The payment reductions proposed Friday are subject to negotiations with the industry and aren't expected to become final until April 1. Insurers had expected cuts of as much as 6.5 percent and had mounted a lobbying campaign to reduce the amount even before Friday's filing, including a Feb. 14 letter to the Obama administration from 40 senators urging the government to freeze rates for the program.About 15.9 million people, or about 30 percent of Medicare beneficiaries, are enrolled in Advantage plans this year, according to February data from the government.Next year may mark a turning point: Medicare's actuaries estimate that enrollment will decline for the first time since 2004 because payment cuts will cause plans to drop out or reduce benefits.

CEOs' trepidation

“There's a lot of trepidation awaiting this letter and not a few Wall Street analysts and CEOs who are like a long-tailed cat in a room full of rocking chairs these days,” John Gorman, executive chairman of Gorman Health Group, a consulting firm in Washington, said before the cuts were announced. “There's all kinds of things around that could hurt.”

Consumers who choose Advantage plans are opting for managed care, with benefits including lower out-of-pocket costs, over the traditional government-run Medicare program for the elderly and disabled. Government payments have been under pressure since 2010, when the U.S. health expansion was financed in part by reducing spending on Advantage plans by an estimated $206 billion over a decade.

At the time, U.S. spending for Advantage beneficiaries was estimated to be as much as 13 percent higher than for people enrolled in traditional Medicare, leading to criticism the Advantage plans were overpaid.

Even after the cuts, the Medicare Payment Advisory Commission, which studies the program for Congress and recommends cost savings, estimates that Advantage plans were paid about 4 percent more in 2013, per beneficiary, than the cost of the traditional program.

‘Seniors are watching'

Last year, the administration raised 2014 base payments for Advantage insurers by 3.3 percent, after initially proposing a 2.2 percent reduction.

Still, insurers say that other government decisions — including a new tax on the industry under the Patient Protection and Affordable Care Act and budget sequestration ordered by Congress — reduced their Advantage payments about 6.7 percent in total this year.

Before Friday's announcement, insurers predicted a proposed cut of as much as 6.5 percent. Their lobbying campaign has included posters plastered around Washington that picture an elderly man with a pair of binoculars, with the warning “Seniors Are Watching.”

Senators' letter

The 40 U.S. senators who wrote to Medicare administrator Marilyn Tavenner to ask for payments to be frozen were led by Charles Schumer, D-N.Y., and Michael Crapo, R-Idaho.

The program “has been a great success and should remain a competitive choice for our constituents,” the senators said. “We urge you to maintain payment levels that will allow MA beneficiaries to be protected from disruptive changes in 2015.”

While Medicare actuaries estimate enrollment in Advantage plans will dip next year, the Congressional Budget Office predicted that participation may rise as much as 50 percent in the next decade to 21 million by fiscal 2023.