Medicare’s New Alphabet Soup:A National and Historical

Perspective

Medicare’s New Alphabet Soup:A National and Historical

Perspective

by

Marsha Gold, Senior FellowMathematica Policy Research

Presentation to Families USA Health Action 2007 ConferenceFriday, January 26, 2007

Mayflower Hotel

by

Marsha Gold, Senior FellowMathematica Policy Research

Presentation to Families USA Health Action 2007 ConferenceFriday, January 26, 2007

Mayflower Hotel

2

Medicare Advantage—Revolution or Evolution?

Medicare Advantage—Revolution or Evolution?

A little bit of both

Time will determine the balance

Short term benefits but potentially long term risks for beneficiaries

Complexity assured

A little bit of both

Time will determine the balance

Short term benefits but potentially long term risks for beneficiaries

Complexity assured

3

The Historical PerspectiveThe Historical Perspective

From the beginning Medicare aimed to accommodate the marketplace

Prepaid group practices

Medicare HMOs—The Medicare Risk Contracting Program (1985-1997)

More choices (on paper)—Medicare+Choice and the BBA of 1997

Withdrawals and reduced benefits, higher premiums—1999-2003 collapse

Resurrection—the Medicare Modernization Act of 2003

From the beginning Medicare aimed to accommodate the marketplace

Prepaid group practices

Medicare HMOs—The Medicare Risk Contracting Program (1985-1997)

More choices (on paper)—Medicare+Choice and the BBA of 1997

Withdrawals and reduced benefits, higher premiums—1999-2003 collapse

Resurrection—the Medicare Modernization Act of 2003

4

A Graphical PerspectiveA Graphical PerspectiveEnrollment in Medicare Risk/Medicare+Choice Plans, 1985-2003

0.4

0.81 1.1 1.1

1.3 1.41.6

1.8

2.3

3.1

4.1

5.2

6.16.3 6.3

5.54.9

4.6

0

1

2

3

4

5

6

7

Prev

alen

ce (

Cru

de)

(Per

cent

)

Source: Gold, 2003 updated.

Note: Date for 1992-2002 are for enrollees in M=C coordinated care plans. Data for prior years are for enrollees in Medicare risk contracts. All data are for December of the given year. As of June 2004, 4.6 million were enrolled.

5

What Medicare Advantage DidWhat Medicare Advantage Did

Continued expanded choice options: PPO, PSO, PFFS

Dealt with restrictions on rate increases (starting 2004) to encourage plan entry

Created “regional PPO” option to expand choice to rural and less urbanized areas

Made MSA authority permanent and removed limit on enrollment

Continued expanded choice options: PPO, PSO, PFFS

Dealt with restrictions on rate increases (starting 2004) to encourage plan entry

Created “regional PPO” option to expand choice to rural and less urbanized areas

Made MSA authority permanent and removed limit on enrollment

6

What Medicare Advantage Did - IIWhat Medicare Advantage Did - II

Continued qualified phase out of “cost” contracts if other choices exist

To get Part D, required beneficiary to join a private plan (PDP or MA-PD)

Authorized Special Needs Plans

Continued qualified phase out of “cost” contracts if other choices exist

To get Part D, required beneficiary to join a private plan (PDP or MA-PD)

Authorized Special Needs Plans

7

What Proponents IntendedWhat Proponents Intended

Increase private plan contracts in Medicare and make them attractive

More choice of provider, options with low premiums

Financial “tilt” towards MA versus traditional program

MA available across the country

Increase private plan contracts in Medicare and make them attractive

More choice of provider, options with low premiums

Financial “tilt” towards MA versus traditional program

MA available across the country

8

MA Payment Rates—A Crib SheetMA Payment Rates—A Crib Sheet

Pre-MMA (through 2003)

County based payments Based on costs in traditional Medicare program Movement away from FFS link to promote more even availability nationwide

– Rural flood (BBA, 1998)– Urban floor (BIPA, 2001)– Blend and minimum 2 percent update (BBA, 1998)

Any savings in providing Medicare benefits returned to enrollee

MMA Changes – 2004

Annual minimum update 2 percent OR national growth rate Minimum county payment 100 percent of FFS

Pre-MMA (through 2003)

County based payments Based on costs in traditional Medicare program Movement away from FFS link to promote more even availability nationwide

– Rural flood (BBA, 1998)– Urban floor (BIPA, 2001)– Blend and minimum 2 percent update (BBA, 1998)

Any savings in providing Medicare benefits returned to enrollee

MMA Changes – 2004

Annual minimum update 2 percent OR national growth rate Minimum county payment 100 percent of FFS

9

MA Payment Rates—A Crib SheetMA Payment Rates—A Crib Sheet

MMA Changes - 2006

Shift from set county prices to “benchmarks” Plans submit bids. If below benchmark, 25% goes to government (new)

and rest is returned to enrollee in extra benefits, lower premiums (including Rx benefits)

If above benchmark, enrollee pays difference (little impact yet).

Risk Adjustment

Fully phased in 2007 Aggregate share in MA maintained (phase out starting 2007) Average MA rates in 2006 115 percent higher, FFS (112 percent after

gave back) (MEDPAC). Higher in “floor counties.

MMA Changes - 2006

Shift from set county prices to “benchmarks” Plans submit bids. If below benchmark, 25% goes to government (new)

and rest is returned to enrollee in extra benefits, lower premiums (including Rx benefits)

If above benchmark, enrollee pays difference (little impact yet).

Risk Adjustment

Fully phased in 2007 Aggregate share in MA maintained (phase out starting 2007) Average MA rates in 2006 115 percent higher, FFS (112 percent after

gave back) (MEDPAC). Higher in “floor counties.

What Happened?What Happened?

11

MA Availability IncreasedMA Availability Increased

72

25

82

63

85

69

9793

9894

0

10

20

30

40

50

60

70

80

90

100

1999 2003 2005 2006 2007

All Beneficiaries

Rural Beneficiaries

a

Percent of Beneficiaries with Plan Available

Source: MPR Analysis of CMS Data for The Kaiser Family Foundation for March of each year.

aExceptions are in Alaska and parts of New England.

12

2006 Expansion Driven by Relatively Unmanaged Options

2006 Expansion Driven by Relatively Unmanaged Options

78

89

37

80 79

9888 88 89

0

10

20

30

40

50

60

70

80

90

100

Any LocalHMO or PPO

Any PFFS Any RegionalPPO

All

Urban

Rural

Percent of Beneficiaries with Plan Available, 2006

Source: MPR analysis of CMS Data for Kaiser Family Foundation.

13

MA-PDs Offered Competitive Alternative to PDPs in 2006

MA-PDs Offered Competitive Alternative to PDPs in 2006

Source: MPR analysis of CMS’ November Landscape File for the Kaiser Family Foundation.

*Includes supplemental benefits and Part D (in addition to Part B premium).

37

21

16

27

17

$0

$5

$10

$15

$20

$25

$30

$35

$40

PDPs Regioanl PPOs Local HMOs Local PPOs Local PrivateFee-for-Service

Average Monthly Drug Premium, All MA-PDs, 2006*

14

Beneficiaries Responded and MA Enrollment Grew

Beneficiaries Responded and MA Enrollment Grew

2005 2006

All Medicare Advantage 6,121,678 7,591,051

Local Coordinated Care Plan (HMO, PSO, PPO) 5,157,627a 6,007,625b

Regional PPO 0 98,385

PFFS 208,990 864,100

Cost 321,555 318,274

Other 269,719 302,667

Number of MA Enrollees by Plan Type, 2005-2006

Source: CMS Monthly Summary report, December of each year.

aIncludes PPO demonstration enrollment

b5.5 million were in HMOs

15

PFFS’s Share of the Market Increased Substantially

PFFS’s Share of the Market Increased Substantially

25,897

51,214

208,990

864,100

0 200,000 400,000 600,000 800,000 1,000,000

2003

2004

2005

2006

PFFS Enrollment

Source: CMS Monthly Summary reports, December

16

Choice Continues to Expand in 2007Choice Continues to Expand in 2007

All urban beneficiaries and 94 percent of rural beneficiaries have PFFS available

Regional PPOs in same locations (a few more choices)

Small growth in areas with available HMOs (not local PPOs)

MSAs available for the first time in most areas of the country from Wellpoint

All urban beneficiaries and 94 percent of rural beneficiaries have PFFS available

Regional PPOs in same locations (a few more choices)

Small growth in areas with available HMOs (not local PPOs)

MSAs available for the first time in most areas of the country from Wellpoint

What Does it Mean for Beneficiaries?What Does it Mean for Beneficiaries?

18

MA Provides Competitive Premium but Higher Out of Pocket Costs than

Most Medigaps

MA Provides Competitive Premium but Higher Out of Pocket Costs than

Most Medigaps

Source: MPR analysis of Medicare Compare data using HealthMetrix Research’s Medicare HMO Cost Share Report Methodology in Gold and Achman, August 2003.

Note: Results are weighted by M+C plan enrollment. Includes only coordinated care plans. Costs include the Medicare Part B premium, the M+C plan premium and estimated out-of-pocket spending for pharmaceuticals, and selected acute care services (hospitalization, physician visits).

$976

$1,185

$1,438

$1,786

$1,964

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

1999 2000 2001 2002 2003

Estimated Average Annual Out-of-Pocket Health Costs for Medicare+Choice Enrollees, 1999-2003

19

Part D Benefits are Highly Competitive in MA

Part D Benefits are Highly Competitive in MA

Lower premiums, less out-of-pocket cost, some coverage generics in gap

Advantage mainly seen in HMOs and enhanced plans (2006)

Can use savings from A/B and overpayments to offset Part D (Rx ) costs

HMOs possibly can negotiate better rates (more managed)

Lower premiums, less out-of-pocket cost, some coverage generics in gap

Advantage mainly seen in HMOs and enhanced plans (2006)

Can use savings from A/B and overpayments to offset Part D (Rx ) costs

HMOs possibly can negotiate better rates (more managed)

20

Newer MA Options Provide Beneficiaries Less Financial Protection

Newer MA Options Provide Beneficiaries Less Financial Protection

All MA-PD (Except SNPs) All HMO

Local PPO PFFS

Regional PPO

All $268 $239 $303 $337 $432

Healthy $831 $72 $104 $81 $180

Episodic Needs $686 $621 $749 $911 $983

Chronic Needs $1,656 $1,487 $1,819 $2,254 $2,382

Number of Contract Segments 1,349 909 269 126 47

Estimated Out-of-Pocket Costs Per Enrollee for Hospital and Physician Services in MA-PD Plans by Type, 2006

Source: MPR analysis for AARP’s Public Policy Institute of CMS’s November 2005 Personal Plan Finder using HealthMetrix cost sharing methodology.

21

Free-Standing PDPs Remain More Popular with Beneficiaries

Free-Standing PDPs Remain More Popular with Beneficiaries

PDPs Stand alone Dual eligible

10.4 million 6.1 million

MA-PDs 6.0 million

Enrollment, June 2006

Source: KFF PDP Fact Sheet (November 2006)

22

Long Range Stability of MA Remains an Issue

Long Range Stability of MA Remains an Issue

Expansion highly driven by MMA, increased rates.

Growth in penetration (and nontraditional options) highly driven by decisions of a few firms (Humana, UnitedHealthcare, Wellpoint).

Over 80 percent of PFFS enrollment is in “floor” counties, benefiting most by overpayments.

Budgetary pressures may make higher MA payments harder to maintain.

Expansion highly driven by MMA, increased rates.

Growth in penetration (and nontraditional options) highly driven by decisions of a few firms (Humana, UnitedHealthcare, Wellpoint).

Over 80 percent of PFFS enrollment is in “floor” counties, benefiting most by overpayments.

Budgetary pressures may make higher MA payments harder to maintain.

23

Issues for Beneficiary ConcernIssues for Beneficiary Concern

Are beneficiaries aware of MA’s cost sharing?

Will providers accept a PFFS alternative to Medicare?

If MA penetration grows, will traditional Medicare be viable?

If not, will MA serve to limit the federal contribution to Medicare?

What forms of beneficiary protection will help beneficiaries benefit by MA?

Are higher MA payments a plus or negative for beneficiaries?

Are beneficiaries aware of MA’s cost sharing?

Will providers accept a PFFS alternative to Medicare?

If MA penetration grows, will traditional Medicare be viable?

If not, will MA serve to limit the federal contribution to Medicare?

What forms of beneficiary protection will help beneficiaries benefit by MA?

Are higher MA payments a plus or negative for beneficiaries?