Federal regulators on Monday said 2016 payments to insurers that offer private Medicare plans will go up compared with this year, reversing a slight decline proposed in February.
The Centers for Medicare and Medicaid Services estimated that the government’s Medicare Advantage payments will rise about 1.25% next year, though the agency said insurers likely will see their overall revenue increase about 3.25% as they deliver, and bill for, more intensive services.
In the February proposal, the agency said 2016 payments would decline 0.95% on average, though the insurance industry likely would have seen overall revenue rise about 1.05% when including the service-intensity effect.
Beneficiaries of Medicare, the federal health-insurance program for senior citizens and the disabled, can choose to opt for these private alternatives to traditional government-run coverage.
Sean Cavanaugh, CMS deputy administrator, said the change in the final payment estimate was largely tied to tweaks in estimates by the Medicare agency’s actuaries of how fast spending has been growing in the program, rather than changes in policy compared with the earlier proposal. The agency is enacting a “modest and reasonable adjustment to plan payments,” he said.
Last year and the year before, CMS also issued final payments higher than those in its earlier proposals. The payments have become an annual political issue, as insurers lobby intensely to keep payments from dropping, typically winning support from many lawmakers.
CMS said the new modification in the spending growth rate estimates stemmed from factors including “higher than expected spending on inpatient hospitalizations” and on other services such as therapy and rural health clinics.
The plans are a key line of business for many health insurers, which count on them for a significant share of their earnings. The biggest players in the Advantage program include Humana Inc. and UnitedHealth Group Inc.
Karen Ignagni, chief executive of industry trade group America’s Health Insurance Plans, said in a statement that the payment notice “took a notable step to provide stable funding for the Medicare Advantage program.”
The final payments are “certainly a favorable outcome relative to” the February proposal, said Joshua Raskin, an analyst at Barclays.
CMS’s Medicare Advantage payments are derived from a complicated annual process, and the overall average amount is often estimated differently by different parties. Moreover, the impact on individual insurers varies depending on their mix of businesses.
Medicare is seen as a major growth engine for the insurance industry as more baby boomers reach 65, the age to qualify for the program. Analysts said that the increase in payments will help insurers make their offerings more attractive, with richer benefits or lower costs to beneficiaries.
“It should mean nice growth for Medicare Advantage into 2016,” said Ana Gupte, an analyst at Leerink Partners.
About 17 million people are enrolled in Medicare Advantage plans, according to consulting firm Avalere Health. That is up from 15.9 million last year and 12.2 million in 2011, the firm said.
Avalere said federal payments for Medicare Advantage coverage, not including Part D prescription-drug plans, were projected to total about $155 billion this year.