Medicare Advantage

Medicare Advantage is a type of health insurance that provides coverage within Part C of Medicare in the United States. Medicare Advantage plans pay for managed health care based on a monthly fee per enrollee (capitation), rather than on the basis of billing for each medical service provided (fee-for-service, FFS) for unmanaged healthcare services. Most such plans are health maintenance organizations (HMOs) or preferred provider organizations (PPOs). Medicare Advantage plans finance at a minimum the same medical services as "Original Medicare" Parts A and B Medicare finance via fee-for-service. Part C plans, including Medicare Advantage plans, also typically finance additional services, including additional health services, and most importantly include an annual out of pocket (OOP) spend limit not included in Parts A and B. A Medicare Advantage beneficiary must first sign up for both Part A and Part B of Medicare.

All four Parts of Medicare—A, B and C, and D—are administered by private companies under contract to the Centers for Medicare and Medicaid Services (CMS). Almost all these companies are insurance companies, except for those that administer Medicare Advantage and other Part C plans. Most Medicare Advantage and other Part C plans are administered (CMS uses the term "sponsored") by integrated health delivery systems and non-profit charities under state laws, and/or under union or religious management.

Medicare Part A provides payments for in-patient hospital, hospice, and skilled nursing services. Part B provides payments for most physician and surgical services, even some in hospitals and skilled nursing facilities, as well as for medically-necessary outpatient hospital services such as ER, surgical center, laboratory, X-rays and diagnostic tests, certain preventative medical services, and certain durable medical equipment and supplies. Part C health plans, including Medicare Advantage plans, not only cover the same medical services as Parts A and B but also typically include an annual physical exam and vision and/or dental coverage of some sort not covered under Original Medicare Parts A and B. Less often, hearing and wellness benefits not found in Original Medicare are included in a Medicare Advantage plan. The most important difference between a Part C health plan and FFS Original Medicare is that all Part C plans, including capitated-fee Medicare Advantage plans, include a limit on how much a beneficiary will have to spend annually out of pocket; that amount is unlimited in Original Medicare Parts A and B.

Most but not all Medicare Advantage plans (and many of the other public managed-care health plans within Medicare Part C) include integrated self-administered drug coverage similar to the standalone Part D prescription drug benefit plan. The federal government makes separate capitated-fee payments to Medicare Advantage plans for providing these Part-D-like benefits if applicable just as it does for anyone on Original Medicare using Part D.

Nearly all Medicare beneficiaries (99%) had access to at least one Medicare Advantage plan; the average beneficiary had access to 18 plans in 2015.[1]

History

In the 1970s, less than a decade after the beginning of fee for service Medicare, Medicare beneficiaries gained the option to receive their Medicare benefits through managed, capitated health plans, mainly HMOs, as an alternative to FFS Original Medicare, but only under random Medicare demonstration programs. The Balanced Budget Act of 1997 formalized the demonstration programs into Medicare Part C, introduced the term Medicare+Choice as a pseudo-brand for this option. Initially, fewer insurers participated than expected, leading to little competition.[2] In a 2003 law, the capitated-fee benchmark/bidding process was changed effective in 2005 to increase insurer participation, but also increasing the costs per person of the program.

Medicare Prescription Drug, Improvement, and Modernization Act

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 renamed +Choice "Medicare Advantage".[3] Other managed Medicare plans include (non-capitated) COST plans, dual-eligible (Medicare/Medicaid) plans and PACE plans (which try to keep seniors that need custodial care in their homes). However 97% of the beneficiaries in Part C are in one of the roughly one dozen types of Medicare Advantage plans (HMO, EGWP, SNP, regional PPO, etc.), primarily in classic vanilla HMOs.

Enrollment in the public Part C health plan program, including plans called Medicare Advantage since 2005, grew from zero in 1997 (not counting the pre-Part C demonstration projects) to over 21 million in 2018.[4] That 21,000,000-plus represents about 35% of the people on Medicare. But today over half the people fully signing up for Medicare for the first time, are choosing a public Part C plan of some type.

But the costs per person that had once been too low to attract beneficiaries then became too high to afford long term. So in 2009, the Medicare Payment Advisory Commission (MedPAC) reported that Medicare would spend 14 percent more on Medicare Advantage beneficiaries per person that year than they did per person for "like beneficiaries" under traditional Medicare, theoretically adding an additional 3% ($14 billion) to the cost of the overall Medicare program compared to spending without Part C,[5] This lack of parity and disconnect with the original goal of Part C was primarily caused by so-called Private Fee for Service (PFFS) plans (designed primarily for the rural and urban poor), special needs plans (SNPs), and Employer Group plans (which primarily served retired union members). A special situation relative to Puerto Rico contributed to the imbalance at that time. However the lack of parity also applied to a lesser degree to HMO and PPO plans nationwide.

Patient Protection and Affordable Care Act

As part of a broad set of overall reforms aimed to control the total cost of Medicare (e.g., large cuts in hospital and skilled nursing facility payments under Part A; adding surtaxes to Part D), the Patient Protection and Affordable Care Act (ACA) changed Trustee payments to Medicare Advantage and other Part C plans—versus what they otherwise would have been—by adjusting the way the statutory county benchmarks that kick off the annual Part C Medicare Advantage bidding process were calculated. The intention was to bring the capitated payments closer to the average costs of care per person under Original Medicare.

ACA provided bonus payments to plans with ratings of 4 (out of 5) stars or more. The Obama administration launched an $8.35 billion demonstration project in 2012 that increased the size of the bonus payments and increased the number of plans receiving bonus payments, providing bonus payments to the majority of Medicare Advantage plans.[6] According to the Government Accountability Office (GAO) this demonstration project cost more than the previous 85 demonstration projects beginning in 1995 combined.[7]

ACA required plans beginning in 2014 to maintain a medical loss ratio of at least 85%, restricting the share of premiums that Medicare Advantage plans can use for administrative expenses and "profits".[8]

As a result of these changes and other administrative choices by Centers for Medicare and Medicaid Services (CMS, per-person expenditures for beneficiaries on Parts A/B/C and those not on A/B/C reached effective parity). One such choice ended the out-of-balance PFFS plan program except for grandfathered beneficiaries. The out-of-balance Employer Group plan program was cut back beginning in 2017.

Exact parity would require major changes to Medicare law (so-called "premium support" proposals, for example), but as of the March 2016 MedPAC report, in 2016 Medicare was expected to spend just 2 percent more on "like" Medicare Advantage beneficiaries per person than for a "like set of beneficiaries" under Original Medicare Parts A and B, theoretically adding an additional 0.5% ($3 billion) to the cost of the overall Medicare program vs. what would have been spent absent Part C. As in 2009, the major plans within Medicare Advantage causing the lack of parity were Employer Group plans (6 percent more) and the few grandfathered PFFS beneficiaries left (10 percent more). Vanilla HMO and PPO plans—as well as SNPs—cost only 1% more per person in comparing "like set of beneficiaries". Overall, only a few recent studies provide a limited picture of beneficiary experiences since the Affordable Care Act (ACA) was passed in 2010.

CMS and MedPAC now believe the "like beneficiary" calculations (those on A/B vs those on A/B/C) that have been used for a decade and that underlay many changes made by PPACA and subsequent regulations are not comparative and are misleading (see slide 8 of the January 12, 2017 MedPAC session on Medicare Advantage and other discussions on this subject since that time). That is because the calculations include the increasing number of people only on Part A (primarily because they did not "retire" at 65 given the higher Social Security full retirement age but did join Medicare Part A at 65 as recommended) whereas a "like" Medicare Part C beneficiary has to be on both Parts A and Part B. On an absolute basis, in 2015 Medicare spent 4% less on Medicare Advantage and other Part C beneficiaries per person than they did per person on Medicare beneficiaries under FFS Medicare.[9] In 2014 the difference in parity on an absolute basis was 2% less per person on Part C.[10] It appears from both points of view—per "like beneficiary" and absolutely—that the latest formula delivers the original cost-saving promise of Managed Medicare. But an absolute comparison is not totally accurate either.

Program structure

People can enroll in Medicare Advantage and other Part C health plans either by enrolling when they first become Medicare-eligible and first join both Parts A and B or by switching from traditional Medicare during an annual or special enrollment period as outlined in "Medicare and You, 2018" (there are over a dozen such enrollment periods).

Capitation

For each person who chooses to enroll in a Part C Medicare Advantage or other Part C plan, Medicare pays the health plan a set amount every month ("capitation"). The capitated fee associated with a Medicare Advantage plan is specific to each county in the United States and is primarily driven by a government-administered benchmark/bidding process that uses that county's average per-beneficiary FFS costs from a previous year as a starting point to determine the benchmark.

Private sponsors

Part C sponsors annually submit bids that allow them to participate in the program. All bids that meet the necessary requirements are accepted. The bids are compared to the pre-determined benchmark amounts set, which are the maximum amount Medicare will pay a plan in a given county, by law. If a plan's bid is higher than the benchmark, enrollees pay the difference between the benchmark and the bid in the form of a monthly premium, in addition to the Medicare Part B premium. (Because of the county-specific nature of the framework and the bidding process leading to these differences, the same sponsor might offer the same benefits under the same brandname in adjacent counties at different prices.) If the bid is lower than the benchmark, the plan and Medicare share the difference between the bid and the benchmark; the plan's share of this amount is known as a "rebate," which must be used by the plan's sponsor to provide additional benefits or reduced costs to enrollees. A rebate cannot contribute to "profit" ("profit" is in quotes because most Medicare Advantage plans are administered by non-profit organizations, primarily integrated health delivery systems).

This benchmark/bidding/rebate process accounts for from 97% to 100% of the cost of the given Medicare Advantage plan to the Medicare Trust Funds. The individual fee for each Part C beneficiary is also uplifted or downsized slightly (approximately 1%-3% in either direction on average) from the county-specific fee based on a risk-based formula tied to the personal health characteristics of the capitated individual. The theory is that the risk-based formula will not affect spending, but in practice it almost always increases cost per beneficiary by one or two percent, either because the Medicare Advantage plan is diligent in upcoding to a beneficiary's specific risks or because patients on Original FFS Medicare, where providers have no incentive to code at all, are undercoded .

Benefits

Medicare Advantage plans are required to offer a benefit "package" that is at least equal to Original Medicare's and cover everything Medicare covers, but they may cover benefits in a different way. For example, plans that require higher out-of-pocket costs than Original Medicare for some benefits, such as skilled nursing facility care, might offer lower copayments for doctor visits to balance their benefits package.[11] CMS limits the extent to which plans' cost-sharing can vary from that of Original Medicare. Medicare Advantage plans that receive "rebates" or quality-based bonus payments are required to use the money to provide benefits not covered by Original Medicare.

Costs

Plans are required to limit out-of-pocket (OOP) spending by a beneficiary for Parts A and B to no more than $6,700 (as of 2016) per year for in-network providers. The OOP limit may be higher for out of network providers in a PPO; out of network providers are typically not permitted in an HMO. The average OOP limit in 2016 was around $5000. Note that an OOP limit is not a deductible as is often reported; it is instead a financial-protection benefit. It is rare for a Medicare Advantage beneficiary to reach the annual OOP limit.

Original Medicare provides no similar OOP spending cap and the exposure of an Original Medicare beneficiary to a financial catastrophe is unlimited (but also rare). Once the OOP maximum is reached for an individual, the plan pays 100% of medical services for the remainder of the calendar year (with no lifetime maximum). This OOP limit does not apply to a Part C plan's Part-D-like self-administered drug coverage (which uses another means of addressing catastrophic costs).

Provider network

As with all HMOs—no matter whether a person is on Medicare or not—persons who enroll in a Medicare Advantage or other Part C HMO cannot use certain specialist physicians or out-of-network providers without prior authorization from the HMO, except in emergencies. In almost all Medicare Advantage plans—HMO or otherwise—the beneficiary must choose a primary care physician (PCP) to provide referrals and the beneficiary must confirm that the plan authorizes the visit to which the beneficiary was referred by the PCP. As with all HMOs, this can be a problem for people who want to use out-of -network specialists or who are hospitalized and are forced to use out-of-network doctors while hospitalized. Many Medicare Advantage PPO plans permit a subscriber to use any physician or hospital without prior authorization, but at a somewhat higher expense.

If a patient's in-network physician orders tests or procedures or refers a patient to a specialty that are not available from an in-network provider, the plan pays for the patient's procedures or services at an out-of-network location and charges in-network rates to the patient, so long as the necessary services are normally covered by the plan (the beneficiary must still obtain authorization).

Competition

One rationale for adding Managed Medicare into Part C was the expectation that the introduction of competition among the participating insurance companies would provide higher-quality care via plans that were more responsive to beneficiaries' needs than traditional Medicare, at similar or lower cost.[12]

Rating system

The Five-Star Quality Rating System rates Medicare Advantage (MA) plans on a scale of 1-5. MA plans and Prescription Drug Plans (PDPs) are rated separately.[13] Health economist Uwe Reinhardt reviewed the academic literature and found little solid information on which to compare traditional Medicare to Medicare Advantage.[14]

Usage

It is common for people to continue to work after joining Medicare at age 65, use both Original Medicare (often just Part A) and employer sponsored insurance, and delay deciding between FFS Medicare and capitated-fee Medicare until retirement.

Sicker people and people with higher medical expenditures are more likely to switch from Medicare Advantage plans to Original Medicare. This statistic is primarily driven by people on Medicaid in custodial care at nursing home; such people no longer have need of any Medicare supplement, either a public Part C plan or a private Medigap or group retirement plan.[15] The Part C risk adjusted payments to Medicare Advantage plans are designed to limit this churn between types of Medicare (managed vs. FFS), but it is unclear how effective that policy is.[16]

Evidence is mixed on how quality and access compare between Medicare Advantage and "traditional" Medicare.[17] ("traditional" in quotes because it is not the same as Original Medicare; everyone in Medicare must begin by joining Original Medicare; the term "traditional" typically refers to FFS and almost always means the beneficiary has a private group or individually purchased supplement to Original Medicare). Most research suggests that enrollees in Medicare HMOs tend to receive more preventative services than beneficiaries in traditional Medicare; however, beneficiaries, especially those in poorer health, tend to rate the quality and access to care in traditional Medicare more favorably than in Medicare Advantage. It is difficult to generalize the results of studies across all plans participating in the program because performance on quality and access metrics varies widely across the types of Medicare Advantage plans and among the dozens of providers of Medicare Advantage plans.

References

  1. ↑ Jacobson, Gretchen; Damico, Anthony; Neuman, Tricia; Gold, Marsha (December 10, 2014). "Medicare Advantage 2015 Data Spotlight: Overview of Plan Changes". www.kff.org. Retrieved 12 March 2015.
  2. ↑ Biles B, Casillas G, Guterman S (August 2015). "Competition Among Medicare's Private Health Plans: Does It Really Exist?". The Commonwealth Fund. Retrieved 13 May 2016.
  3. ↑ Medicare: Medicare Advantage - Kaiser Family Foundation Archived 2008-01-16 at the Wayback Machine.
  4. ↑ Gold, Marsha; Jacobson, Gretchen; Damico, Anthony; Neuman, Tricia (May 1, 2014). "Medicare Advantage 2014 Spotlight: Enrollment Market Update". www.kff.org. Kaiser Family Foundation. Retrieved 12 March 2015.
  5. ↑ Medicare Payment Advisory Commission (MedPAC) (March 2009). "Report to the Congress: Medicare Payment Policy" (PDF). Retrieved 12 March 2015.
  6. ↑ "Medicare Advantage Plan Star Ratings and Bonus Payments in 2012". www.kff.org. November 1, 2011. Retrieved 12 March 2015.
  7. ↑ Government Accountability Office (23 April 2012), Medicare Advantage: Quality Bonus Payment Demonstration Undermined by High Estimated Costs and Design Shortcomings
  8. ↑ Kaiser Family Foundation (1 May 2014). "Medicare Advantage Fact Sheet". kff.org. Retrieved 11 March 2015.
  9. ↑ Table II.B.1 and IV.C.1 of the 2016 Medicare Trustees report
  10. ↑ 2015 Medicare Trustees report
  11. ↑ CMS (April 7, 2014). "Announcement of Calendar Year (CY) 2015 Medicare Advantage Capitation Rates and Medicare Advantage and Part D Payment Policies and Final Call Letter" (PDF). cms.gov. Retrieved 11 March 2015.
  12. ↑ Pizer, SD; Frakt, AB (Fall 2002). "Payment policy and competition in the Medicare+Choice program". Health Care Financ Rev. 24 (1): 83–94. PMC 4194777. PMID 12545600.
  13. ↑ Sounding Board: A Systemic Approach to Containing Health Care Spending September 6, 2012 Emanuel E., Tanden N., Altman S., et al. N Engl J Med 2012; 367:949-954
  14. ↑ Comparing the Quality of Care in Medicare Options By Uwe E. Reinhardt, New York Times, January 18, 2013
  15. ↑ Riley, Gerald (2012). "Impact of Continued Biased Disenrollment from the Medicare Advantage Program to Fee-for-Service". Medicare & Medicaid Research Review. 2 (4): E1–E17. doi:10.5600/mmrr.002.04.a08. PMC 4006478.
  16. ↑ Brown, Jason; Duggan, Mark; Kuziemko, Ilyana; Woolston, William (2014). "How Does Risk Selection Respond to Risk Adjustment? New Evidence from the Medicare Advantage Program". American Economic Review. 104 (10): 3335–64. doi:10.1257/aer.104.10.3335.
  17. ↑ Gold, Marsha; Casillas, Giselle (November 6, 2014). "What Do We Know About Health Care Access and Quality in Medicare Advantage Versus the Traditional Medicare Program?". www.kff.org. Retrieved 12 March 2015.

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