Ready or Not, Obamacare Could Alter Medicare Advantage Plans As We Know Them

Editor's Note: An earlier version of this article had incorrect information relating to Medicare Advantage's out-of-pocket costs and conflated MA and supplemental coverage. The Fool and author regret the error.

It's been a little more than nine months since state and federally run health insurance exchanges opened for business, and we're still largely at the point where everyone involved, from consumers all the way up to the insurance companies themselves, are learning on the go.

Total enrollment of 8.1 million people handily surpassed the Department of Health and Human Services enrollment estimates for 2014, but this is just one piece in a long-term puzzle meant to reduce the number of uninsured and sign up healthy individuals who'll help insurers spread the cost of medical care across a larger number of members, ultimately reducing medical inflationary costs.

For some the effects of the Affordable Care Act's implementation worked in their favor. The expansion of Medicaid programs in 26 out of 50 participating states meant that millions of citizens who previously fell outside the scope of Medicaid coverage would now qualify for government-sponsored care.

However, for others the ACA, which is perhaps best known as Obamacare, is causing a number of unintended consequences – one of which reared its head just this past week.

UnitedHealth drops a bombshell on some of its members
According to a report from The Wall Street Journal this week, UnitedHealth Group (NYSE: UNH  ) the nation's largest health-benefits provider and the biggest provider of Medicare Advantage plans, is slashing its Medicare Advantage-approved physician network by thousands of doctors as a direct response to Obamacare's implementation. 

Source: TheeErin, Flickr.

Medicare Advantage plans provide the same benefits as Medicare and potentially more, as they help fill in the gaps in some areas that Medicare doesn't normally cover. Medicare Advantage plans often offer greater rewards for members, including broader prescription drug coverage that may result in less out-of-pocket expenses, as well as routine coverage for dental and vision care visits.

For UnitedHealth, Medicare Advantage is a source of frustration since the implementation of the ACA. The reason is that as the government looks to expand Medicaid coverage to states, it's simultaneously looking for ways to reduce government-sponsored payments to private businesses. The Obama administration has laid out plans to remove $150 billion in Medicare payments to insurers over the next decade partly to help pay for other aspects of Obamacare's implementation.

The health-benefits balancing act
The end result is that Medicare Advantage insurers are on the path toward receiving less in per-capita reimbursements. UnitedHealth, for example, could choose to raise premiums in an effort to recoup this projected decrease in reimbursements, but doing so could also have the effect of creating sticker shock with its elderly consumers and chase them to a competitor.

The other option, as we saw this week, is UnitedHealth can simply cut its costliest health-care providers out of the network in order to save money. Because health-benefits providers receive their reimbursements based on a combination of cost and quality provided, UnitedHealth has to maintain a very discerning eye on the costs associated with its Medicare Advantage provider network in order to appease regulators and its members, while also growing its bottom-line and expanding its member base.

Source: Ireneogrizek.com.

Yet, this isn't just a burden on UnitedHealth's bottom-line – it could become a big problem for some of its members who now need to find a new doctor, or perhaps a new plan altogether. If UnitedHealth isn't careful its public perception could turn decisively negative and hurt not only its existing Medicare Advantage customer base, but any chance it had of gaining new members down the road.

Of course, it's not just UnitedHealth that'll be affected by long-term Medicare reimbursement cuts associated with Medicare Advantage plans. In addition to UnitedHealth, Humana (NYSE: HUM  ) , Universal American (NYSE: UAM  ) , Health Net (NYSE: HNT  ) , and WellPoint (NYSE: WLP  ) all have exposure to these health plans.

Specifically, Universal American, Humana, Health Net and UnitedHealth receive around 75%, 64%, 25%, and 25% of their total revenue from Medicare Advantage plans, so any major fluctuations in reimbursement rates from the Centers from Medicare and Medicaid Services could drastically alter the profitability of these aforementioned companies. For WellPoint, which is already profitable from its Obamacare individual plan enrollees, potential Medicare Advantage cuts may sting a bit, but they likely won't be too noticeable over the long run.

None of these other four health-benefits providers have announced plans to cut physicians from their network to the same magnitude as announced by UnitedHealth.

You're forgetting one thing...
But here's one thing to consider: together these insurers have a lot of clout. We know reimbursements cuts are eventually coming, but don't count on these insurers to simply lay down and let the CMS propose annual Medicare cuts without putting up a fight.

If you recall, the CMS attempted to enact a 2.3% decrease in reimbursements for insurers who provide Medicare Advantage plans in February of last year. Generally, when the CMS offers a rate increase or decrease proposal for Medicare reimbursements it allows a 30-day period for business and interested parties to openly voice their opinion.

Following this 30-day period, as well as a mammoth lobbying effort by Congressional lawmakers, insurance advocacy groups, and the insurers themselves, the CMS eventually reneged on its decrease proposal and announced a 3.3% increase in Medicare Advantage reimbursements. And more recently, what was originally intended to be a 1.9% decrease in Medicare Advantage reimbursements for 2015 was reversed to a 0.4% increase. I would suggest that these flip-flops from the CMS could give insurers that offer Medicare Advantage plans the confidence to fight for future increases tooth and nail.

In other words, the reality of what's likely to happen over the coming years probably lies somewhere between the proposed extremes: the Obama administration's $150 billion in projected cuts and the Medicare Advantage sector lobbying for a hike in reimbursement payouts. We just don't know for certain as of yet how aggressive the CMS will get with their rates cuts and how insurers will respond with regard to maintaining their doctor networks in lieu of these expected cuts. Either way, this is a situation that all Americans and investors, regardless of age, should be monitoring.

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Read/Post Comments (24) | Recommend This Article (34)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 05, 2014, at 11:49 AM, lm1b2 wrote:

    Why hasn't Obama been impeached ?He has no right to touch Medicare money its the same thing as taking SS money! If he does anything to Medicare i guarantee Obama care will be throw out,along with a bunch of Democrats !

  • Report this Comment On July 05, 2014, at 12:05 PM, entitled wrote:

    Ah, the law that just keeps on giving- your money and mine to others that is.....

    Demorats will also pay up for this debacle come November.

  • Report this Comment On July 05, 2014, at 12:18 PM, dickjo54 wrote:

    Our current president (Obama) has done everything he can to pass and enforce his "legacy" healthcare act. That includes taking away billions of dollars from Medicare to fund both Medicaid(temporarily) to induce states to participate and to fund his all ill conceived "Affordable Care Act".

    His actions will give to the "havenots" (those who cannot buy medical coverage) primarily by taking money away from the elderly(reduced Medicare benefits and doctor reimbursements).

    And our congress stands idly by and allows Obama to do it. The next time you vote, remember that it is the Senate Democrats (and a few Republicans) that allowed Obama to take away from your hard earned (and paid for) Medicare benefits.

    If they voted for Obamacare(ACA), vote them out of office. They are only out for re-elected. They do not care about the elderly or their other constituents.

  • Report this Comment On July 05, 2014, at 1:07 PM, stopthelie wrote:

    Scaring readers is not the best way to go!!!

    If your telling the truth than you need to post the profit margens that the companies have been growing year after year.

    If they did not make money they would not offer them.

    Stop telling little pieces to frighten your readers.

  • Report this Comment On July 05, 2014, at 1:40 PM, phillipzx3 wrote:

    "Why hasn't Obama been impeached ?He has no right to touch Medicare money its the same thing as taking SS money! If he does anything to Medicare i guarantee Obama care will be throw out,along with a bunch of Democrats !"

    Why haven't people who keep yelling "impeach," grasped there is nothing for him to be impeached on. Besides, tell us how well the impeachment of Clinton went.

    As for your (Im1b2) crying about Medicare Advantage and Medicare "money," go do some research was it was created it the first place.

    There's a children's story "you types" should read. It's called "Chicken Little." All you do is go around to different websites crying, "The sky is falling. The sky is falling."

    Here's some education for you about Medicare Advantage. Take note of the last sentence. Take it or leave it.

    "There is considerable confusion about what the Patient Protection and Affordable Care Act (or ACA) of 2010 did with respect to Medicare Advantage. As part of a broad set of reforms aimed to control the cost of Medicare, the ACA eliminated certain subsidies which the federal government first used to establish the Medicare Advantage program. The Obama administration launched an $8.35 billion demonstration project to postpone the majority of Medicare Advantage program cuts. According to the Government Accountability Office (GAO) this demonstration project will cost more than the combined previous 85 demonstration projects beginning in 1995. As of 2008, the federal government spent 12 percent more on Medicare Advantage than it did for comparable care under traditional Medicare. These subsidies (which added an additional $14 billion to the Medicare program in 2009) will gradually be reduced until payments to Medicare Advantage are in line with the cost of traditional Medicare."

  • Report this Comment On July 05, 2014, at 7:52 PM, Paulie4 wrote:

    We have Humana Medicare Advantage through my retirement system. My husband has cancer. He has had a UTI and is on the 3rd prescription, plus he couldn't put any weight on his leg. I called the squad when he was sick and not eating or drinking. He was refused treatment in the hospital that he was taken to, plus one he normally is treated at. Not because of insurance, but by the doctor. His own oncologist refused to allow treatment even though the ER doctor said he need IV's of antibiotics. He lay on a gurney in the hospital from 4:30 PM until 8:30 am the next day, when I brought him home. Still has the UTI.

  • Report this Comment On July 05, 2014, at 8:05 PM, stockingshorts wrote:

    YEP!....Just keep Jamming it to us seniors. We're getting it from the government AND the Insurance companies. They'll both cover less; you'll get poorer services and they'll make you pay more.

    Maybe the lobbyists in Washington can get a National Euthanasia bill passed and just kill us off when we think we've had enough.............

  • Report this Comment On July 05, 2014, at 8:26 PM, gadfly1000 wrote:

    This article ought to be censored for failing to tell the truth. The problem with Advantage plans is that they promised they could deliver more for the same amount of government subsidy. Instead, they have been constantly costing around 12% MORE than Medicare.

    And who has to pay for this waste? The people on normal Medicare, that's who, because when Part B premiums are set every year they are based on Medicare's total costs, including the cost overruns that are generated from Advantage plans.

    So, to repeat, the people NOT getting any advantage from Advantage plans have to pay higher Part B premiums to cover the excesses of these promises by private insurance companies that were not kept.

  • Report this Comment On July 05, 2014, at 8:26 PM, blankcheck456 wrote:

    We have the most expensive least efficient healthcare system on the globe. Instead of impeaching the guy who finally had the guts to try and fix it ,why not get together and try to get on a par with the rest of the world. We used to be the greatest country in the world. Now we're just falling behind everyone. Honestly it's because we are unable to get anything done due to the bickering. Food stamps are .003 % of GDP healthcare is close to 20% of GDP, double what other countries spend. We are almost the only country trying a free market healthcare system and it has been a disaster. Other countries treat everyone for 10% of GDP , many with better outcomes and longer lives than us.

  • Report this Comment On July 05, 2014, at 9:17 PM, thegodfather4u wrote:

    The RAPE of America continues with the Democrats at the helm and has been evident for OVER last 6 + years.... Racism being created by Obama...Holder...their buddy Felon Sharpton....impossible unemployment, history making deficits, never mentioned millions of homeless, spying on American's phones, computers, email, financial information, stolen billions from our Medicare and social security, increased false racism data fed to us by government...Democrat owned media (CFR/TLC brainwashing) to try and put American's into a false sense of security, allowing over 38 million illegal's pushed on our floundering economy, increased racial fabricated tensions, having more and more CFR/Trilateral nominee's appointed and a Supreme Court making laws against Americans, allowing insider trading with the senate, congress, and every "in the know" employee in the fed, propaganda through the AP/Bloomberg/CNN/CNBC/Yahoo/ etc creating more in-fighting , and the violation of our constitution over and over by the individuals we elected and are supposed to be working for all American's plus the farce of the Unconstitutional OBAMACARE ...As all the VIOLATIONS committed against our Constitution.

  • Report this Comment On July 05, 2014, at 9:29 PM, JenellYB wrote:

    I'm on regular Medicare, but know and have know many other seniors and disabled in Medicare, also, for some years now. It may be the ACA is having negative impact, but, many people I know have had very disappointing, even outright terrible, experiences with Advantage Plans. Their promo info sound great, but you are likely to be seriously in trouble in finding out of pocket costs more than anticipated, being refused coverage for treatments and care, procedures, tests, and drugs, that are actually quite important, even essential. The lists of providers look great, filling a thick book, until you try actually calling to find doctors, to be told again and again they are taking no new patients. And often if you follow up with many of those doctors, they ARE taking new patients, just not new patients that have that Advantage Plan and some other plans. In my honest opinion, based on experience of people I know, the only people that get and stay with any of these Advantage Plans are those that have been mostly healthy and have not had to try to actually USE their plans.

  • Report this Comment On July 06, 2014, at 12:21 AM, woodie4 wrote:

    And to think that United sells its Advantage plan under the AARP name. AARP pushed for Obamacare. Anyone see any irony in this besides me?

    That's why I have never joined AARP. They are not for seniors, but for their own fat salaries.

  • Report this Comment On July 06, 2014, at 7:21 AM, nzk91g wrote:

    The Democrats are looking long term. They know they may politically pay the price short term but they have created another entitlement that will be here forever.

  • Report this Comment On July 06, 2014, at 7:23 AM, nzk91g wrote:

    AARP is a liberal organization. They support the Democrats no matter how it affects seniors.

  • Report this Comment On July 06, 2014, at 7:23 AM, Lovesmusic wrote:

    Medicare Advantage programs are just that. They take "Advantage" of Medicare recipients by taking their well earned Medicare benefit dollars and funneling the recipients into contract and very managed programs. Fewer providers now because of the low reimbursement contracts being offered but providers will not agree and sign. Medicare citizens.. do not turn over your health care to stockholders. This is what you do when you sign up with Medicare Advantage programs. Straight Medicare with a supplemental coverage should be all you need. They will promise you the moon but give you the cheese. Stay away...

  • Report this Comment On July 06, 2014, at 8:30 AM, mumsie wrote:

    By written and proven statistics insurers are making record profits from the since the implication of Obama Care. Dump United Health Care, I did and I don't regret it. They were out of line on out of pocket expenses before Obama Care was in effect. When the Americans wake up to the fact that for profit medicine is the base of their woes as well as insurers maybe we will get the quality and availability of health care other nations enjoy. You do not have to use the government health care site, it was designed partially to favor some insurers and mostly because most people are unable or too lazy to do their own shopping. Advantage plans are a cash cow for insurers. They get over $10,000 yearly for each insured as well as any premium. They design the plan to put more money in their pocket while you cover part of all of your bills. Best solution is to allow Medicare to design an premium extra insurance on a non-profit basis then rein in provider charges for services. There is no reason why we pay $3000 for an MRI and other countries pay $300. Half of American healthcare dollars go into profit not individual health care

  • Report this Comment On July 06, 2014, at 9:26 AM, smilingdon wrote:

    Why is not congress and the president taken to task for lying, cover-ups, stealing from government funds to cover other stolen money and taking advantage of the poor and elderly? This is the most corrupt form over government we have ever seen in the USA.

  • Report this Comment On July 06, 2014, at 12:36 PM, dannystrong wrote:

    The cast of this story is silly. This is not "the spunky little administration against the ultra-clouty evil insurance companies, who dare to try and show a profit."

    This is the Federal Government attempting to squeeze out competition. Make no mistake, the President (and Harry Reid, who was dumb enough to say so with microphones present) are trying by the first few of the 100 cuts it will take, to take this country into "single payer" (that is, NHS-like) health 'care'. And as we have seen at the Federal Government-run Veterans Administration, 'care' doesn't hold a candle to 'bonus' for them what have your health in their hands. Lucky us.

  • Report this Comment On July 06, 2014, at 12:47 PM, AbeBlock wrote:

    Obamacare should not infringe on Medicare Advantage. This is moving to problems into Medicare and should not be done.

  • Report this Comment On July 06, 2014, at 3:45 PM, smilingdon wrote:

    Someone, anyone, please have the "cojones" to stop this mad man!

  • Report this Comment On July 06, 2014, at 9:35 PM, DrG wrote:

    United Healthcare already cut providers by 50-75&. Congress decided that they all (Medicare Advantage) were overpaid and some are overbilling for costs of more expensive members that they don't have. Plenty of corruption in this story.

  • Report this Comment On July 06, 2014, at 10:21 PM, ben3 wrote:

    He wants to slowly destroy us people. He is the one Khrushchev was talking about when he said they would destroy us from the inside. He may not be a communist but he is trying to do that.

  • Report this Comment On July 06, 2014, at 11:05 PM, slanciano wrote:

    It's called DICKTATOR folks for you that are finally starting to listen.

  • Report this Comment On July 07, 2014, at 12:01 AM, randydevinney wrote:

    The Republicans warned that the was cutting Medicare funds, and were ridiculed.

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