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Government says cuts possible next year in popular Medicare Advantage private insurance plans

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WASHINGTON - Cuts are on the table next year for Medicare Advantage plans, the Obama administration says. The politically dicey move affecting a private insurance alternative highly popular with seniors immediately touched off an election-year fight.

The announcement gave new ammunition to Republican critics of President Barack Obama's health care law, while disappointing some Democratic senators who had called on the administration to hold rates steady. Insurers are still hoping to whittle back the cuts or dodge them altogether.

Late Friday after financial markets closed, Medicare issued a 148-page assessment of cost factors for the private plans next year. It included multiple variables, some moving in different directions, but analyst Matthew Eyles of Avalere Health estimated it would translate to a cut of 1.9 per cent for 2015, a figure also cited by congressional staffers briefed on the proposal.

"There's nothing to like here if you're one of the plans," said Eyles.

Administration officials say the plans don't need to be paid as much to turn a profit, because the growth of health care spending has slowed dramatically. They see the cuts as a dividend for taxpayers.

But the political clout of the plans is growing as seniors flock to them seeking better health care value. Medicare Advantage plans now serve nearly 16 million people, or about 30 per cent of Medicare beneficiaries. They can offer lower out-of-pocket costs and broader benefits than traditional Medicare, but often restrict choice.

Insurers say they will be forced to pass on higher costs to seniors or cut benefits if their rates are reduced, and some plans may drop out altogether. The impact could vary significantly around the country.

The industry says the cuts come as Medicare Advantage reductions programmed under the health care law are ramping up. The law sought to compensate for prior years in which the plans were overpaid. But it also includes a new tax on insurers, so industry officials fear the combined impact will be much higher.

The largest insurer trade group, America's Health Insurance Plans, is sparing no effort to head off cuts, with an extensive advertising and lobbying campaign.

It has won the support of 40 senators from both parties who, in a Feb. 14 letter, called on the administration to essentially hold Medicare Advantage rates steady. Among the signers were six Democratic senators in contested races whose outcome will determine whether Obama faces a Congress next year that's completely controlled by Republicans.

Final rates won't be released until April 7, so the lobbying will get even more intense. In prior years, Medicare has sometimes pulled back from proposed cuts.

Friday's announcement will help the government decide basic rates for the Medicare Advantage plans. But the actual change individual plans and customers eventually see will vary, depending on factors like a plan's quality rating or where the plan is located.

The plans have become a key source of revenue growth for insurers who sell and administer the subsidized coverage. They offer basic Medicare coverage topped with extras like vision or dental coverage or premiums lower than standard Medicare rates. There are hundreds of different plans around the country, each with its own set of variables like different deductibles, premiums and co-insurance.

UnitedHealth Group Inc. and Humana Inc. are the two largest Medicare Advantage providers. Health insurance stocks that soared in 2013 slipped at the start of this year after Humana Inc., the second-largest in the market, said rate cuts could be deeper than expected.

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Associated Press writer Tom Murphy in Indianapolis contributed to this report.

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