Reductions in Payments to Medicare Advantage Plans

• Abstract
• Characteristics of this policy
• Purpose and process analysis
• Expected outcome
• References

Featured in half-yearly report: Health Policy Developments 13

Abstract

The 2003 Medicare Modernization Act increased payments to private health plans participating in the Medicare program. Between 2004-2008, extra payments to private plans amounted to $33 billion. The recent health reform bill, The 2010 Patient Protection and Affordable Care Act (H.R. 4872), includes provisions that will reduce these payments to plans.

Neue Entwicklungen

Private managed care plans have been a part of the Medicare program for decades. Under the current system, Medicare beneficiaries are allowed to enroll in either the traditional fee-for-service Medicare program, or they may choose to enroll in a private Medicare managed care plan (referred to as a "Medicare Advantage (MA) plan"). An estimated 23 percent of all Medicare beneficiaries were enrolled in Medicare Advantage plans in 2009.

The Medicare Modernization Act of 2003 (MMA) increased payments to private plans and between 2004 and 2010 these plans were paid more per enrollee than average costs per beneficiary in the traditional fee-for-service program. The increased payments were intended to incentivize private health insurance plans to offer Medicare Advantage plans throughout the United States and to increase enrollment in these plans. In 2009 payments  per enrollee to Medicare Advantage plans exceeded average costs in the traditional fee-for-service program by an estimated 14 percent or over $11 billion.

Until 2008, Medicare Advantage plan payments were set based on four distinct policies: (1) A county-level benchmark set by the Centers for Medicare and Medicaid Services (CMS); (2) A "budget-neutral" risk adjustment mechanism that ensured that payments to private plans would not decrease despite the implementation of a new risk adjustment system; (3) The inclusion of payments for Indirect Medical Education (IME) in the county benchmark rate, despite the fact that IME was also paid directly to teaching hospitals; and (4) A bidding system under which plans submit bids representing the cost of providing Medicare Parts A and B benefits to their enrollees. If a plan bids less than the county benchmark, Medicare keeps 25 percent of the difference, and the plan is required to use the remaining 75 percent to offer increased benefits or reduced premiums to enrollees.

Policies enacted in 2005 and 2008 reduced these payments slightly. The Deficit Reduction Act of 2005 (DRA) mandated that CMS phase out the budget neutral risk adjustment policy between 2006-2010 and The Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) phased out the duplicative payments to plans for Indirect Medical Education by 2010, and made additional changes to Private fee-for-service (PFFS) MA plans.

The Patient Protection and Affordable Care Act (passed by the Senate on December 24, 2009 and by the House of Representatives on March 21, 2010 and signed into law by President Obama on March 23, 2010) includes provisions that will further reduce payments to MA plans. A number of key changes will be made to the MA program as a result of the Patient Protection and Affordable Care Act. (1) This legislation will restructure payments to MA plans over four years, using the average MA plan bids in each county to guide the payment changes.  Payments will be reduced, but in certain counties, where plan bids are less than 75 percent of traditional fee-for-service Medicare, extra benefits will be grandfathered in. (2) From 2011 to 2013 the Secretary of Health and Human Services will be required to adjust risk scores for differences in coding patterns between private plans and traditional fee-for-service Medicare. This provision is also expected to lead to reduced payments to plans. (3) Beginning in 2012, bonus payments will be awarded to plans based on quality of care. (4) The legislation will also prohibit MA plans from imposing cost sharing requirements for certain services that are higher than those under the traditional Medicare program. (5) Finally, in 2014  MA plans will not be allowed to have Medical Loss Ratios (payout ratios) lower than 85 percent.

Innovationsgrad	traditionell		innovativ
Kontroversität	unumstritten		kontrovers
Strukturelle Wirkung	marginal		fundamental
Medienpräsenz	sehr gering		sehr hoch
Übertragbarkeit	sehr systemabhängig		systemneutral
current    previous

The role of private plans in Medicare has long been a source of controversy, and will likely continue to be debated in the future.  These policy changes are an attempt to "level the playing field" between private plans and traditional fee-for-service Medicare by reversing some of the payment increases legislated in the MMA under the Bush Administration. The current consensus is that there is no sufficient reason to support higher payments to private insurers.

Purpose and process analysis

Current Process Stages

	Idee	Pilotprojekt	Strategiepapier	Gesetzgebung	Umsetzung	Evaluation	Veränderung/Richtungswechsel
Implemented in this survey?

Initiators of idea/main actors

• Regierung: The Obama Administration strongly supports the reduction in extra payments to MA plans. CMS historically opposed reductions in MA payments under the Bush Administration, yet has remained relatively silent during this recent debate.

• Leistungserbringer: Physician organizations have supported reduced payments to MA plans in the past, particularly in order to prevent scheduled cuts in Medicare payments to physicians.

• Kostenträger: Health insurance companies are strongly opposed to this change and have argued that reductions in payments will lead to reduced benefits to enrolees and decreased MA plan offerings across the nation.

• Politische Parteien: Democrats who hold a majority in Congress in general strongly support cutting payments to MA plans, particularly in order to finance other aspects of health reform. Republicans are largely strongly opposed to the payment cuts.

Stakeholder positions

Republicans were instrumental to the passage of the Medicare Modernization Act of 2003 which increased payments to MA plans. Since then, they have historically opposed all forms of payment cuts in Medicare Advantage.

Democrats have not supported these payments in the past and have continued to argue that these funds would be better spent in other ways. 

The election of President Obama, whose administration has voiced strong opposition to the extra payments MA plans receive, together with a Democratic majority in the House and Senate, have been key factors in moving these policy changes forward. 

Actors and positions

Regierung
Obama Administration	sehr unterstützend		stark dagegen
Centers for Medicare and Medicaid Services (CMS)	sehr unterstützend		stark dagegen
Leistungserbringer
Physician organizations	sehr unterstützend		stark dagegen
Kostenträger
Health insurance companies	sehr unterstützend		stark dagegen
Politische Parteien
Democratic Party	sehr unterstützend		stark dagegen
Republican Party	sehr unterstützend		stark dagegen
current    previous

Influences in policy making and legislation

With the strong support of the Obama Administration and Democrats in the House and Senate, these changes were included in the Patient Protection and Affordable Care Act, which was signed into law by President Obama on March 23, 2010. Ultimately, the Act was passed with only the support of Democrats. 

Legislative outcome

Enactment

Actors and influence

Regierung
Obama Administration	sehr groß		kein
Centers for Medicare and Medicaid Services (CMS)	sehr groß		kein
Leistungserbringer
Physician organizations	sehr groß		kein
Kostenträger
Health insurance companies	sehr groß		kein
Politische Parteien
Democratic Party	sehr groß		kein
Republican Party	sehr groß		kein
current    previous

Positions and Influences at a glance

Adoption and implementation

The Department of Health and Human Services and the Centers for Medicare and Medicaid Services will be responsible for implementing the provisions included in the Patient Protection and Affordable Care Act.  Most of these provisions will be implemented from 2011 through 2014.

Monitoring and evaluation

The Patient Protection and Affordable Care Act does not include provisions for the monitoring and evaluation of the MA payment and programmatic changes included in the legislation. 

Expected outcome

The majority of this legislation will not be implemented until 2011 and the effects of the policy changes may not be fully realized for a few years after that. However, it is expected that Medicare spending will decrease. It is also possible that some plans will leave the market when payments are decreased, however it is generally thought that plans operating efficiently will be able to continue operating despite the payment changes.

Impact of this policy

Qualität	kaum Einfluss		starker Einfluss
Gerechtigkeit	System weniger gerecht		System gerechter
Kosteneffizienz	sehr gering		sehr hoch
current    previous

The MA provisions included in the Patient Protection and Affordable Care Act will reduce Medicare spending and may impact private plan availability and enrollment in future years. 

References

Sources of Information

 

• Kaiser Family Foundation. Health Reform Implementation Timeline. (Accessed March 2010). Available at: http://www.kff.org/healthreform/8060.cfm
• Kaiser Family Foundation. Summary of Key Medicare Provisions in White House Proposal and House and Senate Health Reform Bills. March 15, 2010. Available at: http://www.kff.org/healthreform/upload/7948_HR3962_HR3590_Summary.pdf
• Petigara, Tanaz and Gerard Anderson. "Payments to Medicare Advantage Plans". Health Policy Monitor, April 2009. Available at http://www.hpm.org/survey/us/b13/1
• Biles B, Adrion E, and Guterman S. Medicare Advantage's Private Fee-For-Service Plans: Paying for Coordinated Care Without the Coordination. The Commonwealth Fund. Issue Brief # 1183; October 2008.
• Congressional Budget Office. Medicare Advantage: Private Health Plans in Medicare. Economic and Budget Issue Brief.  July 28, 2007.
• Government Accountability Office. Medicare Advantage: Characteristics, Financial Risk, and Disenrollment of Beneficiaries in Private Fee-For-Service Plans. GAO-09-25; December 2008.
• Zarabozo C and Harrison S. Payment Policy and the Growth of Medicare Advantage. Health Affairs Web Exclusive November 24 2008; w55-w67.
• Kaiser Family Foundation. Medicare Advantage. Fact Sheet; September 2008.
• Congressional Budget Office. Cost Estimate - H.R. 6331 Medicare Improvements for Patients and Providers Act of 2008 (July 23, 2008).
• Christensen S. Medicare + Choice Provisions in the 1997 BBA. Health Affairs July/August 1998; 17(4): 224-231.
• Berenson RA and Dowd BE. Medicare Advantage Plans at a Crossroads - Yet Again. Health Affairs Web Exclusive November 2008; w29-w40.
• Berenson RA. From Politics to Policy: A New Payment Approach In Medicare Advantage. Health Affairs Web Exclusive 4 March 2008; ww156-164.
• Gold M. Medicare's Private Plans: A Report Card on Medicare Advantage. Health Affairs Web Exclusive 28 November 2008; w41-w54.
• Anderson GF. Medicare and Chronic Conditions. New England Journal of Medicine July 21 2005; 353(3): 305-309.
• Noyes K, Hangsheng L, and Temkin-Greener H. Medicare Capitation Model, Functional Status, and Multiple Comorbidities: Model Accuracy. American Journal of Managed Care. October 2008; 14(10): 679-690.

Reform formerly reported in

Payments to Medicare Advantage Plans Process Stages: Umsetzung, Evaluation, Gesetzgebung

Author/s and/or contributors to this survey

Adrion, Emily and Anderson, Gerard

Department of Health Policy and Management, Johns Hopkins Bloomberg School of Public Health

Empfohlene Zitierweise für diesen Online-Artikel:

Adrion, Emily and Anderson, Gerard. "Reductions in Payments to Medicare Advantage Plans". Health Policy Monitor, April 2010. Available at http://www.hpm.org/survey/us/b15/3