U.S. Cuts Funds for Private Medicare Plans

---medicare advantages plan cost 14% more than traditional plans --Medicare Advantage wraps physicians and hospital services in one, often with drug and vision coverages --reimbursement will fall by 4 to 4.5%, not as aggresive as 5% By VANESSA FUHRMANS and JANE ZHANG The federal government made good on its plan to cut 2010 payments for private Medicare plans, whittling the subsidies that health insurers receive sooner than the industry had originally expected. The cuts, announced late Monday by the Centers for Medicare and Medicaid Services, are slightly less severe than the 5% reduction the federal agency signaled in February, but still raise concerns about what has been a critical source of profit growth for many health insurers. Reimbursements to private insurers that administer so-called Medicare Advantage plans would fall by as much as 4% to 4.5% next year. The agency said it would raise the baseline rate for the private plans by 0.81%, slightly more than the 0.5% it proposed in February, but significantly less than the roughly 4% insurers have seen in recent years. But the payment rates also include a 3.41% reduction due to a change in how the government uses a reimbursement scale pegged to enrollees' health. The move makes clear the Obama administration's intent to swiftly rein in the private plans. More than 10 million Medicare beneficiaries get their medical and drug benefits through Medicare Advantage plans. Republicans during the Bush administration pushed the plans' extra benefits for seniors and subsidies to insurers to promote more private-sector involvement in Medicare. But President Barack Obama has argued that insurers are overpaid to administer the plans and wants to finance part of his health-care overhaul by paring their subsidies. Health insurers, though, hadn't expected cuts to begin until 2011 and were caught offguard by the February regulatory announcement. Medicare Advantage plans wrap physician and hospital services in one, often with vision and drug coverage. Unlike traditional Medicare, the government doesn't pay physicians and hospitals directly but instead pays insurers to manage care. Currently, though, a patient in these plans costs the government an average of 14% more than if he or she stayed in traditional Medicare. The cuts mean beneficiaries enrolled in the private plans could see higher premiums or cost-sharing amounts next year, depending on the extent to which insurers try to preserve the 3% to 5% profit margins they typically make on the plans. The Blue Cross Blue Shield Association, for instance, said it had calculated average monthly premium increases of $50 to $80 if the 2010 cuts were to go through. That won't be clear until plans submit bids and benefit designs later this year. Write to Vanessa Fuhrmans at vanessa.fuhrmans@wsj.com and Jane Zhang at Jane.Zhang@wsj.com