers a high quality MA plan wasn't explained in any of the sources I researched, so I'll report it here once the information comes available. How the high-quality designation will affect the market is unknown at this time.
One other important requirement is that starting in 2014, Medicare Advantage plans will have to spend 85% of health insurance premiums collected by insurers on providing health care to their customers. Whether this will reduce what the government sees as exorbitant executive compensation at insurance companies, or just end up raising costs to agents and consumers remains to be seen.
Sources: BusinessWeek, U.S. News, Kaiser