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Medicare Advantage & ObamaCare: A Story of Deep Cuts, Higher Costs and Unanswered Questions

September 21, 2012

Although the Democrats’ health care law will not fully take effect until 2014, seniors in Medicare Advantage (MA) plans are already facing the painful realization that cuts and higher costs have and will continue to come their way. Consider the following:

  • $300 Billion Cut to MA:  The Democrats’ health care law prescribes more than $300 billion in cuts affecting seniors in MA, and those cuts are phased-in over time.  To date, only 4 percent of MA cuts have gone into effect, and less than 10 percent of the cuts will go into effect through 2013 – prior to the 2014 effective date for the vast majority of the law.  
  • Benefits Lost:  The Democrats’ health care law will affect the benefits and out-of-pocket costs of the more than 13 million beneficiaries enrolled in MA, according to the Medicare Trustees, Medicare actuaries, and the Congressional Budget Office (CBO).  More than 11 million seniors enrolled in Medicare Advantage will see their average benefit cut by hundreds of dollars per year.  In fact, CBO estimates that, because of ObamaCare’s cuts, beneficiaries who remain in MA will lose $816 worth of extra benefits they would have otherwise received in 2019 alone.
  • No Credibility:  In an attempt to mask the true impact of the cuts already levied on seniors in MA, in 2011, the Obama Administration, without any authority from Congress, unilaterally took $8.3 billion out of the Medicare Trust Funds to implement a “demonstration” program providing additional payments to MA plans.  The Administration claimed the action would motivate MA plans to improve their quality ratings more quickly.  However, in a review of the CMS action, GAO noted the demonstration “precludes a credible evaluation of its effectiveness,” and called for the demonstration to be terminated.  
  • Pain Hidden Until 2014 or Later:  GAO’s analysis of the CMS “demonstration” program revealed that MA plans that cover nearly 90 percent of seniors in MA will receive bonus payments.  These payments will backfill up to 70 percent of the cuts those plans would have otherwise received in 2012, according to GAO.  So it’s not surprising that the pending shockwaves have not yet been felt by beneficiaries.  Altogether, these additional payments will backfill at least one-third of the cuts over the life of the demonstration, delaying the real effects of the ObamaCare cuts until 2014 or later.  
  • Unauthorized and Unexplained Actions:  In 2011 and again in 2012, Ways and Means Chairman Dave Camp (R-MI) called on Health and Human Services Secretary Kathleen Sebelius to provide a detailed analysis regarding the agency’s decision to unilaterally execute the $8.3 billion Medicare Advantage quality bonus demonstration program (MA QBP).  Despite repeated calls for Secretary Sebelius to justify the agency’s decision to execute the bonus program, to date, the agency has failed to provide any such response to justify why it acted without the approval of Congress.    
  • Fewer Enrolled in MA:  According to the Congressional Budget Office (CBO), the Democrats’ health law will cut $308 billion from the MA program over the next ten years.  As a result of these cuts, the Medicare Trustees predict enrollment in MA will be cut in half by 2017 as compared to prior law.