Beltway Confidential

CMS backs off Medicare Advantage cuts that were to help pay for Obamacare

By |
Beltway Confidential,Philip Klein,Politics Digest

At least on paper, President Obama’s health care law is shown by the Congressional Budget Office to reduce deficits slightly, because its roughly $1.7 trillion in new spending is more than offset by accompanying tax increases and cuts to the projected growth of Medicare. One of the major uncertainties surrounding Obamacare has been whether those Medicare cuts for which Democrats are counting on to help pay for the new expansion of insurance coverage will actually go into effect. If the cuts do not get implemented, instead of reducing the deficit, the health care law would actually add $6.2 trillion to the nation’s long-term deficits, according to a recent analysis by the Government Accountability Office.

On Monday, the Centers for Medicare and Medicaid Services announced that instead of reducing payments to health insurers who provide seniors insurance through Medicare Advantage by 2.3 percent in 2014, the federal government will increase payments by 3.3 percent. Ever since Obamacare was being debated, skeptics questioned whether the administration and lawmakers would actually follow through on Medicare cuts. Historically, when Congress has passed such cuts, they’ve been rescinded once it comes time to implement them. According to the CBO, $156 billion of the more than $700 billion in Medicare cuts under Obamacare were supposed to come through reducing payments to private companies within the Medicare Advantage program.

Though it’s unclear what the budgetary impact will be of this particular reversal, it could be viewed as a taste of what’s going to happen as it comes time to implement Medicare cuts. In February, as CMS announced plans to cut payment rates in 2014, it triggered an intense lobbying effort from insurers, who got 160 members of Congress from both parties to send letters asking the administration to back off. The insurance industry’s lobbying group, America’s Health Insurance Plans, celebrated the about face by the administration: “CMS has taken an important step to help stabilize Medicare Advantage at a time when the program is facing significant challenges.”

Wall Street investors cheered the news as well. On midday Monday, shares of major health insurer Humana Inc. were trading at $69.11, but as of this writing on Tuesday morning, they’ve shot up to $81.05 — or about 17 percent.

With so much money on the line, you can bet that insurers — as well as other major players like hospitals, doctors and pharmaceutical companies — will continue to fight proposed reductions in payment levels under Medicare. And if they’re successful, Obamacare will become a budget buster, just as its critics always predicted.

View article comments Leave a comment