When I reported on the waste in Medicare Advantage plans not long ago, HealthBeat reader Don Grunt pointed out that not all MA plans are alike. He wrote: “I'm a Medicare Advantage product manager in Oregon where 45% of beneficiaries sign up for MA plans (highest in the country) because we offer good plans and the competitive market keeps us honest. So I don't work in Miami or any of the wild west of MA plans.”
Oregon is one of those states that belongs to what I like to call “Canada South” (a region that includes part of the Northwest as well as the northern tip of New England–Vermont, New Hampshire and Maine). These are states where medicine seems less “money-driven,” and by and large, patients get better value for their health care dollars. In many of these states, care is more collaborative. It struck me that Don Grunt, who knows the MA system from the inside, was probably right.
I kept his remarks in mind when I wrote a piece for the Washington Post’s “HealthCare Rx” last week. (I am part of the “HealthCare Rx” standing panel, a group that spans a spectrum of opinion, ranging from Ezra Klein to Newt Gingrich. Each week, Rachel Saslow, the Rx editor, poses a question. Last week’s query: “The Senate Finance Committee is debating a bill that would trim $113 billion from the privately-run Medicare Advantage plans over the next decade, a move that proponents say will bring its funding in line with traditional Medicare coverage. Do you think such a move will hurt beneficiaries?”
In my response, I began by reiterating what I had said in that earlier HealthBeat post: If the cuts become part of the final health reform bill, “the potential savings are enormous and research shows that the benefit cuts needed to achieve them will not be terribly missed."
That’s the big picture. But I also pointed to the response by another member of the Rx panel, Dr. Mark Kelley, chief executive officer of the Henry Ford Medical Group, who reported that his patients “love their Medicare Advantage HMO plans.” Kelley recommended that, before giving up on MA, the government should look at plans "on a case-by-case basis, examining the performance of every contractor."
Taking in what Kelley had to say, and putting it together with HealthBeat reader Don Grunt’s comment, I decided to do more research. At that point, I found the 2009 Medicare Policy Advisory Commission (MedPAC) report on Medicare Advantage, which confirmed that all MedPAC plans are not alike. It also told me that we don’t need to pay for-profit insurers a double-digit bonus to persuade them to offer Medicare Advantage.
After reading the MedPAC report, and thinking about what both Kelley and Grunt had written, here is what I ultimately said in the Washington Post:
Kelley is right: there are individual MA insurers out there providing value for tax-payer dollars. But it is crucial to realize that, by and large, these are insurers that offer Medicare Advantage HMOs –plans that do a much better job of managing costs than Medicare Private Fee-For-Service plans (PFFS). (And, unfortunately, the PFFS plans have been growing far faster.)
The average PFFS plan feeds, pig-like, at the Medicare trough. It receives $114 more per member per month than traditional Medicare would spend on the same senior. Meanwhile, it delivers "extra" benefits worth $35 a month. And who is paying the $114 tip? Medicare Advantage is financed by traditional Medicare.
Thus, the 78 percent of Medicare beneficiaries who have stuck with traditional Medicare are funding the bonus for PFFs. (They pay higher deductibles and co-pays to keep Medicare going while it dispenses such largesse to MA insurers.) Not only that, seniors in regular Medicare are spending $3 for $1 of extra benefits going to someone else. This hardly seems fair.
Why are PFFS so expensive? They are not designed to rein in spending. Quite the opposite, "fee for service" encourages over treatment: the more a provider does, the more he is paid. There are so many gray areas in medicine, and this is where fee-for-service creates incentives to "do more."
By contrast, the Medicare HMOs that Kelley is talking about receive a fixed annual payment for every beneficiary. It's up to them to figure out how to use that money to keep their patients healthy. If they fail, the cost of patient care may exceed the yearly payment.
These HMOs "bid" for patients, telling Medicare how much they think they will need to care for the average patient for a year. The 2009 Medicare Payment Advisory Commission (MedPAC) report explains that this year, the average HMO is offering to provide patient care for 2 cents less than it would cost traditional Medicare. So for every dollar spent, the average beneficiary in a Medicare HMO receives an extra 2 cents worth of benefits. And some MA HMO’s offer far more…As MedPac points out, the quality of the HMOs varies widely; the more established HMOs typically offer the best value.
This suggests that some private insurers have found ways to enrich the benefit package by being more efficient. These providers take care to find a network of doctors and hospitals who are “patient- centered.” They put patients first, avoid exposing them to the risks of unnecessary tests and treatments, listen to patients in order to diagnose them, and collaborate with each other.
I take this as persuasive evidence that private insurers do not need corporate welfare. The best can provide comprehensive care without spending more than traditional Medicare. The most experienced HMOs have figured out how to do this, and Kelley is not the only witness who reports that patients are satisfied with the results. I have heard from patients and doctors in the Northwest where Medicare Advantage is working well. Often, the insurers are non-profits.
But don't very expensive-Medicare Advantage programs provide freebies that seniors like, such as eyeglass frames and gym memberships? Yes, they do. But this does not justify asking the 78 percent of seniors receiving traditional Medicare to foot the bill for the 22 percent in Medicare Advantage who are receiving premium benefits-especially when Medicare is paying three times what the benefits are worth. Nor is there medical evidence that most of these extras improve health.
Here, let me add that I continue to support cutting Medicare Advantage. If Medicare continues to overpay MA insurers, make no mistake, eventually everyone in the Medicare program will lose—including those now enjoying Medicare Advantage benefits.
If Medicare continues to spend at the current rate, in seven years it will begin to run out of money. At that point, it would have to slash payments to MA, the program would no doubt collapse, and when seniors now on MA return to traditional Medicare, they would find that they, along with all other Medicare beneficiaries, would have to pay substantially higher co-pays and deductibles as Medicare struggles to stay afloat.
Medicare Advantage seniors need to understand that they are still part of Medicare. Their fate depends on Medicare’s solvency. It’s not worth risking that for a pair of over-priced eyeglass frames.
Finally, and most importantly, if health care reform means eliminating the windfall bonus to inefficient MA plans, those MA insurers that are able to provide better care for less, will flourish. The cuts will separate the wheat from the chaff.
Hey Maggie! We in the in the Upper Midwest (Wisconsin, Iowa, Minnesota, and the Dakota’s) resent “Canada South” being limited to the coasts. When Kaiser needed a new CEO to fix the mess they got into in the 90’s, this is where they came.
We may be in flyover country, but we have the best health care systems in the country — just ask your friends at Dartmouth 😉
Maggie,
A counterpoint to the claim of HMO efficiency. It is worth asking: efficient at what and for whom? More at:
http://theincidentaleconomist.com/the-meaning-of-efficiency-another-ma-post/
-Austin Frakt
the question is not whether some medicare advantage plans offer value, it is whether a stressed program like medicare should ever pay any provider more than 100% of the average cost for that area. I don’t think they should. It is stupid and fiscally irresponsible. whether beneficiaries get more for the extra payment is beside the point.
I would like to add some context to the private fee-for-service (PFFS) overpayment issues raised. Historically Medicare HMOs offered seniors an opportunity to trade access for benefits. For taxpayers it offered expense savings. These plans were typically not available in many areas, particularly rural counties. PFFS plans were introduced for a variety of reasons, most importantly to offer choice to rural seniors and offer a way for employers to enroll retirees scattered all over the country. To make the option attractive for insurers to offer, CMS offered “bids” that were over the average rate. These “overpayments” were intended to be temporary, to get the insurers in the rural markets, and over time encourage the insurers to develop provider networks, or HMOs. In fact 2010 is the final year PFFS plans will exist. So even if the government does nothing, a huge savings will be realized in 2011 Medicare Advantage costs, as PFFS overpayments expire.
It is not clear if in fact the insurers will offer HMOs or PPOs in 2011 when the PFFS plans go away. For example, in Maine and New Hampshire, where Anthem Blue Cross is the dominant MA player, they have yet to introduce network MA plans. It may be that in fact the rural provider community is too small to support Medicare HMOs where access is traded for benefits. We will know in 2011.
At the end of the day MA plans need to deliver high quality care at a savings or they will go the way of the dodo bird.
I was in an all-day training with Humana today and they made a point to tell us (independent insurance agents) how they are paid by CMS. They explained how the 2003 Medicare Modernization Act changed payment methods with the “Medicare Risk Adjustment Program”.
-Member claims and diagnoses are submitted to CMS weekly from the MA companies.
-CMS gives each member a score based on diagnosis
-A sicker person receives a higher score and the company provides more money to provide care.
-A person aging-in with no claims receives a default score.
-Payment cycles run Jan. to June and July to Dec.
What do you think of this explanation? Humana says the MA plans are just getting what the MMA legislated. And they don’t make more money if they have healthier members.
correction on the third point regarding payment:
-the sicker a person is, the higher their score, and the more money the company receives from CMS to provide care.
Canada South is Ok with me.Alot of us from Minnesota went on to run plans all over the country.Did you know its a state law in Minneota trhat all HMOS must be not for profit ( United is incorporated in Delaware)so maybe there is something to be said beiung trained to deliver care and then worry about profit.
Maggie you are doing great work.Trying to explain the varieties of the MA plan but I would like to also add that Medicare Advantage contractors for SNP and CCP return some portion of thier savings to Medicare.
PFSS plans do not . They do not have to credential networks and do not have cost and quality controls in place. It would be appropriate to discontinue the PFFS programs and expand the special needs and CCP risk bearing entities that help Medicare conserve dollars instead of wasting them on FFS.
Hi Maggie,
I really appreciate your response to my comments, being mentioned in the same line as Dr Mark Kelley, and especially the analysis that shows the value of Medicare Advantage HMO’s and how they are an example of a program that works.
Oregon’s response to the CMS cuts in MA revenue this year (the region had a 3.5% reduction) is telling of the ability of HMO’s to deliver efficient care.
The 3 major HMO plans increased premiums only by $0-$6 with few to no benefit reductions. Meanwhile, 3 PFFS carriers have already left, others cut back service areas, and those remaining significantly reduced their benefits.
However, the PPO plans did the worst with MA cuts with $20-$50 premium increases, the addition of deductibles, and significant benefit cuts.
Although PPO plans looked like the future of MA due to market appeal, they lack the care coordination to manage costs or relationship with providers to get good risk adjustment data (as one reader referenced).
I read the Medpac chapter on MA plans. The rep ort mentions “high-quality HMO” plans. Is there a rating system for plans? If anyone knows where to find rating of HMO plans, please let me know.
Here in Tucson, AZ the company with the most popular MAPD HMO plan has introduced $36 premium. They are also introducing a new zero premium plan but it has a deductible (?) that is paid before the plan kicks in and is not part of the $3400 MOOP. One more choice for seniors to make regarding their Medicare coverage. This is what gives Medicare Advantage plans a bad name.
Pat S, Austin,Jim, Bill, Denise, wjd, deadhedge, Denise,
Pat S–To me, the “Northwest” includes Wisconsin and Minnesota”
I grew up in the NorthEast and when we look west, we don’t make fine distinctions like “upper-middle west”
To us, Iowa is part of the Midwest (though I agree, when it comes ot healthcare, it behaves more like a Northwestern state).
As for the Dakotas, when I think of them (which is rarely) I guess I would have to say they are part of the Northwest. They’re definitely not part of the Southwest or the middle-west . .
Out west, when people look East, I wonder if they distinguish between the “Northeast,” the “Middle-Atlantic States” and the “Southeast,” or do you just divide the East into “Northeast” and “Southeast”.?
Anyway,rest assured, I do count the “Upper Midwest” as part of “Canada South”.
Austin–
“Efficient” makes providien equal or higher quality care at a lower cost. (Qualitly care refers to care that improves health. Nice eye-glass frames don’t count. Gym memberwhip would depend on what you do at the gym. Unless you work with a trainer (or have worked with a trainer in the past) most people don’t exercise properly at a gym.)
Both patient satisfaction and outcome measures serve as measures of quality.
Insofar as HMOs draw healthier patients (evidence? ), from what Denise is saying the Medicare Risk Adjustment Program takes care of that. (See Denise Oct 5, 11:26 comment)
Jim– I agree that Medicare shouldn’t pay any insurer more than it would cost traditioanl Medicare to take care of seniors.
In that sense, it’s “irrelevant” whether patients are getting services worth 100% of the extra dollars or 14%.
But the scandal is heightened by the fact tha they are getting only benefits that the recipients themselvs value at only 14 cents.
Bill– Advantage plans paying fee-for-service were a terrible idea.
In rural areas, patients might well have to travel to find doctors and hospitals in network, but
living in a rural area means that you have to travel to many things (school, work, etc.)
Insofar as sick patients need transportation, that should be provided. But we can’t afford to pay fee-for-service just because someone lives ina rural areas.
The plan was to phase on Fee-for-service– it was essentially icing on the corporate welfare in the original legislation, and everyone knew it could not go on forever.
I completely agree, if they can’t provide value, MA plans will wither away–and I suspect this will happen to many of them, though the well-established succesful HMOs should survive just as the Health Co-operative of Peugot Sound continued offering Medicare Plus long after most Medicare Plus plans folded, saying they couldn’t make enough money . .
Denise–
The risk adjustment program sounds sensible.
But, when you add up the risk adjustment payments and the regular payments, MA plans should not be getting more than Medicare would spend to care for those patients.
You quote Humana saying that ” the MA plans are just getting what the MMA legislated.”
The MMA legisation was one of the most corrupt pieces of legislation ever passed by Congress. At least one key vote that allowed it to pass was the result of a bribe (a Congressional ethics committee confirmed this after the fact.)
The bill was passed under the cover of night and a great many legislators were ashamed of it–including Republican John McCain. It was a Bush bill and it was corporate welfare, pure and simple.
I described how it was passed in this post: http://takingnote.tcf.org/2008/07/the-trouble-wit.html
wjd– Thanks for the kind words. Interesting that Minnesota only allows non-profit HMOS.
New York State, to it credit, does not allow for-profit hospitals.
Deadhedge– You’re welcome–and thanks for calling my attention to the HMOs.
I’m not terribly surprised about the PPOs. The HMOs do have more oppotunity to co-ordinate care, and the financial incentives discourage waste.
Denise– I’m pretty sure that MedPAC is referring to the National Committee for Quality Assurance “Hedis” ratings.
Reading all this material about advantage plans reveals problems and benefits to some and or all, but do not center on the target. That being, its all about the medicare formula paying 80% and the seniors pay the remaining 20% of any medical bill
.
If the president gets his way, and removes advantage funding, what recourse do we seniors have? Will Medicare change to cover us 100% then, or will we have to join the public insurance plan as offered in the national health plan being considered to have 100% coverage?
If you call signing on with advantage as a choice to have better coverage, in our case in Minnesota, its not that type of choice, but a real NEED to have advantage cover the 20% we would otherwise have to pay from our savings account which totals ZERO. We are stuck between a rock and a hard place in this situation. So don’t remove advantage plans until there is provided another way to give us seniors 100 % coverage or offer alternative health plans like advantage.
Thank You.
Dean–
There already is another way.
The majority of Medicare patients buy “Medigap” policies that cover the other 20%
These Medigap plans are, by and large, a much better value for our dollars than Medicare Advantage.
(Under Medicare Advantage, Medicare patients who have not chosen that option find themselves paying $1 for every 14 cents of extra benfits that Medicare Advantage beneficiaries receive.
I do think that we should provide subsidies to help poor Medicare beneficiaires buy Medigap–
but here I’m talking about low-inocme, low net-worth
seniors.
Younger taxpayers can’t afford to do this for seniors who have over $50,000 a year joint income and life in a home worth $800,000.
Those seniors can afford to buy a MediGap policy (which isn’t that expensive) even if it means borrowing against the $800,000 home. This means they won’t be able to leave as much to their heirs (won’t have as much equity in the home when they die) but most adult children would much rather know that their parents’ health care is covered than worry about how much they will inherit.
Seniors paid for Medicare over the years through mandatory deductions from their salaries. Medicare Advantage offers seniors drug gap coverage – touted as a new Original Medicare benefit – as well as prescription drug coverage, cancer screenings, basic dental, and routine eye care, none of which is offered by Original Medicare. To obtain these benefits seniors have to purchase two additional insurance policies from private insurers. It is possible to have Medicare Advantage coverage without an additional premium over Original Medicare.
It will be a brand new ballgame for 2011 with respect for medicare advantage plans. They will take away what little incentives to purchase, and it will not be a bargain. There are already signs of it for 2010 as well as 2009.