Proposal could change Medicare for 4,000 in N.H.
A cost-cutting measure proposed in April by the federal Medicare Payment Advisory Commission could mean that as many as 4,000 New Hampshire beneficiaries could lose their Medicare Advantage supplemental coverage.
The proposal, which proponents say is designed to improve efficiency in the Medicare system, could affect some 3 million beneficiaries nationwide who have the Medicare Advantage coverage, which is administered by private insurers and covers extra benefits, such as vision and hearing tests and treatments.
But a recent study by researchers at Emory University in Atlanta, Ga., finds that if the cuts are made permanent 3 million enrollees in the Medicare Advantage program would leave the program and return to traditional Medicare coverage, with as many as 700,000 of those enrolled in HMOs would go without any additional supplemental coverage.
The study – which was prepared for Blue Cross and Blue Shield – was written by Adam Atherly, Ph.D., and Kenneth E. Thorpe, Ph.D., of Emory University. According to the study, Medicare Advantage plans provided more than $5 billion in supplemental benefits in 2006, up from an estimated $3 billion in 2005.
Medicare Advantage provides a richer menu of benefits provided in the form of lower cost-sharing, coverage of benefits not provided under traditional Medicare, enhanced drug coverage, and buy-down of Medicare Part B (medical coverage) and Part D (drug) premiums.
Payments from Medicare to insurers for those richer Medicare Advantage benefits are above the traditional fee-for-service payments — and that is exactly the issue with which the Medicare Payment Advisory Commission, or MedPAC, is concerned.
In April 11 testimony to the U.S. Senate Finance Committee, Glenn Hackbarth, chairman of MedPAC, said Medicare Advantage has “become a program in which there are few incentives for efficiency.”
He said that, although Medicare Advantage uses a kind of bidding to determine plan payments and beneficiary premiums, the bids are against benchmarks that are often legislatively set.
“Setting benchmarks well above the cost of traditional Medicare signals that the program welcomes plans that are more costly than traditional Medicare,” said Hackbarth. “Inefficient plans — as well as efficient plans — are able to provide the kind of enhanced coverage that attracts beneficiaries to private plans because of generous Medicare Advantage program payments that are in excess of Medicare fee-for-service payment levels.”
Hackbarth’s testimony served to reiterate the belt-tightening recommendations for Medicare that MedPAC made in 2005 — but that Congress has not adopted.
To achieve those changes, and ostensibly to minimize their negative impact, MedPAC suggested either freezing all county rates at their current levels until each county’s rate is at the fee-for-service level, differentially reducing Medicare Advantage rates, with counties in which payments are highest in relation to Medicare fee-for-service facing a larger reduction to more rapidly arrive at fee-for-service rates in each county or reducing rates in all counties at the same percentage each year until arriving at fee-for-service rates in each county.
“The commission believes that the payment policy in the Medicare Advantage program should be built on a foundation of financial neutrality between payments in the traditional (fee-for-service) program and payments to private plans,” Hackbarth told Congress. “Financial neutrality means that the Medicare program should pay the same amount, adjusting for the risk status of each beneficiary, regardless of which Medicare option a beneficiary chooses.”
New Hampshire effects
But by holding reimbursements at current levels, the Emory study says, health-care costs would outstrip payments five times faster, resulting in a $2.2 billion decline in benefits by 2008 and $1.2 billion by 2009.
“Enrollment in Medicare Advantage plans would decline further under this scenario with 3 million HMO/PPO members – about half of all HMO/PPO enrollees – leaving Medicare Advantage and returning to traditional Medicare. Enrollment declines would be even larger if all Medicare Advantage plans were included,” it says.
Subscribership to Medicare Advantage plans, most of which are HMO plans, has grown dramatically since the 1970s, when Congress authorized Medicare to contract with managed care plans. Today there are some 8.3 million beneficiaries nationwide comprising 19 percent of all Medicare enrollment.
According to a 2005 Medicare Current Beneficiary Survey from the Centers for Medicare and Medicaid Services, minorities make up nearly a third of Medicare Advantage enrollment but only 20 percent of traditional Medicare. Individuals with incomes at or below $30,000 also comprise about 57 percent of the Medicare Advantage population.
In New Hampshire, Medicare Advantage plans are offered by Anthem Blue Cross and Blue Shield and Harvard Pilgrim. Cigna, MVP and Patriot do not currently have any plans in this state, although Cigna is negotiating on a private fee-for-service benefit contract.
The market penetration for Medicare Advantage plans in New Hampshire is less than 5 percent (compared to other states, such as Arizona, with a market penetration rate of 40 percent).
As of April 1, the CBO said there were 3,104 people enrolled in Medicare Advantage group plans with an average Medicare Advantage payment of $754. The average cost for fee-for-service in New Hampshire was $630 — a ratio of Medicare Advantage to fee-for-service costs of 1.20.
“Funding cuts to Medicare Advantage would be devastating to low-income and minority seniors in New Hampshire who would be among the hardest it,” said Lisa Guertin, president of Anthem in New Hampshire, in a statement about the proposed cuts. “That’s why Anthem is working diligently to protect this important health-care option for our seniors.”
A matter of efficiency
In what could be described as being a victim of its own success, rising Medicare Advantage enrollments have caused costs to skyrocket as well.
The CBO projects that payments to health plans will rise from an estimated $64 billion in 2006 to $197 billion in 2017 — an annual average growth rate of 11 percent. Spending in Medicare Advantage is projected to total approximately $1.5 trillion over that 11-year period.
Both MedPAC and the Emory team say that Medicare Advantage enrollment has increased over FFS enrollment for the obvious reason that payments are cheaper and more benefits are offered over traditional Medicare plans.
“The excess payments to private plans allow them to be less efficient than they would otherwise have to be, because inefficient plans can use the excess payments — rather than savings from efficiencies — to finance extra benefits that in turn attract enrollees to such plans,” said MedPAC’s Hackbarth.
While Atherly and Thorpe estimate freezing Medicare Advantage payment increases at current rates of 1 percent per year may achieve equilibrium with fee-for-service rates in three years, they write that beneficiary costs would increase “by a total of $412 over the 2006-2009 time period, on average, for those who remain in the Medicare Advantage program. These higher beneficiary costs would come in the form of both higher premiums and benefit reductions.”
And beneficiaries who leave the Medicare Advantage program would see their out-of-pocket costs more than double, they say.
But Hackbarth sees it differently: “What is occurring now is that the most inefficient plans are expanding their enrollment, and providing extra benefits with taxpayer dollars in an inefficient manner. The longer the current situation continues, the more difficult it will be to reform the program to restore the right incentives in the Medicare Advantage program to promote efficiency and improved quality. As difficult as it seems today, it will be even more difficult next year or the year after.”