Retain Health Reform’s Medicare Advantage Savings

The Obama Administration’s announcement yesterday that it will modify some payment policies related to private Medicare Advantage insurers, while implementing health reform’s scheduled reductions in overpayments to Medicare Advantage plans, has prompted critics to demand that it roll back some — or all — of the Medicare Advantage savings that health reform requires.  That would be a mistake.

In issuing its final Medicare Advantage payment policies for 2015, the Centers for Medicare and Medicaid Services (CMS) modified or delayed some planned steps that it periodically takes to improve the accuracy of the Medicare Advantage risk adjustment system, which raises or lowers payments to plans based on their enrollees’ relative health.  Medicare Advantage plans tend to enroll healthier-than-average beneficiaries.  A less accurate risk adjustment system doesn’t do as good a job of accounting for these differences, so the delay in improving the system will result in higher payments to plans in 2015 than would otherwise be the case.

CMS also implemented health reform’s reductions in overpayments to Medicare Advantage plans (as well as other related health reform provisions) scheduled for 2015.  Medicare has historically paid Medicare Advantage plans more per beneficiary than it would cost to cover these beneficiaries in traditional Medicare; health reform curbs (but doesn’t eliminate) these overpayments over time.

In response to yesterday’s announcements, leading Senate and House Republicans immediately called for scaling back or repealing health reform’s Medicare Advantage savings as well, warning of substantial harm to enrollees.  But, as my colleague Paul Van de Water told Congress last month, claims that Medicare enrollees will face much higher costs and lose their choice of plans are highly exaggerated.  Moreover, curbing overpayments is sound policy, lowering premiums for all beneficiaries and extending the solvency of Medicare’s trust fund.

Policymakers should thus reject any attempts to undermine health reform’s Medicare Advantage savings.