Medicare Advantage in 2008
By Marsha, Gold, Sc.D.
The Henry J. Kaiser Family Foundation
Today, a disproportionate share of the growth in MA (Medicare Advantage) appears to reflect industry response to higher payments, the ease of establishing PFFS (private fee-for-service) plans that involve no networks, and the ability to piggyback on existing administrative structures used to market Medigap and other insurance products. It is possible that some of the PFFS growth could migrate eventually to more managed options. Lack of traction among regional PPOs (preferred provider organizations) suggests that any such migration would be most likely in local plans, as long as that option remains. The growth in local CCP (coordinated care plan) availability is moderately encouraging, but also contrasts with the relatively stagnant state of current CCP enrollment and limited national scope of offerings currently available in the CCP market through most major MA firms. While this analysis does not address this aspect, there is the possibility that PFFS itself is eroding the more managed segments of the MA market. Such erosion would run counter to the interest of some policymakers who support transitioning beneficiaries to more managed products that are presumed to more effectively manage patient care at a lower cost to Medicare.
In sum, MA plans are offering expanded choice which is potentially attractive to some beneficiaries and to some employers who offer group retiree coverage. The issue for policymakers is whether such expansion also holds long-term promise for Medicare’s financial condition and overall stability. If it does not, policymakers soon may have limited ability to alter course since continued growth in Medicare Advantage plan enrollment will generate entrenched interests and shifts in money flow that could be hard to reverse.
Higher Spending Relative to Medicare Fee-for-Service May Not Ensure Lower Out-of-Pocket Costs for Beneficiaries
GAO (U.S. Government Accountability Office)
February 28, 2008
MA plans receive a per member per month (PMPM) payment to provide services covered under Medicare FFS. Almost all MA plans receive an additional Medicare payment, known as a rebate. Plans use rebates and sometimes additional beneficiary premiums to fund benefits not covered under Medicare fee-for-service; reduce premiums; or reduce beneficiary cost sharing. In 2007, MA plans received about $8.3 billion in rebate payments.
GAO found that MA plans projected they would use their rebates primarily to reduce cost sharing, with relatively little of their rebates projected to be spent on additional benefits. Nearly all plans—91 percent of the 2,055 plans in the study—received a rebate. Of the average rebate payment of $87 PMPM, plans projected they would allocate about $78 PMPM (89 percent) to reduced cost sharing and reduced premiums and $10 PMPM (11 percent) to additional benefits. The average projected PMPM costs of specific additional benefits across all MA plans ranged from $0.11 PMPM for international outpatient emergency services to $4 PMPM for dental care.
While MA plans projected that, on average, beneficiaries in their plans would have cost sharing that was 42 percent of Medicare FFS cost-sharing estimates, some beneficiaries could have higher cost sharing for certain service categories. For example, some plans projected that their beneficiaries would have higher cost sharing, on average, for home health services and inpatient stays, than in Medicare FFS. If beneficiaries frequently used these services that required higher cost sharing than Medicare FFS, it was possible that their overall cost sharing was higher than what they would have paid under Medicare FFS.
Out of total revenues of $783 PMPM, on average, MA plans projected that they would allocate about 87 percent ($683 PMPM) to medical expenses. MA plans projected they would allocate, on average, about 9 percent of total revenue ($71 PMPM) to nonmedical expenses, including administration and marketing expenses; and about 4 percent ($30 PMPM) to the plans’ profits. About 30 percent of beneficiaries were enrolled in plans that projected they would allocate less than 85 percent of their revenues to medical expenses.
As GAO concluded in its report, whether the value that MA beneficiaries receive in the form of reduced cost sharing, lower premiums, and additional benefits is worth the additional cost to Medicare is a decision for policymakers.
This week, the AMA and AHIP (America’s Health Insurance Plans) have each begun intensive campaigns to influence Congress on the anticipated Medicare adjustments that will be made when the members return from their recess. The AMA wants to prevent the disastrous 10 percent reduction in physicians’ reimbursement rates, and AHIP does not want that to be paid for by a reduction in overpayments to the private Medicare Advantage plans. It is crucial that we understand what we are purchasing with these Medicare Advantage overpayments.
The Medicare Advantage plans are being paid about 12 percent more (17 percent for PFFS plans) than the costs of patients in the traditional Medicare program. Of the funds received, the plans use 13 percent for non-medical purposes including administration, marketing expenses, and profits (4 percent) or about $101 PMPM, much higher than the administrative costs of the traditional Medicare program. Obviously this is a very expensive program, so what are the beneficiaries receiving for this high cost?
Most of the extra benefits received by the Medicare Advantage enrollees are paid from rebates paid to the plans, amounting to $88 PMPM, obviously less than the $101 the plans are using for administration and profits. The GAO study further found that most of the benefit (89 percent of the rebate, or $78 PMPM) received by the Medicare Advantage beneficiaries was in the form of reduced out-of-pocket payments. Only 11 percent ($10 PMPM) was for additional benefits, a mere drop in the bucket when considering the overall benefits provided by the traditional program.
So we are paying the Medicare Advantage plans a lot of money for for administration and profits, but for what end? Merely to reduce premiums and cost sharing. The private plans waste a tremendous amount of our tax funds accomplishing this when these extra administrative costs and profits would disappear if Congress were to make the same premium and cost sharing adjustments by mere legislative fiat! What a waste!
Worse yet, why shouldn’t everyone in Medicare receive the same relief as the privileged individuals who enroll in the private plans? Congress should end this Medicare Advantage shell game and take the money they are wasting on these plans and distribute it equitably so all Medicare participants can benefit. Even if they use it now to prevent the crumbling of the physician infrastructure, that would still benefit all patients.