More than 25% of Medicare beneficiaries receive their health care through a Medicare Advantage health plan (Part C). Under Obamacare payments to those plans will gradually be reduced. Whether these cuts are justified is up for debate. What is not debatable is that over time the cuts will cause higher premiums and lower benefits for MA plan participants. As you can see below in an April 2010 report from the Medicare Chief Actuary, he estimates MA enrollment will drop by 50% when the cuts are fully phased in.
Interestingly the bonuses that he mentions in the second paragraph below have been manipulated beyond the intent of the law to make higher payments to plans and payments to plans receiving lower quality marks. Here is a story about that issue.
So, do cuts to Medicare affect the benefits of at least 25% of beneficiaries, yes they do.
Under the prior law, Medicare Advantage payment benchmarks were generally in the range of 100 to 140 percent of fee-for-service costs. Section 1102 of reconciliation amendments sets the 2011 MA benchmarks equal to the benchmarks for 2010 and specifies that, ultimately, the benchmarks will equal a percentage (95, 100, 107.5, or 115 percent) of the fee-for-service rate in each county. During a transition period, the benchmarks will be based on a blend of the prior ratebook approach and the ultimate percentages. The phase-in schedule for the new benchmarks will occur over 2 to 6 years, with the longer transitions for counties with the larger benchmark decreases under the new method.
The PPACA, as amended, also introduces MA bonuses and rebate levels that are tied to the plans’ quality ratings. Beginning in 2012, benchmarks will be increased for plans that receive a 4-star or higher rating on a 5-star quality rating system. The bonuses will be 1.5 percent in 2012, 3.0 percent in 2013, and 5.0 percent in 2014 and later. An additional county bonus, which is equal to the plan bonus, will be provided on behalf of beneficiaries residing in specified counties. The percentage of the “benchmark minus bid” savings provided as a rebate, which historically has been 75 percent, will also be tied to a plan’s quality rating. In 2014, when the provision is fully phased in, the rebate share will be 50 percent for plans with a quality rating of less than 3.5 stars; 65 percent for a quality rating of 3.5 to 4.49; and 70 percent for a quality rating of 4.5 or greater.
The new provisions will generally reduce MA rebates to plans and thereby result in less generous benefit packages. We estimate that in 2017, when the MA provisions will be fully phased in, enrollment in MA plans will be lower by about 50 percent (from its projected level of 14.8 million under the prior law to 7.4 million under the new law).
QUINNSCOMMENTARY 
I sell Medicare Advantage plans for a living. I have noticed the copays and premiums have increased for many plans over the last 5 years. Despite that I have also noticed expansion and many plans are expanding despite PPACA. Dual SNP plans have expanded and many companies like Coventry Healthcare will be offering DUAL SNP plans beginning in 2013. Many of the reimbursement cuts will affect people more in rural areas and the new bonus payments based on the star rating system is helping the insurance companies offset some of the cuts to Medicare Advantage that PPACA has created.
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