Subsidies For Private Medicare Plans
On The Chopping Block
Story from the Wall Street Journal

The government late Monday is expected to set in stone the 2010 rates it will pay health insurers to run private Medicare plans. Most signs suggest that cuts are coming in the subsidies that the industry got during the Bush administration.

Stocks of health insurers were sucked into a surprise tailspin in February after Medicare officials signaled they planned an effective 5% cut in those payments after formula adjustments. Insurers, medical societies and others have had six weeks to give regulators their arguments before the payment rates become final for next year.

Their arguments, plus an effort by 17 senators from both parties who on Friday urged Medicare to reconsider the way it calculated the effective cuts, could sway the Centers for Medicare and Medicaid Services to compromise on the new payment rates, as the federal agency has in previous years. But its new management hasn't given any hint of letting up on efforts to rein in federal subsidies for the private-sector Medicare plans.

More than 10 million beneficiaries get their medical and drug coverage through so-called Medicare Advantage plans, which the Bush administration promoted with extra benefits for seniors and by providing subsidies to insurers that offer them. President Barack Obama wants to finance a good chunk of his health-care agenda by cutting those payments over time to the level of traditional Medicare's per-patient outlays. But the rates signaled in February by the new administration caught insurers -- and Wall Street -- off guard by cutting payments so soon.

The stock performance of big Medicare Advantage players on Friday suggested that many investors "don't believe it will be a positive surprise," said Matthew Borsch, analyst at Goldman Sachs. Humana Inc., already down 30% for the year, shed $1.54, or 5.7%, to $25.46 on Friday.

If the payment cuts remain or change little from those proposed, insurers may raise premiums or cost-sharing amounts, such as copayments The Blue Cross Blue Shield Association argues that the cuts could translate into premium increases or benefit reductions of between $50 and $80 a month for seniors. That could slow enrollment in a business that has been critical to many health insurers' profit growth in recent years.

Medicare Advantage wraps physician and hospital services in one. Unlike traditional Medicare, the government doesn't pay providers directly but instead pays insurance plans to manage care.

The Obama administration argues it wants to make sure the plans aren't overpaid while not providing value or better care. Last week, it took steps to tighten screws on the private plans on another front, setting new caps on what insurers can charge sick seniors and ordering them to be more upfront about what they cover.