Well, not quite. But the government’s announcement on Friday that Medicare Advantage reimbursements would rise just 0.5% in 2010 is bad news for health plans. Industry observers had expected rates to rise as high as 5%.
Granted, the 0.5% increase is just a preliminary estimate from the Centers for Medicare and Medicaid Services. But assuming it sticks, Medicare Advantage plans will be forced to cut benefits and raise premiums in hopes of maintaining margins, which means membership growth will slow.
Wall Street reacted by hammering companies with exposure to Medicare. As of 1:00 p.m. New York time, shares in Humana were down 25%, UnitedHealth 14%, HealthSpring 32%, WellCare 13%, and Coventry 11%.
Essentially, the Street is saying Medicare plans simply won’t be able to maintain margins or membership growth going forward. And mind you, this is before the Obama Administration’s promise to take an ax to the Medicare Advantage subsidy at some point down the road.
There’s some play in the CMS numbers, and things could be better or worse when the final rates are announced in April. On the downside, risk adjustments could knock another 370 basis points off the 2010 rate of increase, which means effective rates would actually fall next year.
On the upside, CMS is inviting health plans to comment on risk adjustment methodologies, opening the door to some relief. Furthermore, the paltry 2010 rate hike is based on the assumption (baked into current law) that physician reimbursements will be cut 20% in 2010, which many consider unlikely.
“Congress, of course, isn’t going to let doctor pay fall next year, which means the managed care plans will realize a nice boost to rates in 2011 of around 4.0%. Because of how the rate formula is calculated, however, it will cause plans some short-term pain in 2010,” wrote Oppenheimer analyst Carl McDonald.
It’s a positive spin, but it doesn’t change the fact that notice has been served on the Medicare Advantage program. And if Obama has his way, things will only get tougher. We predicted this would happen in a prior post. The only thing that surprises me is that it’s all happening sooner rather than later.
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United’s strategy is to move toward administering government plans such us Medicare, that makes sense in case the Universal health products ever come to fruition.
From a taxpayer perspective, Medicare advantage plans don’t make sense to me. CMS/Medicare prescribes specific medical coverage guidlines that payers and doctors must follow. On the one hand, CMS is consolidating the fiscal intermediaries (payers who process claims based on the coverage guidelines) to improve compliance on the coverage guidelines and reduce administrative costs. On the other hand by offering Medicare Advantage plans, they are fragmenting the products that patients select and adding administrative costs.
In as much as Medicare is on the brink of disaster, we should be suspect of companies who are building strategies to make their bread and butter off government plans on the verge of crumbling. Can you spell LOBBYISTS?
I couldn’t disagree more. We’ve been down this path before in the 90s and it had quite a few puddles as far as seniors were concerned. Medicare Advantage plans provide meaningful coverage to a whole host of elerly Americans that would not otherwise have access to the affordable care they need through Orignal Medicare alone. Elimination of these plans at a time when employers are terminating retiree medical coverage is just unacceptable. The default will just result in more Americans ending up on Medicaid sooner and in poorer health. Fortunately the economy and prevalence of employer retiree health coverage in the 90s could sustain cuts to Medicare HMOs. This same approach in the present day will be disasterous.