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Medicare Rates Rise More Than Expected, Insurers Breathe Easy

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The Centers for Medicare and Medicaid Services (CMS), a division of the U.S. Department of Health and Human Services, has decided to raise 2018 Medicare Advantage more than expected. In February, CMS proposed an increase of 0.25%, but the final rate reimbursement will be an increase of 0.45%.

Medicare Advantage (MA) is a private version of the government offered health plan called Medicare. Herein, insurers are reimbursed for providing services under MA by the government. A higher reimbursement is a positive for insurers.

For 2017, the rate rose by 0.85% on average, which was down from the original proposal to boost it by 1.35%. In 2016, the same was raised by about 1.25%, after a cut of about 4% in 2015.

According to KPMG, Medicare Advantage has only been around since 2003, but it’s quickly becoming a popular option for health plans as well as seniors dissatisfied with traditional Medicare. KPMG projects the baby boomers population to be nearly 72 million by 2030 and almost 87 million by 2050. By next year, MA is expected to cover nearly half of all Medicare-eligible seniors.

Notably, MA holds greater attraction as it offers the same benefits as Medicare at a lower cost, better service and enhanced choice. Moreover, MA brings attractive business opportunities for health plans as it is in high demand among baby boomers.

Since MA members have higher medical utilization rates, they bring in about three times more revenues than commercial members. Almost half of the baby boomers population, who are better informed about the range of benefits and cost of insurance via the MA, choose this service over Medicare.

In recent years, health insurers have been scrambling to gain market share in this business. In this regard, in 2012, UnitedHealth Group Inc. (UNH - Free Report) acquired XLHealth Corporation, a sponsor of Medicare Advantage health plans. It also acquired Preferred Care Partners and Medica HealthCare Plans. Cigna Corp. (CI - Free Report) also completed the acquisition of HealthSpring Inc. which has a niche in the MA market. Also, Humana Inc. (HUM - Free Report) completed its acquisition of MD Care, specializing in MA business. Aetna Inc. too closed its acquisition of Genworth’s Medigap business.

The higher-than-expected reimbursement brings relief to insurers that have been facing significant regulatory uncertainty with the change of administration at the White House.


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