As expected, President Obama released a budget yesterday promising to put the nation on “on a clear path” toward universal healthcare, paid for in part through cuts in the Medicare Advantage program (along with tax increases on the wealthy and other spending cuts).
The budget sets aside a reserve fund of $630 billion over 10 years to pay for healthcare reform, less than half of what’s needed according to most estimates. Obama called it a “down payment,” an unfortunate phrase given the number of Americans who put down payments on their homes and then went broke trying to pay the rest.
The cuts to health plans (i.e., the elimination of a 14% Medicare Advantage payment subsidy compared to traditional Medicare) are expected to save $175 million over 10 years, the Administration says.
How? By opening Medicare Advantage up to a competitive bidding process, which is how the Medicare drug program works. Today, Medicare Advantage reimbursements are set by a complex formula relative to county-by-county benchmarks tied to the cost of traditional Medicare.
The competitive bid concept isn’t all bad. But there are lots of questions, including whether health plans will exit the program because they can’t make the numbers work. Wall Street’s reaction was to send managed care stocks into another tailspin, suggesting at least the belief that health plan margins will be hurt.
You can expect a lot of horse trading ahead before this budget is passed by Congress; it’s no done deal by any stretch of the imagination. But the bottom line is Medicare Advantage plans are in for a fair amount of pain. How much still remains to be seen.
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