Medicare MA plan payments might increase by less than 3% in 2008

The estimated reimbursement rate increase for private Medicare Advantage plans in 2008 likely would not equal the increase in medical costs, according to Wall Street analysts, Dow Jones reports.

CMS late last week estimated that reimbursement rates for Medicare Advantage plans would increase by an average of 4.1% in 2008, but some analysts expect an increase of 3% or less after the agency makes adjustments and releases the final rates in April.

Wachovia analyst Matt Perry in a note wrote, "We view 3% as a reasonable increase that will sustain membership growth and margins for most (Medicare Advantage) plans in 2008."

Because medical cost increases likely would be more than a 3% increase in reimbursement rates, some Medicare Advantage plans might reduce benefits or increase premiums for beneficiaries, analysts said.

In a note, CIBC World Markets analyst Carl McDonald wrote that some Medicare Advantage plans might have to reduce benefits in 2008 to maintain profit margins, "which means that products will not be as attractive as they are this year." Goldman Sachs analyst Matthew Borsch in a note wrote, "It appears likely that the 2008 MA rate increase will lag medical-cost trend, implying a modest level of benefit reductions and/or member-paid premium increases will be needed to maintain profit margins."

However, Perry wrote, "We continue to believe that the (Medicare Advantage) program will provide strong growth for managed care companies in 2007 and 2008. In the big picture, MA plans offer improved benefits and lower costs to seniors relative to traditional Medicare and will continue to do so in 2008."

McDonald wrote that he expected enrollment in Medicare Advantage plans to increase because such plans offer more benefits than traditional Medicare (Weisberg/Brin, Dow Jones, 2/20).