Medicare Advantage Win Turns Into a Loss for Healthcare Providers

Just weeks after winning a major victory over the federal government by turning a cut in Medicare Advantage funding to an increase, the CEO of the nation’s largest health insurer is saying that it was not enough and is threatening to reduce his company’s presence in that market.

In a telephone call with investor analysts last week, the CEO of UnitedHealth Group said the 3.3 percent increase, news of which resulted in an 8 percent bump in stock price, represented a net loss for the program and his company would be looking to trim its Medicare Advantage business.

“We did not expect the fastest growing, most popular, and most effective Medicare benefit option serving America’s seniors to be underfunded to this extent in 2014,” CEO Stephen Hemsley said. As a result his company will be considering “market exits as well as in market membership contraction.”

With that announcement UnitedHealth has turned what was originally positive news for providers into potentially very bad news. Here’s why:

Customers dropped by UnitedHealth Medicare Advantage plans will put an administrative strain on healthcare providers. Any time a patient changes health plans it puts an administrative burden on healthcare providers. That burden is compounded when the patient in question is elderly and quite possibly in poor health. If UnitedHealth pares its insurer rolls, it will fall to providers to help seniors sort out their Medicare options, a service for which there is no reimbursement.

Boost in funding in one place means cuts somewhere else. The 3.3 percent increase the Medicare Advantage program received will eventually come from somewhere. While the Centers for Medicare and Medicaid Services (CMS) employed clever math to justify the increase (by projecting that Congress will again override the physician Sustainable Growth Rate decrease), the agency originally had been planning to cut the program by 2.3 percent and had anticipated those funds to go elsewhere. In almost every past scenario, a decrease in any other federal healthcare program means zero sum gain to reimbursements to providers; an increase to another federal healthcare program almost always means that providers can expect a cut.

Medicare Advantage insurers may have become too big to fail. A quarter of all Medicare beneficiaries are protected under a Medicare Advantage plan. While lobbying efforts by healthcare provider organizations failed to budge Congress on the recent 2 percent sequestration cut to Medicare, the insurer lobby not only reversed a similar-sized decrease but won a significant increase in funding–and it still was not enough, if UnitedHealth’s Hemsley is correct. Watch closely the reaction by CMS and Congress to Hemsley’s comments, which will reveal how influential the Medicare Advantage insurers have become .