Changes the Obama administration wants to make to so-called “egg whip” Medicare plans have major health insurers, business groups and labor unions stirring up an opposition effort this spring.
Last month, the Centers for Medicare and Medicaid Services proposed requiring Medicare Advantage Employer Group Waiver plans, or EGWPs for short, to start bidding by the same rules applied to the Medicare Advantage plans purchased by individuals, a change that would affect around 3.3 million retirees.
Individuals typically purchase Medicare Advantage plans, which cover nearly one-third of all U.S. seniors. But some retirees have access to MA plans offered by their former employer or union, which usually offer better benefits, but also cost the federal government more to provide.
Under the changes proposed by the administration, these “egg whip” plans would see an estimated 3-4 percent reduction in federal payments. CMS says the cuts would simply reduce unnecessary profits for insurers, but opponents of the changes argue they’d be passed along to seniors and punish employers for trying to provide top-shelf health insurance. Specifically, they argue that seniors would either see reduced benefits or increases in the premiums they have to pay.
“It’s not appropriate to wedge this more comprehensive plan into the bidding rules for individual Medicare Advantage plans,” said Katie Mahoney, executive director of health policy for the U.S. Chamber of Commerce.
The chamber is joining labor unions and other pro-business groups to protest the proposed cuts, which could be finalized by the administration on April 4. Dubbed the Coalition to Save Medicare Advantage Retiree Coverage, the group says it will run television, radio, print and digital advertisements in Washington and in key markets around the country.
The issue hasn’t yet caught fire among Republicans on Capitol Hill, although staffers say privately that it’s on members’ radars. Republicans have long defended the Medicare Advantage program, which works through private insurers rather than relying on direct payments from the federal government, and they’re likely to oppose any policy changes that would result in cuts.
“Given this program’s proven track record, it’s regrettable that the Obama administration is, once again, trying to undermine it,” said Senate Finance Chairman Orrin Hatch, R-Utah, in a statement. “Such cuts would be disruptive, and the administration ought to fully think through the impact.”
“Members of the committee are reviewing the details of the advanced notice,” said a spokesperson for the House Energy and Commerce Committee. “They are committed to working with CMS to ensure seniors, including low-income seniors and retirees who participate in the Medicare Advantage program, continue to receive the benefits they were promised.”
The “egg whip” Medicare plans are attractive to employers and unions because they typically offer lower costs than non-Medicare coverage programs and get good ratings from seniors who use them.
Because the program is small, CMS determines a benchmark price instead of plans bidding directly against each other. If a plan’s bid comes in lower than the benchmark, it gets a portion of the difference to enhance its offerings. If it comes in higher, it must collect the rest from enrollees through a premium.
But because there’s no direct competition between plans, CMS says egg whip plans are incentivized to bid as close to the benchmark as possible to make more money, even if their costs are lower.
The average bid of Medicare Advantage plans bought by individuals in 2014 was 86 percent of their benchmarks, while the average bid from MA plans offered by employers averaged 95 percent of the benchmark, according to the Medicare Payment Advisory Commission.
“We believe there is incentive for [Employer Group Waiver Plans] to bid as close as possible to the benchmark in order to maximize revenue for the plan,” CMS wrote in a February document announcing its proposed 2017 rates.
By changing the way the egg whip plans are priced, the agency believes it can cut down on costs of providing coverage to the retirees. But that’s angering the largest insurers, who say the changes represent rate cuts to their federal payments and will force them to pass along the cuts to patients.
Joel White, president of the Council for Affordable Health Coverage and a former Republican Hill staffer, says the cuts could “destabilize” coverage for the Americans with egg whip plans because insurers would either cut benefits or charge more for benefits.
“What we’re trying to say is it’s important to keep employers in the game,” White said. “These guys might go back to fee-for-service or pay higher premiums or get reduced benefits. So we think supporting this option is important.”
The issue is providing an unusual opportunity for business groups to work alongside unions, since both camps are involved in offering egg whip plans. The pension fund for Kentucky teachers, which is facing some steep financial difficulties, is one group getting involved in the coalition opposing the changes.
“Proposed changes to Medicare Advantage Retiree Coverage have the potential to increase future costs for our retired educators,” said Jane Cheshire Gilbert, director of retiree healthcare for the Kentucky Teachers’ Retirement System. “I hope these valuable health benefits provided by Medicare Advantage for retired teachers in Kentucky will be preserved and protected for future retirees.”
