Medicare Part C allows elderly beneficiaries to opt for private health coverage through Medicare Advantage (MA) plans. Enrollment in these plans has grown in recent years, despite changes to the amount of government funding for the program and a lack of new plans entering the market. This Strategic Perspective will examine recent trends in MA enrollment and plan availability and address the legislative effects of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) on the stability of the program.
Why private plans?
Medicare Part C was established by the Balanced Budget Act of 1997 (P.L. 105-33), but the MA program was not established until the passage of the Medicare Modernization Act of 2003 (P.L. 108-173), replacing what was known as the Medicare+Choice program, to give beneficiaries a wider choice of options and the chance to obtain more comprehensive coverage than offered under original Medicare. The original MA Final rule (70 FR 4588, January 28, 2005) expanded the type of MA plans to include health maintenance organizations (HMOs), preferred provider organization (PPO) plans, fee-for-service (FFS) plans, and medical savings account (MSA) plans. The Final rule also established improved prescription drug benefits and other benefits not included in original Medicare.
What plans include. When an enrollee chooses a MA plan during an open enrollment period, the beneficiary is still part of the Medicare program and enjoys Medicare rights and protections, such as freedom from discrimination, privacy of health information, access to treatment, and appeal of claim decisions. Complete Part A and Part B coverage is offered in the plan, and the MA plans are prohibited from charging more than original Medicare for some expensive treatments, like chemotherapy, dialysis, and nursing facility care. However, MA plan rules must be followed, such as requiring a patient to obtain a referral to see a specialist within the plan’s network.
Services obtained outside of the network might cost more or might not be covered (for HMOs and PPOs, in most cases), and plans also have a limit on out-of-pocket costs for services. This is an important note for those enrollees with high health costs, as original Medicare does not have such a limit. MA cost limits do not include expenses for drugs (due to the catastrophic threshold), extra benefits, and services not covered.
Other considerations include an alternative to the 20 percent co-insurance levied by original Medicare. MA plans may offer different levels of co-insurance based on the amount of the premium charged in excess of what would normally be paid for Part B (which U.S. News & World Report noted was about $105 in 2013), and others may simply require fixed co-payment. Most MA plans cover prescription drugs (known as MA-PD plans), which is an alternative to adding Part D coverage to original Medicare. Further comprehensive services that can be obtained through MA plans that are not covered by Medicare include vision, dental, assisted living facilities, and nursing home care.
Prices. The CMS website offers a MA plan finder, allowing potential enrollees to search for plans and obtain an idea of plan costs. The Kaiser Family Foundation (KFF) analyzed 2015 premiums, reporting that the average premium for MA-PD plans was $53 a month. HMOs continued to have lower premiums than other types of plans, at an average of $38 per month. Regional PPO premiums increased by the largest amount on average: 14 percent, from $59 in 2014 to $68 in 2015. However, when premiums were weighted by enrollment, MA-PD plans cost $41 per month, an increase of 20 percent. HMOs were still the cheapest, but increased by an average of 22 percent.
Conditions continued to get somewhat more expensive for beneficiaries in 2016, although the average premium un-weighted by enrollment remained the same and the average HMO premium only went up $1 from the previous year. Regional PPOs went up to $75. When weighted for enrollment, premiums for plans went up between 7 percent and 13 percent, depending on type.
According to the KFF, 30 to 31 percent of Medicare beneficiaries were enrolled in MA plans in 2015, and the average beneficiary was able to select from 18 plans—a stable number when compared with 2014. Although some plans folded in 2014, others entered the market or expanded their coverage in 2015, so around 480,000 beneficiaries (or about 5 percent) needed to find a new plan in 2015. However, if those same beneficiaries chose to remain in the same plan, they would have had to pay an extra $7 a month on average in 2015 and then an extra $3 per month in 2016.
Although all MA plans place a limit on services, these limits increased an average of $240 in 2015, which may be a significant amount to some enrollees. CMS encourages plans to place the limit at no higher than $3,400 while allowing higher cost sharing for some services, but only a quarter of these plans have a limit of this amount or less in 2016 (compared to nearly half in 2013). In 2016, 39 percent of plans include limits at the maximum amount allowed ($6,700), a 17 percent increase over 2013.
One identifiable trend is the continued decline of private fee-for-service (PFFS) plans, which generally allowed beneficiaries to receive treatment from any provider that accepted PFFS payment. As with Medicare FFS, providers are paid at certain payment rates without bearing any risk. In 2008, there were 801 PFFS plans. This dropped quickly to 120 in 2014 and 69 in 2015. The number of local and regional PPOs declined slightly, with HMOs increasing to make up some of the difference.
Some MA plans are considered “zero premium” plans, which require no additional costs beyond the Part B premium. About half of all MA enrollees have been in a zero premium plan since 2011, despite the declining availability of these plans, according to the KFF. In 2009, 94 percent of beneficiaries had access to a zero premium plan, compared to 84 percent in 2014. This availability further declined in 2015 to 78 percent. This trend reversed slightly in 2016, when the percentage of beneficiaries with access to a zero premium plan actually increased by 3 percent.
Shareholder Julie Simer and Special Counsel Scott Schoeffel of Buchalter Nemer hypothesized that younger beneficiaries who recently enrolled in the Medicare program will be more comfortable switching to a MA plan. They generally have experience with managed care organizations and provider networks, and because they are younger and often healthier, these younger beneficiaries may find the limited provider options worth the extra benefits. Higher premiums may be worth the lower cost-sharing tradeoff. Simer and Schoeffel also believe that older seniors are more comfortable with Medicare FFS, and that they and “organized advocates” would severely resist an attempt to eliminate that type of coverage. Simer and Schoeffel believe that MA growth will come more gradually through offering incentives through MA plans, and that MA enrollment will increase over the coming years, especially “as the Medicare Trust Fund continues to diminish because of rising costs and shrinking tax contributions,” causing the program to shift toward efficient and cost-effective ways of managing senior health.
Prescription drug coverage. MA plans were an important source of prescription drug coverage for beneficiaries before the implementation of the Part D program. An increasing amount of MA plans are offering prescription drug coverage, with 86 percent in 2015, up three percent from 2015 and a more significant jump from 75 percent in 2007. Standard drug benefit design included a deductible of $320 in 2015 and $360 in 2016, although MA-PD plans typically have lower cost sharing.
Medicare drug benefits included a coverage gap which forced beneficiaries to pay all of their drug costs until they reached “catastrophic” protection. The ACA endeavored to close this gap by 2020 by increasing benefits until this so-called “doughnut hole” is closed. In 2015, beneficiaries enjoyed the benefit of paying no more than 45 percent of the cost of brand-name drugs and 75 percent of generics. The KFF found that 44 percent of MA-PDs provide additional coverage in this gap in 2016, compared to less than a quarter of Part D plans.
Although MA plans are an important part of the Medicare program, the ACA cut $716 billion from the Medicare program between 2012 and 2022, with a large percentage attributed to MA benefit reductions. The American Action Forum noted that the 2015 cuts to MA plans resulted in about $317 per MA enrollee. However, combined annual cuts added up to a benefits reduction of about $1,538. Section 3201 of the ACA changed the way benchmarks are calculated for each county by tying them to average FFS spending. However, changes to FFS spending resulted in declines, which had a domino effect of reducing the benchmarks.
The ACA also implemented a bonus tied to a plan’s star ratings, which were originally created to help beneficiaries choose a plan. Plans with a rating of 4 stars or above receive a 5 percent bonus—with a doubled bonus in certain counties that qualify. CMS initiated a pilot program to provide bonuses to plans receiving three or three and a half stars, resulting in 91 percent of MA contracts receiving bonuses in 2012. The forum concluded that most MA enrollees would face significant benefit cuts in 2015, but noted that some other factors, like changes to risk adjustment methodologies, would mitigate the cuts somewhat. Simer and Schoeffel noted that elements such as star ratings fit into CMS’ goal of rewarding providers for quality of care, rather than quantity. They believe that as CMS reviews encounter data, the agency will become better equipped to recognize and encourage more efficient health care delivery that also provides better outcomes.
The Medicare Payment Advisory Commission (MedPAC) stated that eliminating the double bonuses in the counties that qualify would reduce program spending by 0.6 percent, and that eliminating benchmark caps would increase spending by 0.5 percent. A majority of plans (63 percent) covering 82 percent of MA enrollees would have payment changes of less than half a percent, while 5 percent of plans would have payment decreases of 2 percent or more. It noted that some counties are both capped and qualify for double bonuses.
Simer and Schoeffel noted that the MA program has been an expensive one for the government to fund. The relatively small pool of beneficiaries does not allow the program to spread out financial risk as much as possible. The cost of care to the government has and will decline as MA membership grows, so the experts believe that the ACA’s reduction in spending is a way to return savings to the taxpayers.
2017 Advance Notice and Draft Call Letter
CMS proposed some MA program adjustments on February 19, 2016 for the 2017 plan year. The advance notice informed MA organization and prescription drug plan sponsors of changes to methodologies for capitation rates and risk adjustment following industry concerns that MA plans are not fully compensated for serving dual eligible (DE) beneficiaries (eligible for both Medicare and Medicaid) (see CMS proposes 2017 Medicare Advantage and Part D Program Changes, February 22, 2016). It also addressed the methodology for calculating MA county rates as a percentage of FFS spending as required by the ACA. In October 2015, when CMS first announced proposed changes to the risk model to take into account underpayments for DEs, Avalere Health believed that changes would “introduce volatility” in the MA market and more strongly effect beneficiaries in certain regions due to dramatically reduced payments. For example, large decreases could be observed in almost all of California, and 7 of 10 counties overall with largest MA enrollment would see a decrease in payment rate.
Star ratings. In response to concerns about star ratings measures, CMS analyzed whether enrollees who are dually eligible (DE) for Medicare and Medicaid and those who receive a low income subsidy (LIS) have an impact on a plan’s ability to achieve high star ratings. In September 2015, the agency found that while research shows that LIS/DE and disabled enrollees do have an effect on some small ratings measures, the impact is small and not always a negative one. However, the agency is committed to accurately capturing plan performance in these ratings and proposed implementing a new analytical adjustment to adjust for plans serving DE/LIS and disabled enrollees.
Technology, quality, and wellness. MA organizations are expected to help the Medicare program achieve interoperability by adopting health information technology (IT) that will allow plans and providers to easily exchange patients’ electronic health records (EHRs). The agency requested industry comment regarding interoperability activities while it considers the necessity of rulemaking to require adoption. MA organizations will also need to report on the amount of payments received with a link to quality to further the administration’s goal of shifting health care delivery toward a value-based system. CMS is also interested in furthering patient wellness, and requested input on how plans can better encourage enrollees to utilize their introductory preventive health care visit, as well as their annual wellness visits.
The future. The changes in the advance notice are in line with the experts’ predictions for MA trends over the coming years. They believe that socio-economic status and disability impact on cost of care will be considered more heavily in the future. Innovative technologies such as telemedicine will be implemented to better provide care, and improving overall health as well as early intervention for high-risk categories, such as diabetics, will be a main focus of the program. They also believe that the program will focus more on better integration for dual eligibles.
The MA program has experienced a range of changes since its implementation and seems to be poised for future growth despite government funding cuts. As the health needs of the population change, MA plans are in a better position than original Medicare to offer the types of services beneficiaries seek, and may become the most popular health care coverage option for seniors. However, decreasing plan options and increasing premiums, even by a small percentage, can have an impact on retirees with fixed incomes. The next several years may reveal whether issuers can keep up with demand, handle government cuts, and still be profitable.
Attorneys: Scott Schoeffel and Julie Simer (Buchalter Nemer)
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