Over the past decade, enrollees in Medicare Advantage have received lots of extra benefits, thanks to unjustified federal subsidies to the insurance companies. Now they will have to do with somewhat less, unless the insurers are willing to absorb the cuts while maintaining benefits. Enrollment in these private plans, offered by companies like UnitedHealth and Humana, has more than doubled since 2006, in part because of lower premiums and extra benefits, like gym memberships, that are not included in traditional fee-for-service Medicare.
What made these perks possible was, in effect, a subsidy from taxpayers and other Medicare beneficiaries. The federal government paid the private plans, on average, 14 percent more in 2009 than it would cost to treat the same people in traditional Medicare. The insurers used this extra money to reduce enrollees’ costs and add benefits.
The 2010 Affordable Care Act rightly required that these subsidies be reduced, although it stopped short of completely eliminating them. The reductions began to take effect in 2012, and have not, so far, visibly harmed beneficiaries or the plans. Since enactment of the law, Medicare Advantage premiums have fallen by 10 percent, the opposite of what some expected, and enrollment has increased by nearly 33 percent, according to the administration. But as the law intended, federal payments to the private plans dropped — from 7 percent more than services under traditional Medicare in 2012 to 4 percent more last year. The administration now proposes to further reduce the payments to Medicare Advantage plans in 2015. The loudest criticism has come from Republicans, but plenty of Democrats have chimed in.