For several years now we've heard warnings that billions of dollars in funding cuts to Medicare Advantage plans under the Patient Protection and Affordable Care Act will result in reduced benefits and higher premiums as well as smaller provider networks and fewer plans.

In fact, the Congressional Budget Office projected the cuts would result in three million fewer enrollees in MA over the long run.

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

Read: Medicare enrollees switching to Medicare Advantage

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 higher cost-sharing, there's been no tremendous public outcry thus far.

There've also been some measures enacted to mitigate some of the impact of those cuts that have been phased in already, so the real impact 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 the benefits they deliver, and that to bolster the solvency of Medicare itself, the nation needed to lower payments to MA insurers.

In essence, PPACA aims to slowly lower Medicare Advantage payments over time until the government pays the same amount per beneficiary whether they enroll in original Medicare or an MA plan. Most Medicare plans began receiving less pay in 2012 but the cuts are to be phased in from 2012–2017, so we have a ways to go yet.

Under PPACA, plans also can qualify for a bonus payment for providing better care. Plans have to report data detailing how many of their members are routinely getting preventive care under the plan, as well as how many get additional support in managing chronic conditions such as diabetes. Plans receiving higher star ratings get higher bonuses, with the desired result being that the bonus program will encourage plans to focus on delivering a higher quality of care, thus increasing the value of the health care dollars 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 level that provides needed benefit dollars to survive.

Mandated benefits changes

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

The law also stipulates that plans can no longer charge members more for than Original Medicare for certain services such as chemotherapy and skilled nursing. Plans have had to revise benefits to come in line with this rule, and this means they'll pay out more than they did before.

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

Enrollment grows anyway

So, in light of all these scheduled funding cuts, why have we seen MA enrollment continue to grow? Well, there have been extenuating circumstances.

The American Action Forum gave testimony in July that plans have been largely shielded so far because the Administration has used demonstration program dollars to partially offset the first phases of PPACA benefit cuts.

Read: Medicare Advantage growing despite cuts

These project dollars end in 2015. The Administration also has backed down two years in a row on proposed payment cuts. A scheduled 2 percent cut in MA payments in early 2014 was avoided when CMS announced a 3.3 percent increase in payments, and this allowed plans to keep some benefits that may otherwise have been cut.

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

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

While this is always disruptive for the members affected, these beneficiaries generally switch to another Medicare Advantage plan rather than take on the added expense of Medigap. The same can be said for beneficiaries who saw MA premium increases, on average, of about $5 per month. A change like this doesn't make someone suddenly want to go out and spend $150/month or more on a Medicare supplement. They simply change to a different Medicare Advantage carrier.

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

Lastly, people new to Medicare are already used to health insurance plans with higher cost-sharing. They never experienced earlier plans that had richer benefits, and at age 64, many are paying many hundreds of dollars for insurance with high deductibles. To them, a Medicare Advantage plan with even a premium of $70 or more is a relief.

Calm before the storm?

What remains to be seen is how the plans will weather the rest of the cuts that are scheduled to phase in over the next few years, and how many times the Administration or Congress will step in to soften the cuts.

We've been kicking the can down the road for years on scheduled cuts to physician fees, and perhaps that's the future for Medicare Advantage as well. Stay tuned.

Instant Insights /

Medicare Advantage after PPACA

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