Medicare Advantage plans may lose some federal cash

By Nicole Lucht

Friday, Jan. 16, 2009 | 2 a.m.

Health insurers offering enhanced Medicare plans to senior citizens could see their reimbursements dramatically cut as Congress looks to further squeeze the optional, yet lucrative, Medicare product sold by those companies.

The Medicare Advantage plans were developed as a supplement to traditional Medicare, a social health plan for people 65 and older, people with disabilities and those with end-stage renal failure.

The plans are paid by the government an average of 13 percent more than hospitals and doctors seeking reimbursement for their services, according to the Medicare Payment Advisory Commission.

Medicare Advantage was created by the government as a way to increase benefits to Medicare beneficiaries and also as a way for the government to shift the administration of the plans to insurers, all with the intention of saving the government money.

Medicare beneficiaries can sign up for Medicare Advantage, sometimes with no monthly fee, but their coverage then falls under the administration of insurers. The purpose of the supplement program is to offer beneficiaries extra services and coverage, including additional coverage of prescription drugs.

In 2006 the federal government spent $60 billion on the Medicare Advantage plans, according to a report last month from the Government Accountability Office. In 2007 the spending increased to $77 billion. The GAO estimates in 2008 the expenditures increased to $91 million, the report said.

“Payments to (Medicare Advantage) organizations are, in part, based on the projected expenditures organizations submit in their bids for providing Medicare-covered services, as well as actual enrollment and beneficiary health status,” the report said. “Once Medicare payments are determined, they are not modified based on differences between actual and projected expenses.”

The GAO analyzed data collected from health maintenance organizations, private fee-for-service plans and preferred provider organizations.

“There was a consistent pattern of actual profits being higher than projected and medical expenses being lower than projected,” the report said. Although companies on average estimated that they would spend 86.9 percent on medical expenses, they actually spent 83.3 percent. Companies also reported higher than estimated earnings, the report said.

President-elect Barack Obama has stated he supports eliminating subsidies to companies offering Medicare Advantage.

UnitedHealthcare, through its subsidiary Health Plan of Nevada, offers an HMO Medicare Advantage program called Senior Dimensions to 60,000 members.

It’s too early to tell what changes would be made if Medicare Advantage reimbursements are lowered for fiscal year 2010 (beginning in July 2009), said Peter O’Neill, UnitedHealthcare spokesman for Nevada.

The proposed rates come out in February or March, and insurance companies have until June to file any benefit changes, he said.

Historically, any time there have been large cuts, the company has “tweaked” co-payments.

“We have no concept of what the (final) rates will look like,” O’Neill said.

Health insurer Humana acquired Secure Horizons, UnitedHealthcare’s Medicare Advantage product, as a condition of United’s acquisition of Sierra Health Services last year.

“With America’s economy in dire straits, it’s more important than ever that we make the most of our health care dollars,” Humana spokesman Ross McLerran said in a statement in response to a request for an interview. “Medicare Advantage plans emphasize wellness and offer resources to manage chronic disease and help improve overall health — all of which can pay dividends for our nation. Ten million Medicare beneficiaries, or more than 20 percent of those eligible for Medicare, rely on their Medicare Advantage plans to help keep them healthy, alert and active.”

Anthem, which insures more than 5,000 people under its Medicare Advantage plans in Las Vegas, was not available for comment.