Medicare Advantage: The overlooked cornerstone

of healthcare reform

June 8, 2013

Grace-Marie TurnerGalen Institute

Medicare: Still basically the 1965 model

A “social insurance” program to help pay for hospital and physician visits, diagnostic tests, medical equipment, and many other medical goods and services, paid on a fee-for-service basis.

A prescription drug benefit was added 40 years later (decades after private plans integrated drug and medical coverage).

Who gets Medicare?

Medicare will spend $600 billion this year on health benefits

It covers 50 million people–41 million senior citizens age 65 and over–9 million disabled people

People with a physical or mental condition that makes it impossible for them to work

People with End Stage Renal Disease receiving dialysis

A & B: Medicare’s Original Parts

Part A helps pay for hospital, home health, hospice care and other institutional care for the aged and disabled

Part B is an allegedly voluntary program that helps pay for physician, outpatient hospital, home health, and other services 

C and D: Medicare’s newer partsPart C is an alternative to traditional Medicare. Beneficiaries can enroll in private “Medicare Advantage” plans that contract with Medicare to provide medical, hospital and sometimes drug coverage to those who choose these plans

Part D is a voluntary program that provides subsidized access to prescription drug coverage for all beneficiaries and subsidies for premiums and cost-sharing for low-income people

Part D: Such a deal!

The Congressional Budget Office said that spending for the prescription drug benefit declined by nearly 40% compared to initial estimates of its 10-year cost

It is saving seniors money as well. The average monthly drug premium is about $30, far below the $53 forecast originally.

SOURCE: Kaiser Family Foundation analysis of the Bureau of Labor Statistics Consumer Expenditure Survey Interview and Expense Files, 2002-2009, “Health Care on a Budget, The Financial Burden of Health Spending by Medicare Households, An Updated Analysis of Health Care Spending as a Share of Total Household Spending,” June 2011.

Health Insurance Spending

Prescription Drug Spending

Average Health Insurance and Prescription Drug Spending As a Share of Total

Household Spending by Medicare Households, 2002-2009

Part D: A model for Medicare reform

Seniors would get an annual subsidy to purchase a Medicare-approved health plan.

The plan would allow seniors to pick the health plan that meets their needs.

The older they are, the bigger the payment they would get. Sicker people would get more.

Why changing to Medicare is essential

…and inevitable

Federal spending as a % GDP

Medicare as a Share of the Federal Budget, 1980 - 2020

$591

$1,253$1,789

$3,456

$4,932

$107 $216$520

$889

$34

1980 1990 2000 2010 2020

Federal spending (in billions)Medicare spending (in billions)

Medicare as a share of the federal budget

5.8% 8.5% 12.1% 15.1% 18.0%

SOURCE: Historical spending for 1980 – 2010 from Congressional Budget Office (CBO) Budget and Economic Outlook: Historical Budget Data (January 2011); projected spending for 2020 from CBO Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022 (August 2012).

“I paid for my Medicare!” Consider this…

A couple retiring today with both spouses earning an average wage throughout their careers would have paid $109,000 in total Medicare payroll taxes during their lifetimes.

Yet the expected spending by Medicare on the couple will be $343,000.

Historical and Projected Number of Medicare Beneficiaries and Number of Workers Per

Beneficiary

SOURCE: 2010 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds.

Number of Beneficiaries (in millions)

Number of Workers Per Beneficiary

Back to Part C:Medicare Advantage

Medicare Advantage

Beneficiaries can enroll in a private plan, such as a health maintenance organization or preferred provider organization.

Plans receive payments from the government to provide all Medicare-covered benefits, often including drug benefits, vision and dental services.

More than a quarter of all people in Medicare have voluntarily enrolled in Medicare Advantage plans.

Premiums and cost sharing

Medicare Advantage enrollees generally pay the monthly Part B premium and possibly an additional premium directly to their plan. Premiums vary by plan type and are lower for HMOs ($30 per month) than for PPOs ($64 per month).

Medicare Advantage plans are required to limit beneficiaries’ total out-of-pocket spending each year (the maximum is $6,700 in 2013). Cost-sharing requirements vary widely across plans.

Medicare Benefit Payments By Type of Service, 2012

Skilled Nursing Facilities

Hospital Inpatient Services

Physician Payments

Hospital Outpatient Services

Home Health

Other Services*

Medicare Advantage

Outpatient Prescription

Drugs

Total Benefit Payments = $556 billionNOTE: Does not sum to 100% due to rounding. Excludes administrative expenses and is net of recoveries. *Includes hospice, durable medical equipment, Part B drugs, outpatient dialysis, ambulance, lab services, and other services.SOURCE: Congressional Budget Office, Medicare Baseline, March 2012.

14%13%

4%

6%

26%

11%

22%

6%

Part A

Part B

Part A and

B

Part C

Part D

Medicare Advantage

25%

Other 3%PFFS plans 5%

Regional PPOs 9%

Local PPOs 18%

HMOs65%

Total Medicare Advantage Enrollment, 2011 = 11.9 Million

Distribution of Enrollment in Medicare Advantage Plans, by Plan Type,

2011

Traditional Fee-for-service

Medicare75%

SOURCE: MPR / KFF analysis of the Centers for Medicare and Medicaid Services (CMS) Medicare Advantage enrollment files, 2011.

Distribution of Medicare Advantage Plans by Plan Type, 2007-2011

NOTE: Other includes cost and demonstration plans. Excludes SNPs, employer-sponsored (i.e., group) plans, demonstrations, HCPPs, PACE plans, and plans for special populations (e.g., Mennonites). HMOs include Point of Service (POS) plans.SOURCE: MPR/KFF analysis of CMS’s Landscape Files for 2007 - 2011.

Supplemental Coverage Among Medicare Beneficiaries, by Income, 2008

NOTES: Numbers may not sum due to rounding.SOURCE: Kaiser Family Foundation analysis of the CMS Medicare Current Beneficiary Survey Access to Care File, 2008.

$10,000 or less

$10,001-20,000

$20,001-30,000

$30,001-40,000

$40,001or more

5.9 million 8.9 million 6.8 million 6.4 million 7.7 million

All beneficiarie

s41.8 million

Major Medicare policy initiativesCurrent Initiatives

ACO Program

– Medicare Shared Savings Program

– Pioneer ACOs (CMMI)

– Advance Payment ACOs (CMMI)

Hospital Value Based Purchasing & Readmissions Penalties

Medicare Advantage Five-Star Bonus Program

Comprehensive Primary Care Initiative (CMMI)

Partnership for Patients (CMMI)

Upcoming Initiatives

Bundled Payment Initiatives (CMMI)

Physician Value Modifier

Political dangers aheadThe ACA targets Medicare Advantage for a disproportionate share of Medicare cuts.

UnitedHealth is cutting back on its Medicare Advantage participation

UnitedHealth Group CEO Stephen Hemsley: Medicare Advantage rates are still far too low and that the company may shrink its business of managing care for seniors.

“We did not expect the fastest growing, most popular and most effective Medicare benefit option serving America’s seniors to be underfunded to this extent in 2014,” Hemsley said on a conference call with investment analysts. UnitedHealth’s Medicare Advantage business, he added, “will likely experience market exits as well as in market membership contraction as we reshape Medicare networks and benefits to respond to the continuing underfunding of this program.”

But it is the model for reform

Policy experts and many politicians from the right and center-left see Medicare Advantage as the platform for reform in the future

It is not in political favor now, but growing budget problems will force Congress to act on Medicare spending, and MA is the likely cornerstone 

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Some realities:

What we know for sure• CHOICE: Americans value innovation,

diversity and choice to accommodate 300 million people

• VALUE IN HEALTH SPENDING: Break down payment silos to realize the promise of personalized medicine and achieve overall cost saving

• FOCUS ON THE PATIENT: Doctors and patients, not government, should make health care decisions

Source: Frank Hill, “The High Cost Impact of More Regulation and Admin/Executive Staff on Health Care Inflation,” Telemachus, July 22, 2012, http://www.telemachusleaps.com/2012/07/the-high-cost-impact-of-more-regulation.html.

A market-based solution“Defined contributions” for health coverage

A system that puts doctors and patients in charge of medical decisions

Slowing spending while preserving choice and quality

Restructuring financing for a 21st century health sector

• Medicare

• Medicaid

• Private Insurance

Grace-Marie Turner

Galen Institute

703-299-8900

gracemarie@galen.org

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