U.S. Raises 2017 Medicare Advantage Rates Less Than Expected

  • Medicare Advantage plans to get 0.85% pay boost, CMS says
  • UnitedHealth, Humana are big Medicare Advantage providers

Health insurers that offer private Medicare Advantage plans will get a smaller-than-expected increase in payments next year.

The U.S. is raising payments to the insurers by 0.85 percent on average, according to a statement Monday from the Centers for Medicare and Medicaid Services, down from the 1.35 percent boost proposed in February. Payments to individual insurers can vary, because CMS gives individual plans quality bonuses and premiums are adjusted based on where enrollees live and how sick they are.

The smaller increase gives less of an increase to top providers of Medicare Advantage plans such as UnitedHealth Group Inc. and Humana Inc. Other publicly traded insurers that are big providers of the private Medicare plans include Aetna Inc., Centene Corp., and WellCare Health Plans Inc. The U.S. raised rates by about 1.25 percent for this year, after a cut of about 4 percent in 2015. Medicare Advantage plans are run by private health insurers, and funded and regulated by the government.

Humana declined 3 percent to $180 at 9:40 a.m. in New York. Aetna, which has agreed to acquire Humana, lost 2.7 percent. UnitedHealth and WellCare each retreated about 1 percent.

Cost Containment

The Obama administration has been pushing to contain costs for Medicare Advantage since the Affordable Care Act became law in 2010. At the time, the U.S. was spending about 10 percent more for each Medicare Advantage beneficiary than for the traditional Medicare program. Spending per Medicare Advantage recipient is about 2 percent higher this year, according to the Medicare Payment Advisory Commission, known as MedPAC, which advises Congress on payment policies.

About 16.7 million people, or 30 percent of all Medicare beneficiaries, enrolled in Medicare Advantage plans last year. The U.S. paid Medicare plans about $170 billion for doctor and hospital services that year, according to MedPAC.

Including changes tied to patients’ diagnoses, total revenue for health plans is estimated to increase 3.05 percent in 2017, CMS said Monday. The U.S. had initially estimated that revenue would increase by 3.55 percent.

Employer Plans

In its February proposal, CMS said it would change how employer-linked Medicare Advantage plans are compensated, potentially lowering payments to those plans. In the final rule, the government created a two-year transition that will phase in the rate changes gradually for the employer plans.

When those adjustments are incorporated, actual payments to Medicare Advantage plans may decrease by 0.5 to 3.9 percent, according to an estimate from the consulting firm Oliver Wyman that was prepared for industry lobbying group America’s Health Insurance Plans before Monday’s announcement.

AHIP has called on the U.S. to avoid cutting payments, saying that payment reductions hurt care for Medicare beneficiaries. The lobbying group has highlighted a series of letters from lawmakers in the House and Senate opposing cuts to the program.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE