Medicare Advantage rate shift hits insurance firms, seniors

In June, Anthony Capone said he liked his AmeriHealth Medicare Advantage plan so much he persuaded his 89-year-old mother and aunt to make the switch.

Things were going along fine until recently, when the Mount Laurel businessman's renewal notice arrived in the mail. He opened the package and was taken aback. His monthly premium had spiked to $62 a month, a $23 rise. Other fees - in-hospital co-pay (up to $175), Part D deductible ($25), and ambulance ($100) - have also risen.

The hikes, Capone says, weren't a catastrophe for him. But his mother and aunt are another story.

"She's on Social Security and has a small pension," Capone, 66, says. "Although it's only $30 or $40 a month, it affects her and people in her generation with a limited income."

Across the country, Medicare Advantage beneficiaries are opening renewal letters and finding higher monthly premium payments, co-pays, and other fees. (The enrollment period is Oct. 15 to Dec. 7.)

AmeriHealth's 21,500 Garden State customers are facing monthly increases of $17 to $25, depending on which of the 21 counties they live in.

Rates for Independence Blue Cross Medicare Advantage customers will go up by $10 to $18 a month.

Medicare Advantage plans differ from traditional Medicare in that Advantage plans are bought through private insurers that contract with Medicare. Services for people in Medicare Advantage are paid through the plan, not by traditional Medicare.

So what role does the Affordable Care Act play in the Medicare Advantage premium rate bump?

An important one, said Ashley Swanson, a professor of health-care management at the Wharton School of the University of Pennsylvania. "The one that insurers probably pay the most attention to is the decrease in the Medicare Advantage reimbursement."

The ACA's main goal is to get more Americans covered by insurance. But it also aims to rein in health-care costs, including Medicare. So, starting in 2011 and continuing over the decade, the law will cut payments to traditional Medicare and to Medicare Advantage plans.

"We end up paying Medicare Advantage quite a bit more than we pay traditional Medicare" for similar patients, Swanson says. "There are some changes that are supposed to bring this more in line."

The most significant change is leveling the reimbursement rate between the two programs.

Until 2003, the reimbursement rate for traditional Medicare and Medicare+Choice (Advantage's predecessor) was 95 percent of the cost of a doctor's visit. Then in 2003, the Medicare Modernization Act not only rebranded Medicare+Choice as Medicare Advantage, it increased its payment rate to more than 110 percent.

The higher rate was needed to attract more insurers to the business, especially in rural areas. The government reimburses companies selling Medicare Advantage plans on a per-person, per month basis. How much a company receives depends on the county or region.

"People were cherry-picking the counties that got the highest reimbursement, so rural counties where reimbursement wasn't so great had very little Medicare Advantage penetration," says Robert J. Smith, Independence's vice president of sales and marketing for Medicare. "The idea was to make sure that it covered every county nationally."

Now the government wants to bring Medicare Advantage payments back in line with traditional Medicare's 95 percent reimbursement rate. And for many insurers, that means a cut in payments. In 2015, the government will pay Independence $832 per person per month. That's $75 less per person than last year.

In New Jersey, AmeriHealth will receive $781 per person per month, a 9 percent drop during the last two years.

"We have tried to maintain benefit levels as close as they were in 2014," says Michael Munoz, AmeriHealth's senior vice president of sales and marketing. "The only change really we are experiencing obviously, and depending on the county, is that premium increase."

Though AmeriHealth and Independence have maintained benefits, Wharton's Swanson says it's not out of the question that they will be cut.

She doesn't expect this "to be hugely devastating" for Medicare Advantage. "But there may be things we haven't thought of yet."

Capone has wondered about when to tell his aunt she is paying more for health insurance.

"I'm waiting to break the news to them," he says. "[My aunt's] old-school Italian where every quarter [spent] she complains about. I think I'll wait for the holidays."

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