Photo by Daniel Laflor

 Nancy and Tom Henretty of Hilton, N.Y., could hardly believe their eyes when they opened a letter from their Medicare Advantage health plan saying their monthly premiums would go up from $94 to $165 next year—a jump of $71 or 76 percent for each of them. But it was the plan’s explanation for the huge increase—sent as an advance notice a few days earlier—that most grabbed their attention.

The notice, from MVP Health Care, said: “We’d like to give you a quick overview of the upcoming changes, especially in the light of the health care reform decisions made in Washington this year.” It went on to say that, as “likely you have heard,” Medicare had changed the way it pays Medicare Advantage (MA) plans, adding: “This has greatly reduced the amount we will receive from the federal government … and because of this you will see a significant premium increase in your plan for 2010.”

Misleading language

At first, Nancy Henretty read this as meaning that health care reform was responsible for the premium hike. “Then I said, ‘Wait a minute, the legislation hasn’t even passed yet,’ ” she recalls. “I thought the wording was extremely misleading. And I was very upset because with so many false statements [about reform proposals] out there, I didn’t need another one from my health plan.”

Millions of other MA enrollees have received similar letters from insurers this month to explain why their plans are raising premiums or, in some cases, pulling out of the Medicare program altogether.

Not all insurance companies explicitly mention health care reform, but most put the blame on “funding cuts by the federal government.” Many beneficiaries are interpreting this phrase to mean that reform proposals to reduce government subsidies to MA plans—a flash point in the battle to overhaul the health insurance system—have already gone into effect.

It’s true that Medicare will pay MA plans 4.46 percent less per enrollee in 2010 than it did this year. But almost all these cuts were required under laws passed in 2006 and 2008. “They have nothing to do with health care reform legislation,” says Len Nichols, director of the health policy program at the New America Foundation. “But [insurers] are using the letter tactic to affect the debate.”

What’s really behind the cuts

The changes in payments next year are required by a measure in the 2006 Budget Reduction Act passed by Congress. The measure aims to rein in a practice—rampant among Medicare Advantage plans—that effectively inflates Medicare payments by claiming patients are much sicker than they actually are.

Under the traditional Medicare program, doctors, hospitals and other providers are reimbursed directly for individual services to beneficiaries. But that’s not the case with Medicare Advantage plans. Every year Medicare pays MA plans a certain amount for each of their enrollees, regardless of how much or little health care they use, under a complex formula set in law.

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