For several years now we've heard warnings that billions ofdollars in funding cuts to Medicare Advantage plans under thePatient Protection and Affordable Care Act will result in reducedbenefits and higher premiums as well as smaller provider networksand fewer plans.

In fact, the Congressional Budget Office projected the cutswould result in 3 million fewer enrollees in MA over the longrun.

In the short run, however, plans seem to have done a great jobkeeping coverage as affordable as possible, and enrollment in MAplans remains high.

Will this trend continue? It's hard to say. As of January 2015,only 20 percent of the total legislated cuts have been phased in,and while many seniors in MA plans already are absorbing highercost-sharing, there's been no tremendous public outcry thusfar.

There've also been some measures enacted to mitigate some of theimpact of those cuts that have been phased in already, so the realimpact of PPACA on plans will become clearer in the next few years.Let's take a look at the big picture.

PPACA changes how insurers are paid

Some legislators felt MA plans were being overpaid for thebenefits they deliver, and that to bolster the solvency of Medicareitself, the nation needed to lower payments to MA insurers. Inessence, PPACA aims to slowly lower Medicare Advantage paymentsover time until the government pays the same amount per beneficiarywhether they enroll in original Medicare or an MA plan. MostMedicare plans began receiving less pay in 2012 but the cuts are tobe phased in from 2012–2017, so we have a ways to go yet.

Under PPACA, plans also can qualify for a bonus payment forproviding better care. Plans have to report data detailing how manyof their members are routinely getting preventive care under theplan, as well as how many get additional support in managingchronic conditions such as diabetes. Plans receiving higher starratings get higher bonuses, with the desired result being that thebonus program will encourage plans to focus on delivering a higherquality of care, thus increasing the value of the health caredollars spent by consumers.

The downside is that some plans linger in the 3 to 3.5 range,and might not survive long enough to reach the 4 to 5-star levelthat provides needed benefit dollars to survive.

Mandated benefits changes

PPACA also introduced a new mandatory cap for all MedicareAdvantage plans designed to cut member costs. The cap limits thetotal out-of-pocket costs a member can incur for Medicare coveredservices each year. The limit is set to $6,700 in-network rightnow, which is substantially lower than limits many plans had beforethe law and thus results in higher spending by the plan.

The law also stipulates that plans can no longer charge membersmore for than original Medicare for certain services such aschemotherapy and skilled nursing. Plans have had to revise benefitsto come in line with this rule, and this means they'll pay out morethan they did before.

Going forward overall, plans also must spend at least 85 percentof premiums gathered back out on benefit, and the remaining 15percent must pay for marketing, administrative expenses and ofcourse, profits.

Enrollment grows anyway

So, in light of all these scheduled funding cuts, why have weseen MA enrollment continue to grow? Well, there have beenextenuating circumstances.

The American Action Forum gave testimony in July that plans havebeen largely shielded so far because the administration has useddemonstration program dollars to partially offset the first phasesof PPACA benefit cuts. These project dollars end in 2015. Theadministration also has backed down two years in a row on proposedpayment cuts. A scheduled 2 percent cut in MA payments in early2014 was avoided when CMS announced a 3.3 percent increase inpayments, and this allowed plans to keep some benefits that mayotherwise have been cut.

These extra dollars have kept benefit changes relatively minor.The Kaiser Family Foundation reported that about half a millionbeneficiaries had to find new plans for 2014 because their priorplan was no longer available. Many argue beneficiaries areoverwhelmed anyway with too many plan choices, so fewer plans couldbe a good thing.

Some other beneficiaries have experienced doctor changes.Shrinking networks have made national news this year, with onelarge carrier terminating as many as 15 percent of its in-networkphysicians. Trimming networks is a common way plans can absorbfunding cuts without having to change benefits drastically. Doctorswith a record of providing the most cost-effective care get to stayin the network while others are booted.

While this is always disruptive for the members affected, thesebeneficiaries generally switch to another Medicare Advantage planrather than take on the added expense of Medigap. The same can besaid for beneficiaries who saw MA premium increases, on average, ofabout $5 per month. A change like this doesn't make someonesuddenly want to go out and spend $150/month or more on a Medicaresupplement. They simply change to a different Medicare Advantagecarrier.

Agents who work in the senior market know that even smallincreases like a $5 increase in a doctor copay will often result inthe member seeking to change plans. Unfortunately, when the otheravailable plans also have had similar increases, members soon learnto just grin and bear the changes. So enrollment continues to growbecause the people experiencing changes have nowhere else to gothat's more affordable.

Lastly, people new to Medicare are already used to healthinsurance plans with higher cost-sharing. They never experiencedearlier plans that had richer benefits, and at age 64, many arepaying many hundreds of dollars for insurance with highdeductibles. To them, a Medicare Advantage plan with even a premiumof $70 or more is a relief.

The calm before the storm?

What remains to be seen is how the plans will weather the restof the cuts that are scheduled to phase in over the next few years,and how many times the administration or Congress will step in tosoften the cuts. We've been kicking the can down the road for yearson scheduled cuts to physician fees, and perhaps that's the futurefor Medicare Advantage as well. Stay tuned.