Last week, the Obama administration surrendered to intense lobbying pressure from the insurance industry and members of both parties in Congress, turning a proposed pay cut to Medicare private plans into a raise.
The initial proposal by the Department of Health & Human Services was to reduce rates for Medicare Advantage plans by 1.9 percent in 2015. It reversed course and decided to increase pay by 0.4 percent, following a TV ad blitz from the insurance industry and howls of outrage from Republicans who turned it into a 2014 campaign issue, which led to calls from top Democrats for averting the cuts.
Medicare Advantage is the private option in Medicare, covering about 30 percent of beneficiaries. It pays about 103 percent of what traditional Medicare pays to cover an individual. As HHS explains, the proposed reductions were a result of Obamacare, which cut $156 billion from the program over 10 years. While HHS had flexibility in how quickly to impose the cuts, the backtracking on the 2014 rates may require steeper cuts in future years in order to meet that bar.
But the political backlash and subsequent reversal by the administration raises questions about whether the cuts will ultimately go into effect. If not, it would reduce the savings under Obamacare, which fund its large coverage expansion. Jonathan Blum, a top Medicare official, insists that the Affordable Care Act savings are on track to be actualized in full.
The reversal comes on the heels of a February letter by 40 senators — led by Sens. Chuck Schumer (D-NY) and Mike Crapo (R-ID) — voicing “serious concerns” about the proposed cut to Medicare private plans. The senators called on the administration to protect seniors from “disruptive changes” in 2015.
But how disruptive would the cut have been?
Austin Frakt, a health policy expert at Boston University, explains that Medicare Advantage rates have trended downward in the last five years, and far from damaging the program, the number of plans offered has stayed largely constant and enrollment has risen. “It’s not like these cuts don’t have an effect,” he said. “I think they matter, but they’re not going to kill the program by any stretch. The program is growing. It’s thriving.” The chart below, via Kaiser Family Foundation, details enrollment in recent years.
Politics play a key role.
Democrats, already facing a tough congressional election, are very worried that GOP attacks over Medicare Advantage cuts will hurt them with elderly voters in November. Whether or not the cuts significantly damage the program, the specter of scaring seniors about their health security was enough to compel party leaders to have the cuts reversed.
For Republicans, the irony is particularly remarkable. Leading GOP figures often warn that Medicare is dangerously bloated and that its spending is out of control. And yet the prospect of a modest cut to its private program — which is in no serious danger — was irresistible as a political weapon in an election year. From a policy standpoint, they don’t seem to be losing sleep over the cuts: just last week, House Republicans voted overwhelmingly to sustain all of Obamacare’s Medicare savings under Rep. Paul Ryan’s (R-WI) budget.