Embargoed Until:
November 24, 2008
12:01 a.m. Eastern Time



Christopher Fleming

Expansion Of Medicare Private Health Plans Increases Medicare Costs, Adds Complexity Without Evidence Of Improving Care, Studies Published In Health Affairs Show

Studies Question Benefits Of Current Medicare Advantage Program Structure For Beneficiaries And Taxpayers

Bethesda, MD -- Although Medicare Advantage's private health plans have given beneficiaries more alternative ways to receive Medicare benefits, they have also created more complexity, generated negligible gains in quality, and added to the costs of the Medicare program, researchers report in three studies published today on the Health Affairs Web site. Publication of the studies by Health Affairs was supported by a grant from The Atlantic Philanthropies. http://content.healthaffairs.org/cgi/content/full/hlthaff.28.1.w29/DC2

The Medicare Advantage (MA) program, passed as part of the 2003 Medicare Modernization Act (MMA), greatly expanded the number and types of private health plans available to beneficiaries. MA plans include coordinated care plans relying on networks of providers like traditional health maintenance organizations (HMOs) and more loosely structured preferred provider organizations (PPOs); so-called private fee-for-service (PFFS) plans, which, like traditional Medicare, allow access to any provider willing to accept the plans' payment terms and conditions; and Special Needs Plans (SNPs), which are allowed to specialize in serving beneficiaries who are also eligible for Medicaid, are institutionalized, or have severe chronic or disabling conditions. Most types of plans provide options for beneficiaries to combine Medicare's coverage for prescription drugs with traditional medical benefits.

By mid-2008, slightly more than 10 million Medicare beneficiaries, or 23 percent of the Medicare pool, were enrolled in the MA program or a similar private plan. That is nearly double the enrollment in private plans in 2003, when 5.3 million beneficiaries were enrolled. If expansion of enrollment in private plans was an important goal of MMA, it clearly has been attained, says Mathematica Policy Research senior fellow Marsha Gold, the author of one the studies being released today. http://content.healthaffairs.org/cgi/content/abstract/hlthaff.28.1.w41

But expansion has come at a cost, as payment to private plans has contributed to higher Medicare spending. And the higher payment rates have financed "what is essentially a Medicare benefit expansion for MA enrollees, without producing any overall savings for the Medicare program," say Medicare Payment Advisory Commission (MedPAC) analysts Carlos Zarabozo and Scott Harrison in another study. The data show that Medicare pays MA plans 113 percent of what expenditures would have been under the traditional Medicare program. http://content.healthaffairs.org/cgi/content/abstract/hlthaff.28.1.w55

In her study, Mathematica's Gold says that the expansion in plan choice has created more administrative complexity for the program. In 2008, the Centers for Medicare and Medicaid Services (CMS) had to review, approve, and oversee almost 4,000 MA plans under more than 700 different MA contracts. "It is difficult to make the case that Medicare is more administratively efficient because of MMA," says Gold, adding that having so many plans competing to offer essentially the same product adds to costs and beneficiary confusion, with the average beneficiary asked to choose among 44 different MA plans.

Zarabozo and Harrison report that current policy has favored growth of certain types of plans. Plans are paid significantly more than they would have been under traditional Medicare, and while some of these payments are used to finance extra benefits for enrollees, the authors say that paying plans at this rate could affect the sustainability of Medicare and result in increased costs for taxpayers as well as beneficiaries.

The fastest-growing type of MA plans has been PFFS plans, which allow beneficiaries to see any provider who will accept the plan's payment rates. These plans made up 48 percent of the total increase in MA enrollment after MMA's enactment in 2003. In 2006, 11 firms offered a PFFS plan; by 2008, almost 50 did.

Since these kinds of plans dominate MA's growth and were deliberately structured to minimize effects on care delivery, Gold says that "quality is unlikely to be better and could be worse if provider acceptance creates access problems." In addition, "PFFS's advantages also seem to have made it harder for HMOs, the most tightly managed plan, to expand," she says. SNPs account for 24 percent of the growth in MA enrollment. Although these plans could improve care delivery for these vulnerable beneficiaries, Gold says that evidence to date suggests that only a minority of SNPs are being structured to achieve these gains.

"We spend a lot of money for the Medicare Advantage program, and it's not clear what we get in return," Gold says. Although plan choice has increased, mainly in rural areas, many beneficiaries still have few local coordinated care plans (CCPs) available. Enrollment in CCPs appears to be growing slowly. This creates an environment that "does not favor care coordination and quality enhancement," adds Gold.

More government oversight and accountability in the MA program are needed, she argues. Gold says that the federal government should set goals for the program and create a way to measure its success. This might include an annual report from the CMS to Congress on MA program performance using measures sufficiently detailed, targeted, and consistent across plan types to allow diverse stakeholders to assess their merits and contribution to Medicare's overall goals.

A separate paper examines the history of private plans under Medicare, enumerates the comparative advantages of private plans and traditional FFS Medicare, and identifies ways to level the playing field between traditional and private plans. "In our view, it is past time for all members of Congress to realize that neither traditional Medicare nor private health plans are going away in the near future," write Robert Berenson, a senior fellow at the Urban Institute, and Bryan Dowd, a professor at the University of Minnesota. They call on the new administration and Congress to give both public and private plans the freedom to pursue strategies that then are tested in a level-playing-field market environment. "Allowing an inefficient Medicare program to sink into insolvency in hopes either that beneficiaries will force higher tax rates on their children or that the program will implode, forcing beneficiaries into the individual private insurance market, may be ideologically satisfying, but it is not responsible policy making," they conclude.

After the embargo lifts, the article by Berenson and Dowd will be available at http://content.healthaffairs.org/cgi/content/abstract/hlthaff.28.1.w29.

The article by Gold will be available at http://content.healthaffairs.org/cgi/content/abstract/hlthaff.28.1.w41.

The article by Zarabozo and Harrison will be available at http://content.healthaffairs.org/cgi/content/abstract/hlthaff.28.1.w55.




Health Affairs, published by Project HOPE, is the leading journal of health policy. The peer-reviewed journal appears bimonthly in print with additional online-only papers published weekly as Health Affairs Web Exclusives at www.healthaffairs.org. The full text of each Health Affairs Web Exclusive is available free of charge to all Web site visitors for a two-week period following posting, after which it will switch to pay-per-view for nonsubscribers. Web Exclusives are supported in part by a grant from the Commonwealth Fund.


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