Short Takes On News & Events

Despite Win, UnitedHealth Criticizes Medicare Rates, Eyes Pruning Business

By Jay Hancock

April 19th, 2013, 9:17 AM

If the Obama administration expected the biggest health insurance company to give thanks for this month’s decision to reverse cuts to private Medicare plans, it was wrong. UnitedHealth Group CEO Stephen Hemsley said Thursday that Medicare Advantage rates are still far too low and that the company may shrink its business of managing care for seniors.

“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,” Hemsley said on a conference call with investment analysts. UnitedHealth’s Medicare Advantage business, he added, “will likely experience market exits as well as in market membership contraction as we reshape Medicare networks and benefits to respond to the continuing underfunding of this program.”

The administration’s decision to reverse cuts for Medicare Advantage, in which private insurers operate managed care networks for seniors, was seen as a significant industry victory. As the biggest seller of Medicare Advantage plans, UnitedHealth was deemed a primary beneficiary. More than one Medicare member in four is in a Medicare Advantage plan.

In February the Department of Health and Human Services surprised insurers by announcing a cut of more than 2 percent per Medicare member for 2014. The industry launched a lobbying and advertising campaign in protest. On April 1, the administration pulled back, announcing that instead of reducing payments it would raise them by 3.3 percent. UnitedHealth’s stock stock rose 8 percent that day and the next.

But in Thursday’s call to discuss the company’s quarterly profits of $2.1 billion on revenue of $30.3 billion, Hemsley said other changes — including the Affordable Care Act’s long-term reduction in Medicare Advantage payments – would still lead to a net reduction next year of more than 4 percent. That’s inadequate when medical costs are rising in the 3 percent neighborhood, he said.

Stuart Guterman, a Medicare authority at the Commonwealth Fund, takes another view, arguing that Medicare Advantage plans run by UnitedHealth and others have never delivered the cost savings expected when the government allowed private carriers with promises of managing expenses into the program.

“Historically Medicare Advantage plans have been paid rates that are substantially higher than the cost for the same enrollees if they had been in traditional Medicare — which is no model for efficiency,” Guterman said. Last year Medicare Advantage members cost Washington 7 percent more — a total of $9 billion — than if they had been enrolled in regular Medicare, estimated the Medicare Payment Advisory Commission.

ACA adjustments starting next year are intended to narrow that gap, but Medicare Advantage is still likely to cost the government more than traditional Medicare by 2017, Guterman said.

Also Thursday, UnitedHealth executives did nothing to change perceptions that the company will adopt something of a wait-and-see attitude to selling policies in the ACA’s online marketplaces next year. With the health law’s mandate that everybody get medical coverage, heavily subsidized online exchanges are expected to steer millions of new customers to the industry.

“We will be very selective in where we participate and do not believe the exchanges will be a significant factor for us, either plus or minus,” Hemsley said.

Said Jeff Alter, a top UnitedHealth insurance boss: “We believe there’s going to be some pacing with the exchanges and it’s not just a ’14 event. It’s a market that will develop and mature.”

This article was produced by Kaiser Health News with support from The SCAN Foundation.

6 Responses to “Despite Win, UnitedHealth Criticizes Medicare Rates, Eyes Pruning Business”

  1. L Real says:

    I’m not a fan of United Healthcare, but the title of this article is clearly slanted to put the company in a negative light. It is hardly a “win” when any business has a 4% cut in funding and a 3% increase in costs, even if that cut was originally intended to be twice as much. Also, the mantra pushed here by the Commonwealth Fund (a left wing organization) that is continually repeated by those in favor of PPACA that MA plans cost taxpayers a lot more than traditional Medicare is erroneous. The former head of CMS under the bush administration said that if you take into account the full costs of traditional Medicare that is absorbed by other parts of the federal government that don’t appear on Medicare’s “expense sheet” the adminstrative costs would be around 20-25%.

  2. Paul Young says:

    You can argue that MA plans push even more administrative costs onto providers with additional pre-auth and medical policies.
    In general, the benchmark rate for MA plans provides them with sufficient revenues. They are being compensated for managing the population they are at risk for. Most health plans do not perform these functions very well and act more as a pass through for costs.
    The ACA forces their hand a bit more and will hopefully incentivize plans to manage costs and population health.

  3. J Webster says:

    It’s interesting to see the widely-discredited Bush administration cited as an authoritative source re. Medicare costs. This is the same administration which enacted Medicare Part D and, reportedly, wanted to hide the cost from the public ( ), and which forbade the gov’t from bargaining for lower drug prices. Why? To benefit the for-profit health care industry.

    Personally, I’d be quite happy to see ALL of the for-profit “advantage plan” providers exit. That might serve to promote more serious discussion about why the hell we must rely upon the for-profit capitalistic model for health care and why the United States’ health care costs are so much higher than other nations’ costs, with less-than stellar health care outcomes.

    We should get rid of the “for-profit” aspect of health care.

  4. J Webster says:

    Correction to previously-included link, which should have pointed to:
    “Bush Admin Ordered Medicare Cost Estimates Withheld”

  5. L Real says:

    So you say, “Let’s get rid of the “for-profit” aspect of health care.” So that means, if your logically consistent, that doctors, nures, home health care providers, medical equipment providers etc… should all work for free! Part D, that you mentioned above, is the only major health care program in the federal government that is under budget (around 30% according to the last figures I saw) because of competition among private insurance companies–not federal government’s great ability to manage costs and improve quality! Socialism has never worked and never will!

  6. R Davis says:

    Apparently the Medicare Choice rates are not quite high enough to sustain and increase CEO Hemsley’s $48 million in annual compensation last year and compensation of $170 million over the last year as reported by Forbes. When Hemsley talks about exits and restructures from the Medicare market he means “cherry pick” on a contractual basis to increase United’s obscene margin and executive compensation and leave Medicare fee-for-service to deal with the sicker less profitable seniors