The Future of Medicare Advantage National Association of Health UnderwritersCapitol ConferenceMarch 30, 2009Peter Stein & John GreeneNAHU Congressional Affairs
Brief History of Private Plans in Medicare • Private health plans have been available to Medicare beneficiaries since the inception of the program • The most important change was capitated payment based on local FFS costs in the early 1980s • Wide disparities in local FFS costs led to wide disparities in payments to private plans and wide disparities in government-financed benefits • Payment disparities were addressed by the 1997 BBA, 1999 BBA, and 2000 BIPA acts, resulting in plan withdrawals and benefit cuts • MMA in 2003 increased incentives for private plans (Medicare Advantage, formerly M+C); MIPPA 2008 retrenched incentives somewhat
Medicare Advantage (Part C) Medicare Advantage Enrollment (in millions) • An alternative to original Medicare; beneficiaries can enroll in a private plan to receive all Medicare-covered benefits and (often) extra benefits • Includes HMOs, PPOs, and private-fee-for-service (PFFS) plans • The government pays private insurers a fixed amount per enrollee • Medicare Advantage enrollees: • generally pay the Part B premium • sometimes pay a supplemental premium for additional benefits (e.g., vision, dental) • typically receive drug coverage (Part D) 10.8 8.7 6.9 6.1 6.1 5.3 1999 2001 2003 2005 2007 2009 Nearly a quarter of all Medicare beneficiaries are enrolled in Medicare Advantage plans in 2009
Medicare Benefit Payments, by Type of Service, in 2009 Part A Part B Part A and B Part D 11% 8% 29% 17% 5% 4% 24% Total Benefit Payments = $477 billion Source: CBO Medicare Baseline, March 2008
Medicare Advantage: Beneficiary Demand Due to Gaps in FFS Medicare • Medicare pays less than half (45%) of beneficiaries’ total health and long-term care spending • Medicare does not cover all medical benefits • No coverage for hearing aids, eyeglasses, dental care • Generally does not pay for long-term care • Medicare has high cost-sharing requirements • Monthly premiums for Part B, Part C and Part D • Deductibles for Part A, Part B and Part D • Part D coverage gap (“doughnut hole”) • No limit on out-of-pocket spending for benefits • Median out-of-pocket spending as share of income rose from 11.9% in 1997 to 16.1% in 2005
MA Enrollment by Income Overall avg. = 19% Source: “Examining Sources of Coverage Among Medicare Beneficiaries: Supplemental Insurance, Medicare Advantage, and Prescription Drug Coverage,” Kaiser Family Foundation, August 2008 (based on 2006 Current Beneficiary Survey).
MA and FFS Enrollment, by Income Source: “Examining Sources of Coverage Among Medicare Beneficiaries: Supplemental Insurance, Medicare Advantage, and Prescription Drug Coverage,” Kaiser Family Foundation, August 2008 (based on 2006 Current Beneficiary Survey).
Medicare Advantage Today • Substantially greater choice nationwide • Expanded benefits • Vision, hearing, and dental benefits • Home Care for Chronic Illnesses • Prescription drug management tools integrated with medical benefits • Wellness programs • Case Management Services • Disease Management Programs • Nurse Help Hotlines
Medicare Advantage: Reduced Out-of-Pocket Costs for Beneficiaries • Out of pocket maximums for beneficiaries on services such as inpatient hospital stays • Limits on cost-sharing for primary care physician visits • Reduced premiums for Part B • Reduced premiums for Part D • Reduced cost sharing for breast cancer screening • Reduced cost sharing for prostate cancer screening
Medicare Advantage Payments • “Benchmark” set through combination of county-specific rates based on FFS, other floors, and premium bids under new MA program • If plan bids below benchmark, 25% rebate goes to government, 75% retained for beneficiary premium reduction/benefit enhancement • Payments to plans adjusted for risk associated with particular patients
Medicare Advantage Payments • Some continue to express concern that MA funding rates can in certain areas average 13-17% higher than FFS beneficiary spending • MIPAA in 2008 reduced funding by lowering the MA benchmarks by an amount that reflects indirect medical education (IME) costs in an area • This along with other changes in the law, is projected to slow enrollment growth and reduce spending on MA by $48.7 billion between 2008 and 2018 • Some continue to advocate for further savings from MA; BBA 1997 implemented major cuts to private plans that caused beneficiary cost increases and plan withdrawals
MA and Supplemental Coverage MA Disenrollment Assuming Benchmarks Set at County-Measured FFS Costs + 0.7 million Go Without Supplemental Coverage 2.3 million 3 million total disenroll Enroll in, or Fall Back On, Supplemental Coverage Source: “The Impact of Reductions in Medicare Advantage Funding on Beneficiaries,” Adam Atherly, Ph.D. and Kenneth E. Thorpe, Ph.D., Rollins School of Public Health, Emory University, April 2007.
MA and Medicare Part D $11 per month differential Source: Differential average bids imputed from $11 difference cited in CMS press release dated August 14, 2008 (“Lower Medicare Part D Costs Than Expected in 2009”). See CMS press releases at: http://www.cms.hhs.gov/apps/media/press_releases.asp.
MA Benchmarks and Measured FFS Costs – Penalizing Lower Cost Areas? -2% -12% -20% -28% Source: CMS 2009 Medicare Advantage Ratebook, available at: http://www.cms.hhs.gov/MedicareAdvtgSpecRateStats/
Medicare Fee-for-Service “In previous reports, the Commission has recommended that Medicare adopt tools for increasing efficiency and improving quality within the current Medicare payment systems.... However, in the current Medicare FFS [fee-for-service] payment system environment, the benefit of these tools is limited for two reasons. First, they may not be able to overcome the strong incentives inherent in any FFS system to increase volume. Second, paying for each individual service and staying within the current payment systems (e.g., the physician fee schedule or the inpatient PPS [prospective payment system]) inhibit changes in the delivery system that might result in better coordination across services and lead to efficiencies or better quality across the system.” Reforming the Delivery System Medicare Payment Advisory Commission June 2008
Advantages of Private Plans • Set fees without Congressional approval • Contract with providers on the basis of price and quality – using competitive pricing when appropriate • Make cost-saving and cost-effectiveness investments in administrative infrastructure and care management • Coordinate services (inpatient, outpatient, Rx)
Additional MA Challenges: Agent Marketing and Selling • Widely reported abuses over past couple of years spurred Congress and CMS to put in place new rules • New strictures on marketing through unsolicited contacts; requirements for scope of appointment documentation • Prohibitions on most meals and gifts • Annual training and testing • New strictures on compensation so as to remove incentives for “churning”