ENHANCING VALUE IN MEDICAREENHANCING VALUE IN MEDICARE

Brian Biles, MD, MPHBrian Biles, MD, MPH

The George Washington UniversityThe George Washington University

January 14, 2007January 14, 2007

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Two Approaches to Two Approaches to VALUE IN MEDICARE VALUE IN MEDICARE

Traditional Traditional fee-for-servicefee-for-service Medicare Medicare

83 percent of total Medicare 83 percent of total Medicare beneficiariesbeneficiaries

Use of Use of private plansprivate plans in Medicare in Medicare 17 percent of total Medicare 17 percent of total Medicare

beneficiariesbeneficiaries

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Focus forFocus for VALUE IN MEDICAREVALUE IN MEDICARE

Value to Value to Federal Federal governmentgovernment

Value to Medicare elderly Value to Medicare elderly and disabled and disabled beneficiariesbeneficiaries

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Value to Federal GovernmentValue to Federal GovernmentPAYMENTS TO MA PLANSPAYMENTS TO MA PLANS

Private MA plans are now paid, in the Private MA plans are now paid, in the aggregate, aggregate, more than average costs more than average costs in traditional fee-for-service in traditional fee-for-service MedicareMedicare

Average of Average of 12.4 percent12.4 percent

$922 per enrollee$922 per enrollee

$6 billion$6 billion in total annual extra in total annual extra paymentspayments

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Value to Federal GovernmentValue to Federal GovernmentPAYMENTS TO MA PLANSPAYMENTS TO MA PLANS

Private MA plan payment Private MA plan payment benchmarks are higher than fee-benchmarks are higher than fee-for-service (FFS) Medicare in every for-service (FFS) Medicare in every county in the nationcounty in the nation

Payment in Payment in urbanurban and and rural floorrural floor counties are set by statute at a projected counties are set by statute at a projected average of average of 20 percent20 percent and and 17 percent17 percent more than FFS more than FFS

Double payment for hospital Double payment for hospital indirect indirect medical educationmedical education costs costs

Extra payments for Extra payments for risk adjustment risk adjustment paymentspayments through 2010 through 2010

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Extra Payments to MA Plans Above Extra Payments to MA Plans Above Fee-for-Service CostsFee-for-Service Costs

20%17%

13%

5%6%

10%

15%

0%

6%

12%

18%

24%

UrbanFloor

RuralFloor

Blend MinimumUpdate

100% ofFFS in2004

100% ofFFS in2005

100% ofFFS in2007

Source: George Washington University analysis of CMS Managed Care quarterly State County Plan data file for the quarter ending December 2005, Medicare Managed Care quarterly State County Market Penetration data file for the quarter ending December 2005 and Medicare Advantage 2007 Ratebook; Transcript of Public Meeting, Medicare Payment Advisory Commission (MedPAC), April 21, 2005.

Note: Projections for 2007. Figures above include BNRA and FFS normalization. Assumes 4 percent reduction in extra payments to account for MA benchmark-based bidding.

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100% FFS 2007, 0.4%

Blend, 7%

Urban Floor, 42%

Rural Floor, 8%100% FFS '05, 25%

100% FFS '04, 10%

Minimum Update, 8%

Share of Extra Payments to MA PlansShare of Extra Payments to MA Plans

Source: George Washington University analysis of CMS Managed Care quarterly State County Plan data file for the quarter ending December 2005, Medicare Managed Care quarterly State County Market Penetration data file for the quarter ending December 2005 and Medicare Advantage 2007 Ratebook; Transcript of Public Meeting, Medicare Payment Advisory Commission (MedPAC), April 21, 2005.

Note: Projections for 2007. Figures above include BNRA and FFS normalization. Assumes 4 percent reduction in extra payments to account for MA benchmark-based bidding.

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Value for Medicare BeneficiariesValue for Medicare BeneficiariesENROLLMENT IN MA PLANSENROLLMENT IN MA PLANS

Private MA plan enrollment is heavily Private MA plan enrollment is heavily concentratedconcentrated

55 percent55 percent of MA enrollment is of MA enrollment is in just 4 Statesin just 4 States: : California, Pennsylvania, Florida, and New YorkCalifornia, Pennsylvania, Florida, and New York

Even in those states with the highest share of MA Even in those states with the highest share of MA enrollment, enrollment, less than one third less than one third of total of total beneficiaries in the state are beneficiaries in the state are enrolled in MA enrolled in MA plansplans::

CaliforniaCalifornia 31% 31% PennsylvaniaPennsylvania 25%25% FloridaFlorida 20%20% New YorkNew York 19% 19%

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MA Enrollment is Heavily ConcentratedMA Enrollment is Heavily Concentrated

Source: CMS Dec 2005 Enrollment data

Percentage of Medicare Beneficiaries Enrolled in MA Plans, by State

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Value for Medicare BeneficiariesValue for Medicare BeneficiariesMA BENEFITS FOR SENIORSMA BENEFITS FOR SENIORS

Private MA plan Private MA plan benefits vary greatlybenefits vary greatly Out-of-pocket costs for MA enrollees in poor Out-of-pocket costs for MA enrollees in poor

health range from an average of about health range from an average of about $600 $600 per year per year in Miami to nearly in Miami to nearly $6,000 per $6,000 per year year in Providence, St. Louis and San in Providence, St. Louis and San FranciscoFrancisco

Private MA plans may Private MA plans may design their design their own benefit packageown benefit package Not like MedigapNot like Medigap plans that must provide plans that must provide

one of a set of defined benefit packagesone of a set of defined benefit packages

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Estimated Out-of-Pocket Costs for MA Estimated Out-of-Pocket Costs for MA Enrollees in Poor Health by PlanEnrollees in Poor Health by Plan

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

1 11 21 31 41 51 61 71 81 91 101 111 121 131 141 151 161 171 181

Plan Number

OO

P C

ost

s fo

r E

nro

llees

in P

oo

r H

ealt

h

$3,990(Median)

$7,197

$220

Note: Figures for 2006. 186 Plans shown.

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Value to Medicare BeneficiariesValue to Medicare BeneficiariesMA PLAN COSTS FOR PROVIDING BENEFITSMA PLAN COSTS FOR PROVIDING BENEFITS

Private MA plans can have higher Private MA plans can have higher costs for providing benefits than FFS costs for providing benefits than FFS Medicare for good reasons:Medicare for good reasons:

Administrative costs of Administrative costs of 11 percent11 percent

Higher payments to providers of up to Higher payments to providers of up to 20 20 percentpercent

Less utilization reviewLess utilization review for quality and for quality and intensity of care since managed care intensity of care since managed care backlash at end of 1990s. backlash at end of 1990s.

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ENHANCING VALUE IN MEDICAREENHANCING VALUE IN MEDICARE

Medicare payments to MA private Medicare payments to MA private plans plans average 12.4 percent moreaverage 12.4 percent more than average FFS coststhan average FFS costs

MA plan MA plan enrollment isenrollment is heavily heavily concentratedconcentrated by state and city by state and city

Out-of-pocket costsOut-of-pocket costs vary widely vary widely for for MA enrolleesMA enrollees

ENHANCING VALUE IN MEDICAREENHANCING VALUE IN MEDICARE

Brian Biles, MD, MPHBrian Biles, MD, MPH

The George Washington UniversityThe George Washington University

January 14, 2007January 14, 2007