Medicare Advantage

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Bring Market Prices to Medicare

December 16, 2011 in Books, Health Insurance, Managed Care, Medicare, Medicare Advantage | 4 comments

Medicare is a government-run insurance program.  Can policy changes be made to add competition to Medicare, maintain quality and reduce cost?  A book titled Bring Market Prices to Medicare argues that it can through a competitive bidding process. This book makes a number of sensible arguments which I review today.

The main proposal of the book is a competitive bidding process for all Medicare plans. Currently, there is a form of competitive bidding only for Medicare Advantage (MA) managed care plans. The authors also argues for competitive bidding for fee-for-service (FFS) Medicare (i.e., Parts A and B).  There is already a competitive bidding process for Medicare’s prescription drug program (Part D) which has worked well.

One of the main advantages of Medicare FFS is that beneficiaries do not need a referral for any services and are not limited to certain provider networks. However, Medicare beneficiaries do not pay for these added benefits. In addition, even if HMOs are more efficient than Medicare FFS, Medicare FFS beneficiaries still pay the same Part B premiums.

The authors want beneficiaries to face the true price differentials between the lowest cost plans and less efficient plans., regardless if the plan is Medicare FFS or an MA plan. Thus, beneficiaries would be responsible for any premium differences due to choosing a more expensive plan.

Currently, MA plans receive a variant of the average bid in their service area. The authors propose that Medicare would only pay for the lowest cost plan. This proposal would in essence be a transfer from plans and beneficiaries (who would have to pay the cost differential between the plan they choose and the lowest cost plan) to the government. Given the fiscal hole the federal government is facing, this is a good idea.

Authors also propose to eliminate the 25% tax on premiums. According to MedPAC, “Plans that bid below the benchmark also receive payment from Medicare in the form of a “rebate.” The law defines the rebate as 75 percent of the difference between the plan’s actual bid (not standardized) and its case mix-adjusted benchmark. The plan must then return the rebate to its enrollees in the form of supplemental benefits or lower premiums” The rebate structure gives plans a disincentive from lowering their bids since they only recover a share of the cost decreases.

Another issue focuses on regional adjustments. Living in New York is expensive and health care is more expensive in New York than in rural Mississippi. However, should Medicare subsidize New Yorkers because their health care is more expensive. The authors argue no, but poor individuals in high cost areas will be adversely affected by this policy choice.

A major issue is controlling quality. Plans could create low cost plans by providing low-quality care or failing to provide mandated services. Thus, CMS will need to regulate the plans. Plans with quality levels below a specific level would be barred from enrolling individuals or the government could force beneficiaries to pay additional premiums to enroll in these low quality plans. Public reporting of plan quality is also needed.

Strategic bidding is also a problem. Plans could collude to raise the bid price. However, by having Medicare FFS as an option will cap the amount colluding firms could increase prices. Further, a small firm could bid a very low amount and set the market. Medicare could set the benchmark at the lowest cost plan which meets a minimum size requirement.

Source:

Another Review of the Book:

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Does California really love Managed Care?

November 28, 2011 in Current Events, Health Insurance, Managed Care, Medicaid, Medicare, Medicare Advantage | 1 comment

In short, yes. California is the land of managed care. Kaiser-Permanente–the managed care poster child–owns one third of the market.  Love for managed care is not just in the private market; in 2010, over half of all Medi-Cal and more than one-third of Medicare beneficiaries were enrolled in managed care plans.  Further, California managed care plans even have their own regulator.  Whereas the California Department of Insurance (CDI) regulates non HMOs, the California Department of Managed Health Care (DMHC) regulates HMOs.

A recent report by the California Health Care Foundation investigates managed care in California and provides a high quality overview of the California health insurance market.  Some of their findings include:

  • Five insurance carriers (Kaiser, Anthem Blue Cross, Health Net, Blue Shield, United Healthcare) accounted for three-fourths of the $105 billion health insurance revenues in California in 2010. Revenue growth has been slower for managed care plans in recent years, however.
  • The six largest managed care plans together lost more than 400,000 commercial enrollees. On the other hand, Medi-Cal and Medicare managed care enrollment grew.
  • Anthem Blue Cross and Blue Shield experienced enrollment decline in 2010, which reversed a previous growth trend.
  • Large majorities of HMO and PPO members rated their plan highly in terms of getting appointments quickly, finding a doctor, and getting the care they need. HMO enrollees more often rated their care highly than those enrolled in PPOs, while PPO participants were more likely to favorably cite their ability to get an appointment quickly.

Source: Katherine Wilson, “California Health Plans and Insurers” California Health Care Foundation, November 2011.

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Does getting cancer incentivize individuals to switch from Medicare managed care to FFS?

November 8, 2011 in Cancer, Medicaid/Medicare, Medicare Advantage, Quality | No comments

Medicare beneficiaries have a choice: pick the standard Medicare fee-for-service (FFS) benefit or rely on managed care plans to supply their healthcare through the Medicare Advantage (MA) program.  Many Medicare beneficiaries prefer MA because it offers them lower out-of-pocket costs and provide benefits not available in the traditional FFS Medicare program. Other beneficiaries prefer the FFS benefit because MA plans typically restrict provider choice in an effort to control costs.

The quality of care in Medicare MA relative to FFS, however, has still not yet been consistently evaluated.  Because beneficiaries can switch from MA to FFS each year, if quality is low, healthy individuals may prefer MA to reap the reduced cost sharing benefits, but when they become sick they may switch to Medicare FFS.

A study by Elkin and co-authors evaluates whether or not this is the case for beneficiaries who get cancer.

Data and Methodology

“We identified Medicare managed care enrollees aged 65 years or older who were diagnosed with a first primary breast (n = 28 331), colorectal (n = 26 494), prostate (n = 29 046), or lung (n = 31 243) cancer from January 1, 1995, through December 31, 2002, in Surveillance, Epidemiology, and End Results (SEER) cancer registry records linked with Medicare enrollment files. Cancer patients were pair-matched to cancer-free enrollees by age, sex, race, and geographic location. We estimated rates of voluntary disenrollment to fee-for-service Medicare in the 2 years after each cancer patient ’ s diagnosis, adjusted for plan characteristics and Medicare managed care penetration, by use of Cox proportional hazards regression.”

Results

The authors find that MA beneficiaries with cancer are less likely to switch to FFS than a cancer-free beneficiary. The hazard ratios range from 0.78 for colorectal cancer to 0.86 for prostate cancer. The results were consistent across various age, sex, race, cancer stage and region strata.

The likely reason for this finding is that people who have a serious disease do not want to change coverage. Even if the FFS benefit offers improved access to better care, there are significant costs of switching coverage. The new FFS providers may have less knowledge of the individual beneficiary’s health condition and the change can be stressful for the beneficiary as well. A worthwhile analysis to confirm whether this is the case would be to examine whether FFS beneficiaries who contract cancer are more likely to switch to a MA plan after contracting cancer. If the transaction cost/care coordination is driving Elkin’s results, then FFS beneficiaries with cancer should also be less likely to switch to MA than cancer-free FFS beneficiaries.

It could also be the case that MA provides high quality care for the most prevalent cancers (i.e., prostate, lung, colorectal, and breast), but there is a significant improvement in quality when beneficiaries visit FFS providers when they have rarer diseases. To confirm whether or not this is the case, the authors examine whether beneficiaries with non-Hodgkin lymphoma, acute leukemia, and soft tissue sarcoma are more likely to switch to FFS. The authors found no effect of these cancer diagnoses on the likelihood of disenrollment from a managed care plan.

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Do you support ACOs?

June 7, 2011 in Medicare, Medicare Advantage, Supply of Medical Services | 1 comment

Do you support Accountable Care Organizations?  Many policymakers think they are a great idea.  Why?  If ACOs better integrate care coordination between a variety of physician specialists and other providers, ACOs can increase the efficiency of the health care system.  Improving quality and reducing cost sounds like a great idea.

To implement these integrated care settings in practice, however, Michael Cannon notes that potential ACOs would be funded through savings they provide to Medicare.  This also sound pretty attractive.

If you are a provider, however, ACOs may be couched in a different light: lower reimbursement levels.  If the government believes ACOs can improve efficiency, Medicare can pay providers less for the same services (and ostensibly maintain the same quality level).

Robert Laszewski writes, “Here’s a flash for the policy wonks pushing ACOs: They only work if the provider gets paid less for the same patient population. Why would they be dumb enough to voluntarily accept that outcome?”

In the short-run, the answer is no.  As I’ve mentioned in the past, however, in the long-run, ACOs can increase provider market share and give Medicare less bargaining power in the long-run.

Medicare’s short-run push to coordinate care and reduce cost may result in a more concentrated fee-for-service marketplace and higher Medicare cost in the long-run.  Medicare may want to stick with it’s existing form of ACOs: Medicare Advantage plans.

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CMS’s HCC Model

May 17, 2011 in Medicare, Medicare Advantage | 2 comments

The CMS-HCC risk adjustment model is used to adjust payments for Part C benefits offered by MA plans and Program of All-Inclusive Care for the Elderly (PACE) organizations to aged/disabled beneficiaries. The CMS-HCC model includes both diseases and demographic factors. There are separate sets of coefficients for beneficiaries in the community, beneficiaries in long term care institutions, beneficiaries with ESRD and new enrollees.  New enrollee risk adjustment is based solely on demographic factors.  The CMS-HCC model was first used for payment in 2004 and has been recalibrated two times since then (2007 and 2009). In 2011, CMS will implement an updated version of the CMS-HCC risk adjustment model, including the coefficients for the community, institutional, and new enrollee segments of the model.

Today, we explore the 2011 HCC model in more detail, referencing heavily from this CMS document.

[Correction: My colleague Sajid Zaidi pointed out that CMS will not implement the new CMS-HCC until 2012.  As stated here: "To reference the factors in the CMS-HCC risk adjustment model that will be used in 2011, see the 2009 Rate Announcement (published in April 2008)."]

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Evaluating the Congressman Ryan’s Budget Proposal

April 13, 2011 in Health Reform, Medicaid, Medicare, Medicare Advantage, Public Policy | No comments

Congressman Paul Ryan’s budget proposal has made significant waves. Many will fear that the Ryan proposal means the end of Medicare and Medicaid. Although these programs will not end, there will be significant changes.

One can think of many of these changes as a transfer of risk. Consider the Medicare program. Although Medicare will not change for currently those 55 and older, for those currently younger than 55, however, individuals will receive vouchers (i.e., a standardized payment) to cover health insurance premiums to be provided by private insurance. The individual will bear the cost from choosing more generous plans. Further, although risk adjusting the standardized payment will provide sicker patient with a higher premium subsidy, beneficiaries will also bear the risk of higher premiums due to non-risk adjusted factors (unless the premiums are community rated). Medicare will have more predictable spending levels since they will basically know the how much money they will be spending in vouchers each year.

The proposal, however, will only save money if Medicare can control the amount of money its spends on these vouchers. If beneficiaries complain that the vouchers are too low, the government could raise the voucher amount so that it covers all but the most generous plans. The proposal does say that vouchers will increase by inflation and the Medicare Economic index (MEI). However, if the MEI grows significantly, there may be little savings to Medicare for adopting the voucher program.

In the Medicaid program, the proposal shifts the risk to states. Because the Ryan proposal changes the Medicaid program from a cost matching to a block grant program, states who provide more generous benefits must cover the additional costs from state coffers. Those with less generous Medicaid programs can pocket the difference. Although the block grant will be adjusted for population growth and the number of Medicaid-eligible individuals, areas with unpredicted population growth will be on the hook for covering these extra individuals out of their coffers.

The Medicaid block grant program, however, could produce a race to the bottom. States want to attract top talent (i.e., rich people) with low taxes and lots of business opportunities. Providing generous Medicaid benefits increases taxes and increases the likelihood poor people (i.e., those who pay little tax) move into the state. The status quo, however, is the opposite, (a race to the top?) where states try to spend as much as possible to maximize their federal matching dollars. In this economic climate, forcing states to economize is needed.

The voucher system Ryan proposes is similar to both the Purple Health Plan and the current Swiss system.

Note that Ryan’s plan does have some similarities to the Obama Health Reform. He plans to allow small business to pool together to offer coverage to their employees through association health plans (AHPs). He plans to set up State-Based Health Exchanges. And Ryan also plans to create a reinsurance mechanisms to insure pools of high risk individuals. Creating the high risk pool would transfer the risk of the outlier health care expenses to the pool and make the standard benefit health insurance premium more affordable. Funding these high risk pools, historically, has been prohibitively expensive.

Conceptually, I support the Ryan proposal. It moves towards less regulation, more choice, and–most importantly–reduced cost. Right now, health care is too expensive and with the baby boomers retiring, cutting costs must be the number one priority. By letting Medicare beneficiaries have some skin in the game, it will incentivize them to choose lower cost health plans and reduce the growth rate of medical utilization in the near term.  Some analysis, however, has found that switching to vouchers will not in fact reduce cost.

Further details on the Ryan plan are below:

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Medicare Advantage Premiums

March 21, 2011 in Medicare Advantage | 1 comment

In 2010, one quarter of Medicare beneficiaries chose capitated plans through the Medicare Advantage (MA) program. According to MedPAC, “[MA] coverage must include all Medicare Part A and Part B benefits except hospice.  All plans, except PFFS [private fee-for-service] plans, must also offer an option that includes the Part D drug benefit.”

How do private health plans set premiums for their Medicare Advantage plans?  Can they charge any price they wish or are they regulated by the government?  How will Health Reform affect MA plans?

Today, the Healthcare Economist provides the answers.

Medicare Advantage Today

In fact, the answer is that although Medicare Advantage plans can charge any price they wish, the amount the beneficiary pays is somewhat regulated.  In each county, the Centers for Medicare and Medicaid Services (CMS) sets a benchmark premium based on are based on the county-level payment rates used to pay MA plans before 2006.

If a plan’s sets its bid (i.e., premium) above the CMS benchmark, then the plan receives the base rate and the enrollees have to pay the difference between the bid and the benchmark in their annual premium.  If the bid is below the benchmark, then the plan’s base rate is it’s standard bid and gets a rebate.  The rebate is 75% of the difference between the plan’s actual bid and its case mix-adjusted benchmark.  The plan must then return the rebate to its enrollees in the form of supplemental benefits, reduced cost sharing, or lower premiums.

Medicare uses beneficiary age, sex, Medicaid eligibility and prior health conditions to create a hierarchical condition category (HCC) score which is used to risk adjust base rate payments according to beneficiary case mix.

Post Health Reform

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Market Concentration in Medicare Advantage

November 23, 2010 in Medicare, Medicare Advantage | 1 comment

From the Commonwealth Fund:

“The analysis says people have many plans to choose from but that enrollment is concentrated in a handful. It notes, for example, that the average Medicare beneficiary in 2010 has 33 plans from which to choose. But in 14 states and the District of Columbia, a single company (not the same one in each state) accounts for more than half of all Medicare Advantage enrollment.

And in 27 states and the District, three companies account for 75 percent of more enrollees.”

The question is whether ex-ante competition (beneficiaries having a large number of options) or ex-post competition (the market for Medicare Advantage being less concentrated) is important.  If the non-selected plans are good substitutes for the plans with a large market share, then the lack of ex-post competition is not a problem.  Likely, large plans have more market power to negotiate lower rates with physicians (which is a good thing for consumers).  If the large plans started charging higher premiums, beneficiaries may switch to another option which currently has lower market share.  Thus, ex-post market concentration does not necessarily indicate a lack of competition.

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