I was just reading on the Health Beat Blog that the Independent Payment Advisory Board will be able to propose changes in Medicare payments that “will become law unless Congress enacts its own proposal to achieve the same level of cuts.”  A super-majority of votes would be required in Congress to overturn the board’s decisions.

The Payment Advisory Board will be made up of physicians and health care experts. They will be able to enact changes in Medicare payment policy without dealing with the Congressional politics that have stopped  changes to Medicare in the past.  For example, Medicare will be able to convert successful pilot projects nationwide without waiting for Congressional approval. The Health Beat Blog says that, in the past, Medicare has launched many successful demonstration projects that improved quality and cut costs, but Medicare was not  allowed to implement them without going through Congress.

Making changes in the fee-for-service payment system is supposed to be a key to cutting Medicare costs.  This has been tested in many pilot projects, and the Independent Payment Advisory Board will be able to implement changes without lobbyists and special interest groups pressuring them to maintain the status quo. 

This is where the action will be when it comes to Medicare changes and slowing the growth of Medicare spending.

In 2011, the threshold for going into the donut hole will be raised by $500 and seniors who go into the donut hole will get a 50 percent discount on brand-name drugs. By 2020, the doughnut hole will be closed and 75 percent of drug costs will be covered.

It’s too bad about the delay because seniors who have been told all the terrible things that will happen as a result of the health care bill would have appreciated the savings this year.   The Medicare Advantage company representatives tell us that about 10% of seniors go into the donut hole.

Medicare spends less than 1.5% on administrative expenses and over 98% on health care costs for seniors. Two-thirds of Medicare Advantage plans spent only 85% of their revenue on enrollees’ health care costs. The study sited six plans that spent only 75% of revenues on their enrollees.

The report concluded that total amounts spent on profits, marketing, and other expenses by Medicare Advantage plans over the last four years was 27 billion dollars.  This is money that should have stayed in the Medicare Trust Fund, but instead went to private insurance companies to be spent on things other than health care for seniors and disabled citizens on Medicare.  This is why Democrats have targeted Medicare Advantage for big cuts.

The report notes that in 2007 one Medicare Advantage company paid its top executive $35 million.  Another company paid out a total of $210 million among 260 managers. The study also reported on expensive retreats, which are typical rewards for top sales agents and employees in the insurance industry. In 2007, one insurer spent over $3 million on retreats in Hawaii while it spent only 83% of its revenue on health benefits for seniors enrolled in its plans.

This is why Democrats hate Medicare Advantage plans.  And this is why Democrats will see to it that Medicare cuts payments to the insurance companies that run the plans. Democrats in Congress don’t agree on much, but I think this is the exception. 

It looks like there’s plenty of fat that can be cut from these plans’ expense sheets – and profit margins – before they start raising co-pays and premiums for seniors. But we’ll have to see how that turns out.

The full report can be found at http://energycommerce.house.gov/Press_111/20091209/MedicareAdvantageReport120909.pdf

Seniors in Arizona are facing substantial changes in their plans in 2010, including a $36 monthly premium for a plan that has always been $0.  Doctor visit co-pays have gone up about $5 in every plan offered in Tucson, AZ.  Hospital co-pays that would be $900 in 2009 will be $2,000 next year.  Seniors are advised to get sick before the end of this year to save money.  (Just kidding.) 

I decided to take a look at plans in Florida, where Medicare pays insurance companies the highest amount for seniors enrolled in Medicare Advantage plans, and I was shocked to see that seniors in Florida are not facing the same cost increases as older citizens in Arizona. In fact, for seniors enrolled in most HMO Medicare Advantage plans in Florida, their healthcare is practically free!

 Let’s look at plans offered by the same company, Humana, in both Arizona and Florida.  I was shocked by the differences.

Senator Kyl  of Arizona has been a vocal defender of Medicare Advantage plans, saying seniors in his state should not lose the benefits and choice offered through private Medicare plans.  Senator Ben Nelson, a Democrat from Florida, added an amendment to the Senate Finance Committee healthcare bill that would protect added benefits in Medicare Advantage plans such as free gym memberships, dental and vision services.

Senator Kyl seems to be protecting choices for Arizona seniors that are mediocre at best, while Senator Nelson’s constituents have the gold standard in healthcare plans.

It would seem that companies like Humana are taking advantage of high fee-for-service costs for Medicare beneficiaries in states like Florida.  Because Medicare Advantage plans are based on the fee-for-service averages in a state, Humana is able to offer managed care plans that have excellent benefits for enrollees. The problem is that this does not save Medicare money, which was the original purpose for allowing private insurance companies to offer and manage Medicare Advantage plans.

The article reported that out of 43 million people on Medicare, 7 million have Medigap plans.  14 million seniors have employer-sponsored health coverage in retirement, and these plans seem to have been targeted by a report commissioned by the Medicare Payment Advisory Commission (Medpac). The June 2009 report looked at how  secondary insurance influences how much healthcare people seek out.

Through number crunching and regression analysis, the the researchers determined that “secondary insurance has a substantial impact on Medicare spending, especially Part B spending, particularly among people who had first-dollar or nearly-first-dollar coverage.”

 This “first-dollar-coverage” refers to good retirement health plans that act as supplements to Medicare. These company-sponsored plans often require small or no co-pays for medical services like doctor visits, lab tests, CT scans, and MRIs. It would also refer to people who go out and purchase a Medicare Supplement plan F or G which cover most of  the 20% co-insurance imposed by Medicare. 

 The report’s regression analysis showed that seniors paying less than 5 percent of the total [bill] averaged 68% to 83% higher total Part B spending than seniors who had only Medicare.

 The report goes on to say that there was “evidence of a direct effect on elective hospital admissions. Preventive care, minor procedures and endoscopies were strongly affected by secondary insurance coverage, with substantially higher use among those with private secondary insurance.”

 More from the report: 

“First, beneficiaries themselves report that out-of-pocket costs are a significant reason for delaying care. Nearly 20 percent of beneficiaries without secondary insurance reported delaying care due to concerns over cost, versus 5 percent of beneficiaries with private secondary insurance. Thus, survey data provide direct evidence that out-of-pocket cost is a mechanism by which secondary insurance increases demand for care.”

 “ Ultimately, it did not matter whether beneficiaries chose to purchase coverage or not, or earned coverage as a retirement benefit or not. The only factor that mattered was whether or not their Part B care was free or nearly free of copayment is the simpler explanation of what we have observed.”

“In summary, the evidence is reasonably clear that secondary insurance raises Medicare costs…..This analysis merely shows that beneficiaries in fee-for-service Medicare will tend to use much more health care when each additional service is free (to them) than they would if they had to pay a significant portion of the cost of each additional service.”

 FYI:  The NY Times article referred to the cost of Medicare Supplement plans:  
Plan C in NY $232 for AARP,
Florida Plan C $189 to $322, depending on the company

In Arizona:  AARP Plan C is 118.82 /month
Plan F in Arizona through United of Omaha offers slightly more coverage for $90.80 for a woman, $98.75 for a man.

But it turns out an important government report has positive things to say about some Medicare Advantage plans. HMO Medicare plans have been around for many years and Health Maintenance Organizations (HMO’s) were the model for saving money and managing patient care over 20 years ago.  Here are some excerpts from a report by the Medicare Payment Advisory Commission. This group advises Congress on Medicare policy and payment issues.  The excerpts are from page four of the report.

“In aggregate, the MA program continues to be more costly than the traditional program. As an exception, HMOs continue to bid below Fee-For-Service (FFS), bidding 98 percent of FFS in 2009.”

 “MA plans provide enhanced benefits to enrollees, but, except for HMOs, which finance a portion of those benefits through bids below FFS, the enhanced benefits are financed entirely by the Medicare program and by beneficiaries—and at a high cost. For example, each dollar’s worth of enhanced benefits in PFFS plans costs the Medicare program more than $3.00.”

 “Quality is not uniform among MA plans or plan types. High-quality plans tend to be established HMOs; plans that are new in the MA program have lower performance on many measures.”

 So it looks like HMO’s actually save Medicare money, because for every dollar Medicare spends on the average Medicare beneficiary, it pays 98 cents for each enrollee in a Medicare HMO.  HMO’s have been around for many years in Arizona, California, Florida, and Oregon. And many of those HMO’s are “high-quality”.  This kind of report gives me confidence that money-saving, high-quality HMO plans will be around for the future- as long as the politicians don’t throw the baby out with the bathwater as they try to reign in Medicare Advantage.

FACT: The impact of proposed cuts to Medicare Advantage (MA) would vary greatly depending on how the cuts are structured and where a senior happens to live.

The House legislation would have the greatest impact in rural areas and areas with historically low fee-for-service (FFS) expenditures. Some of the areas could experience funding reductions of more than 20 percent.

The Senate Finance Committee’s proposal would have the greatest impact in very different areas. According to the Congressional Budget Office’s (CBO) analysis of an option very similar to the Committee’s proposal, MA enrollees in areas where plans bid below FFS – which CBO describes as “correlated but not identical to” urban areas – would experience over a 60% reduction in the value of additional benefits compared to what they receive today in their MA plans. This compares to about a 25 percent reduction in rural areas.1

 FACT: Previous cuts to Medicare Advantage resulted in millions of seniors losing their coverage or experiencing benefit reductions.

According to CMS, enrollment in Medicare Advantage (then known as Medicare+Choice) experienced multi-year declines following enactment of the Balanced Budget Act of 1997. Between December 2001 and December 2002, Medicare Advantage enrollment declined by more than 900,000.

From 1999 to 2003, nearly 2.4 million Medicare beneficiaries were impacted by plan withdrawals and service reductions. 3

Footnotes:
1 Analysis of CBO Letter to the Honorable Michael Crapo, 5/18/2009.
2 CMS Medicare Managed Care Geographic Service Area Reports
3 CMS Medicare Managed Care Geographic Service Area Reports