Who Benefits when the Government Pays More? Pass-Through in the Medicare Advantage Program
By Mark Duggan, Amanda Starc, and Boris Vabson
National Bureau of Economic Research, March 2014
Our results strongly suggest that increased subsidies for private insurance in the Medicare market result in increased insurer advertising, but little additional monetary or medical benefit for consumers.
The measures of plan financial characteristics and quality that we use suggest that only about one-sixth of the policy-induced increase in plan reimbursement is captured by consumers.
While reimbursement increases have an ambiguous welfare impact on consumers, they unambiguously increase costs, through increased numbers of MA enrollees and through increased government spending per MA enrollee. A back-of-the-envelope estimate suggests that this additional spending amounted to approximately $6.4 billion during the final year of our sample period
40 Senators Sign Bipartisan Letter Urging CMS to Maintain Current Medicare Advantage Payment Levels in 2015
AHIP, February 18, 2014
Stakeholder Groups Send Bipartisan Letter Urging CMS to Protect Seniors in Medicare Advantage
AHIP, March 7, 2014
140 Physician Organizations Sign CAPG Letter Urging CMS to Protect Seniors in Medicare Advantage
AHIP, March 10, 2014
204 Members of Congress Sign New Bipartisan Letter Urging CMS to Protect Seniors in Medicare Advantage
AHIP, March 13, 2014
What They Are Saying: Bipartisan Group of 262 Members of Congress Urges CMS to Protect Seniors in Medicare Advantage
AHIP, March 28, 2014
Dr. Kavita Patel and John Rother: Proposed Medicare Advantage Cuts “Unjustifiable”
AHIP, March 19, 2014
Medicare cuts put coordinated care at risk
By John Rother, JD and Kavita K. Patel, MD MS
The Hill, March 13, 2014
In the last few years, growth in healthcare spending has begun to moderate, fueled in part by Medicare’s shift toward new forms of payment based on outcomes and quality. But short-sighted regulations proposed last week would impose dramatic cuts to Medicare Advantage (MA) that may stifle this exciting transformation.
Many of the new cost-containment strategies now underway in original Medicare were pioneered in Medicare Advantage. The models for the Affordable Care Act (ACA)’s Accountable Care Organizations were integrated delivery systems like Intermountain, Kaiser Permanente and Geisinger, which all operated MA plans.
The Center for Medicare and Medicaid Innovation is currently testing a nurse-led care coordination program in nursing homes that is strikingly similar to United Healthcare’s Evercare program. And under the so-called Dual-Eligibles Demonstrations, states, Medicaid and Medicare are working together to implement the successful chronic care strategies pioneered by specialized MA Special Needs Plans like SCAN Health Plan, Caremore and XL Health.
Last year the very plans that developed these innovations weathered a 6.7 percent cut in payment. The effect of the cut was predictable: a majority of counties across the country saw fewer plan options, premiums climbed 6 percent and out of pocket maximums jumped an average of $560. But now, after federal regulators issued a new proposal February 21, MA appears to be headed for an entirely new round of cuts.
The new cuts would slice another 5.9 percent from Medicare Advantage this year. That amounts to nearly 15 percent in cuts over just two years. This trend is unsustainable without imposing real costs to Medicare and its beneficiaries.
Regulators have offered several rationales for these cutbacks, which can sound plausible at first when considered one by one. After all, Congress did redirect some MA funding to offset costs associated with the ACA, and slower cost growth elsewhere in Medicare arguably would mean some adjustment for MA. However, after examining the overall, cumulative impact of this latest proposal, it’s clear that regulators are missing the forest for the trees.
Continued cuts of this magnitude put at risk the next generation of new cost-saving and quality-enhancing reforms. Even as today’s models of accountable care and primary care innovation are taking hold elsewhere in health care, MA plans would be falling behind due to the forced limit on their investment in cost-curbing strategies. That is bad news for the taxpayers who must help finance Medicare today and in the decades to come.
But the consequences for beneficiaries are even more concerning. As the proposed cuts force plans to pull back from markets they currently serve, some seniors and disabled Americans will have fewer integrated care options from which to choose, or even none at all. For any Medicare enrollee, this is a scenario to avoid. But when you consider how 41% of Medicare beneficiaries make less than $20,000 a year, the proposal becomes unjustifiable.
The Center for Medicare and Medicaid Services (CMS) has the authority to prevent this scenario. They must exercise it.
One element of a smarter approach could be to extend a recently-concluded quality demonstration project. Current law requires CMS to pay bonuses to MA plans that earn 4 or 5 stars in CMS’ 5 star plan evaluation system. But when a now-concluded demonstration program allowed CMS to offer bonuses to 3 and 3.5 star plans, there was a marked improvement in plan quality across MA as plans invested in better care management and partnered with providers to offer the high-value care that patients need. Resurrecting the demonstration would be win/win by mitigating damaging rate cuts for plans while promoting even better quality across the MA program. And rather than denying many beneficiaries the option of pursuing integrated care, continuing the quality demonstration would actually improve the quality of the options availability to them.
Whatever the exact regulatory levers used to reverse the proposed cuts, CMS must change its course. Blunt cuts will only stifle the very innovation which policymakers, providers and patients are so desperate to pursue in a new era of delivery system reform.
By Don McCanne, MD
The extraordinary power of AHIP – the health insurance lobby organization – is currently being demonstrated by its astonishing ability to massively recruit Washington insiders and politicians in its effort to salvage the overpayments being made to the private Medicare Advantage plans.
If you review the letters, op-eds, and press releases of the various individuals and organizations that have recently spoken out in support of Medicare Advantage, you will see that they all use the rhetoric of AHIP. The AHIP release of March 28 (link above) shows the extent of involvement of members of Congress, including links to their letters and op-eds, obviously orchestrated by AHIP.
The op-ed reproduced in full above demonstrates not only the use of obvious AHIP rhetoric, but it shows how pervasive the AHIP efforts have been in that they were able to recruit two respected members of the policy community to sign on to this op-ed – John Rother and Kavita Patel. This Washington sellout to AHIP is not just sad, it’s tragic.
It is not as if there were some saving grace in the private Medicare Advantage plans. The new study from NBER (above) is only the latest amongst the innumerable reports showing that most of the extra funds paid to the plans are going to the insurers rather than the beneficiaries. This particular study shows that the insurers are using our tax funds to buy advertising to sell more plans to jack up their revenues. The advertising campaign has been successful in that one-third of Medicare beneficiaries have now enrolled in the private plans.
The Affordable Care Act included provisions to reduce these overpayments to levels comparable to the costs of patients in the traditional Medicare program. AHIP has already used its influence to convince the administration to use chicanery to reduce the cutbacks in the first two years of the reductions (by issuing phony quality awards and by using accounting gimmickry with the scheduled but deferred SGR adjustments). Since the administration seems to be resisting further chicanery (we’ll soon find out) AHIP has intensified its public campaign using some of Washington’s “finest.”
The main claim that AHIP has induced these Washingtonians to make is that seniors on the Medicare Advantage program will have to pay more since the insurers will have to increase premiums and cost sharing to make up for the reduced government payments. What they don’t point out is that reductions in premiums and cost sharing amount to only about one-sixth of the overpayments that the insurers receive.
Think about those numbers. If the Medicare Advantage program were shut down and everyone in Medicare were granted the same reductions in premiums and cost sharing as those in the Medicare Advantage plans, then the entire cost would be only half of total amount of the overpayments that the Medicare Advantage plans are already receiving (tripling the number of people receiving one-sixth of the overpayments).
If members of Congress cared more about the people instead of the insurers, they would respond to the pleas of “don’t cut my Medicare” by telling their constituents that not only will they protect the savings the Medicare Advantage patients are receiving, but they also will give the same savings to everyone else on Medicare, and they will pay for it by getting rid of the Medicare Advantage plans and have a lot of money left over.
What we don’t want to pay for is more expensive advertising to draw people into a program that wastes our taxpayer dollars while rewarding AHIP’s sponsors. Even if John Rother and Kavita Patel become remorseful and do the right thing, unfortunately the members of Congress know that AHIP lobbyists are the ones who will show them the money.
If we expect to use an improved version of Medicare as a model for single payer reform, we are going to have to get rid of the private insurers – the Medicare Advantage plans.