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Understanding the Medicare Advantage Cut Reversal

Implementation of the Affordable Care Act requires some careful shifting and spending reassessments. One of the adjustments that was supposed to be made were cuts to subsidies paid on behalf of seniors who take out Medicare Advantage plans, which are comprised of private insurance policies. Because the government currently pays 14 percent more to private insurers for Medicare Advantage than they do for the same benefits under Original Medicare, the goal was to reduce the gap.

This month, however, the Centers for Medicare and Medicaid Services (CMS) announced that the government had agreed not to cut the subsidies, as originally expected, but to increase the amount paid to insurers by 0.4 percent in 2015. This isn’t the first time that proposed rate cuts have been reversed. In April 2013 it was announced that the proposed 2.3 percent rate cut to Medicare Advantage plans for 2014 had instead changed to an increase of 3.3 percent.

What Cuts Could Mean for Seniors

Currently, 30 percent of Medicare beneficiaries use Advantage Plans. Cutting these subsidies may help stem the added costs of implementing the Affordable Care Act, but they could also severely compromise the finances of seniors who want—and deserve—an insurance plan that meets their unique needs. If the government’s subsidy is eventually cut, then insurance companies will either need to raise rates for seniors or reduce important benefits offered through the plans.

Hidden Cuts May Still Exist

Although this rate increase announcement by CMS is encouraging, news agency Reuters reports that insurers aren’t confident that they won’t still see some net reduction in their subsidy. In part, this is due to the changes CMS made to the risk adjustment model that predicts anticipated average medical treatment expenses for the pool of beneficiaries. By adjusting this risk, they can reduce the overall cost of the plans, but may now have an overly conservative estimate of expenses.

What do you think of the potential damage that could be done to Medicare Advantage plans if subsidies are reduced? How will this affect you and your family?

About Dennis M. Postema

Dennis M. Postema, RFC, is a successful entrepreneur, best-selling author, coach, speaker and registered financial consultant. He is the founder of MotivationandSuccess.com, StoriesofPerseverance.org, FinancingYourLife.com and TheRetirementInstitute.org.

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