Washington -- Medicare private plans that for years have received annual pay increases are set to sustain sizeable reductions in 2010 under cost estimates recently released by the Obama administration.

In an April 6 directive to Medicare Advantage plans, the Centers for Medicare & Medicaid Services updated plan payment information that it first released in February. The National Per Capita Medicare Advantage Growth Percentage -- an estimation of how much more the program will need to spend on all beneficiaries -- will be 0.81% for 2010.

While this is an increase over the agency's initial projection of 0.5%, it still amounts to an expected reduction in payment over 2009 levels to private insurers that administer Medicare plans. For the first time, CMS will make a "coding pattern differences" adjustment to Medicare Advantage risk scores to account for differences in disease coding patterns between Medicare Advantage and traditional fee-for-service, producing more expected rate reductions.

Industry analysts project that, taken together, these administrative factors will produce cuts of between 4% and 5% next year for Medicare Advantage, said Robert Zirkelbach, America's Health Insurance Plans spokesman. CMS released the pay data so organizations offering Medicare Advantage and prescription drug plans could structure their benefits and beneficiary cost-sharing as they prepare their bids for 2010. Medicare Advantage plans have until June 1 to submit their bids to CMS.

Some experts think the latest CMS actions mean the Obama administration wants to limit Medicare Advantage plans even before cuts approved by Congress last July take effect in 2011. President Obama also has proposed saving another $180 billion over 10 years by requiring private Medicare plans to bid competitively for contracts, with the federal government paying the average of all bids.

A major part of the reason CMS is projecting such a low growth percentage for Medicare Advantage is that it is assuming Medicare physician pay will go down by an estimated 21% next year under current law. AHIP is dismayed that CMS has not taken into account the fact that Congress has stepped in every year since 2002 to head off a projected cut to Medicare payments for physicians and that it is likely to do so again this year, Zirkelbach said.

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