Medicare+Choice Example of Increased Program
Costs Associated with Private Plans
(Press Release provided by The Commonwealth Fund)
As Congress debates Medicare proposals that would shift more beneficiaries
into private insurance plans, legislators may first want to examine the often
tumultuous history of the six-year-old Medicare+Choice program, Medicare's managed
care alternative to its traditional fee-for-service program. According to a
new policy brief from The Commonwealth Fund, many Medicare+Choice enrollees
have been faced with a limited choice of plans in their area and instability
in provider participation compared with fee-for-service Medicare, as well as
significantly increased out-of-pocket costs--especially for those with chronic
and disabling illnesses--and a confusing, complicated benefit structure
"Seniors may suddenly find that their physician is no longer a member
of their plan or, if they have health problems, that their out-of-pocket costs
have increased substantially," said Karen Davis, president of The Commonwealth
Fund. "These are the realities of the health care marketplace, and we should
be cautious about inflicting them on the elderly and disabled."
The analysis, Lessons from Medicare+Choice for Medicare Reform, by Geraldine
Dallek, an independent health policy consultant, and Brian Biles and Lauren
Hersch Nicholas of George Washington University, provides seven lessons for
the current debate:
- Lesson #1: Private plans do not participate in many regions. Attracting
private plans to some regions, particularly rural areas, has been difficult
because of the small number of hospitals and physicians in these areas and
their reluctance to contract with managed care plans. Only 13% of rural beneficiaries
have an option of joining a Medicare+Choice plan.
- Lesson #2: Premiums and benefits vary greatly by geographic area. Wide variation
in premiums, benefits, and cost-sharing will undermine the promise of Medicare
to provide the same health care benefits to beneficiaries no matter where
they live. Enrollment-weighted average monthly premiums in Medicare+Choice
plans ranged from $3 in New York City to $87 in neighboring Long Island in
2002.
- Lesson #3: Participation by Medicare HMOs has been unstable. Because Medicare+Choice
payments to participating plans are related to overall growth in traditional
Medicare costs, rate increases have been limited in recent years, generally
to 2 percent annually. With continued participation in the Medicare market
less financially attractive, plans have reduced their service area or simply
withdrawn from local markets altogether, disrupting health care for more than
2.4 million beneficiaries from 1999 to 2003. Any new Medicare program that
depends on private plans is likely to face the same circumstances.
- Lesson #4: Physician and hospital participation has been unstable. Medicare+Choice
enrollees have experienced high rates of turnover in the physicians and hospitals
that participate in their plans. Statewide primary care provider turnover
rates ran as high as 33 percent in New Mexico in 2001. Nine of 36 states had
Medicare+Choice primary care turnover rates of 20 percent or more, including
plans in large states such as Florida, Illinois, and Texas.
- Lesson #5: Medicare+Choice options are too complicated for many beneficiaries.
Although choice of health plans is the cornerstone of competition in the private
marketplace, the complicated range of choices in Medicare+Choice benefits
and cost-sharing make it difficult for anyone-let alone elderly people with
cognitive impairments-to make an informed choice. Medicare+Choice plans do
not provide standardized benefit packages, so beneficiaries must choose between
plans with wide variation in the benefits offered, including prescription
drug coverage. Plans can differ greatly in the level of drug benefits provided,
coverage of brand names or generics, copayments, and method of determining
drug costs that count toward benefit limits.
- Lesson #6: Medicare+Choice plan design can discourage enrollment by high-risk
beneficiaries. Medicare+Choice plans have historically enrolled healthier,
lower-cost individuals than traditional fee-for-service Medicare. Moreover,
private insurers increasingly show an interest in risk selection, encouraging
enrollment by healthier beneficiaries. In particular, increases in cost-sharing
for some services by some plans seem to be directly related to the fear of
enrolling high-cost beneficiaries. Across the nation, plans have increased
costs on specific services most likely to be used by enrollees with high-cost
chronic conditions, such as hospital care, oxygen, dialysis, chemotherapy,
and radiation therapy.
- Lesson #7: Private plans are not less costly than traditional Medicare.
While a major goal of private plans is to control growth in costs, the Medicare+Choice
experience shows that private plans can increase program costs. Among the
reasons are Medicare's need to increase payments to attract private plans
in rural areas, as well as the higher administrative costs for Medicare+Choice
compared with fee-for-service Medicare. It is difficult for private plans
to offer additional benefits, cover marketing and administrative costs, and
make a profit while at the same time pricing their products below the costs
of traditional Medicare.
To view the complete policy brief, please visit The Commonwealth
Fund's Web Site at:
http://www.cmwf.org/programs/medfutur/dallek_mclessonsforreform_pb_658.pdf