THE ALLIANCE OF COMMUNITY HEALTH PLANS:

“Medicare Modernization in a Polarized Environment: Facing the Challenge”

National Academy of Social Insurance

The Future of Medicare Advantage

Presentation by Jack Ebeler January 27, 2005

Presentation at

What is the future of Medicare Advantage?

Outline:First look back at BBA 1997

What expected?What happened?What lessons?

Then look at MMAWhat expected?What might happen?

Key factors for future

Place ourselves back in 1996-1997

What was going on in 1997?

Post-health care reform

Fundamental debates over future of Medicare – structure and funding – 1995 government shut-down

1997 - renewed focus on deficit reduction, including Medicare (funding and structure)

Private market changing

Actual enrollment in Medicare TEFRA HMOs had grown to 5 million, and CBO projected continuing growth pre-BBA 1997

0

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16

1985

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p20

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Congressional Budget Office BBA Projections Total Enrollees data from Social Security Trustees ReportNote: 2004 data from Mathematica Policy Research, Inc. Medicare Advantage and Medicare Beneficiaries Monthly Tracking Report for December 2004

Mil

lion

s of

En

roll

ees

Actual through 1997Pre-BBA CBO projection

29%

There was increasing enrollment in managed care in the employment market from 1988-1996

31%21%16%

14%

7%

28%

26%

11%

27%

46%

73%

0%10%

20%30%

40%50%60%

70%80%

90%100%

2004

2003

2002

2001

1998

1996

1993

1988

HMO POS PPO ConventionalSource: Kaiser/HRET Survey of Employer-Sponsored Health Benefits: 2004

Real increases in Medicare spending per capita were increasing while private health insurance dropped, 3 year rolling averages, 1989-1996

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Per

cent

of

fede

ral s

pend

ing

ACHP computation from Office of the Actuary, National Health Statistics Group, January 2005

Medicare

Private Health Insurance

With enactment of Medicare+Choice in BBA 1997, enrollment in private was projected to increase further

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Congressional Budget Office BBA Projections Total Enrollees data from Social Security Trustees ReportNote: 2004 data from Mathematica Policy Research, Inc. Medicare Advantage and Medicare Beneficiaries Monthly Tracking Report for December 2004

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BBA 1997

Post-BBA CBO enrollment projection

34%

Pre-BBA CBO projection

29%

But actual enrollment in Medicare+Choice fell far short of the BBA 1997 projections

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16

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p20

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Congressional Budget Office BBA Projections Total Enrollees data from Social Security Trustees ReportNote: 2004 data from Mathematica Policy Research, Inc. Medicare Advantage and Medicare Beneficiaries Monthly Tracking Report for December 2004

Mil

lion

s of

En

roll

ees

BBA 1997

Post-BBA CBO enrollment projection

34%

Actual

Pre-BBA CBO projection

29%

What happened?

Commercial market changes - shifted to much “looser” managed care, more PPOs

Managed care “backlash” in mid- late 90sVery tight labor market

Not a magic bullet - comparative Medicare/private growth story much more complicatedImpetus for change – health plans, not beneficiaries BBA 97 coupled structural change with savings - deep funding constraints across traditional Medicare and M+C – and that combination is always difficult

There was increasing enrollment in managed care in the employment market from 1988-1996

31%21%16%

14%

7%

28%

26%

11%

27%

46%

73%

0%10%

20%30%

40%50%60%

70%80%

90%100%

2004

2003

2002

2001

1998

1996

1993

1988

HMO POS PPO ConventionalSource: Kaiser/HRET Survey of Employer-Sponsored Health Benefits: 2004

But commercial market started shifting to looser managed care about time BBA 1997 enacted

25%24%26%23%27%31%21%16%

15%17%18%22%24%14%

7%

55%54%52%48%35%

28%

26%

11%

5%5%5%7%14%

27%

46%

73%

0%10%

20%30%

40%50%60%

70%80%

90%100%

2004

2003

2002

2001

1998

1996

1993

1988

HMO POS PPO ConventionalSource: Kaiser/HRET Survey of Employer-Sponsored Health Benefits: 2004

Real increases in spending per capita under Medicare and private health insurance, 3 year rolling averages, 1989-1996 …

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Per

cent

of

fede

ral s

pend

ing

ACHP computation from Office of the Actuary, National Health Statistics Group, January 2005

Medicare

Private Health Insurance

Real increases in spending per capita under Medicare and private health insurance, 3 year rolling averages, show more cyclical trend

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Per

cent

of

fede

ral s

pend

ing

ACHP computation from Office of the Actuary, National Health Statistics Group, January 2005

Medicare

Private Health Insurance

BBA 97 dropped overall Medicare growth rate substantially as private health insurance began to increase, 3 year rolling averages, 1983-2003

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Per

cent

of

fede

ral s

pend

ing

BBA 97

ACHP computation from Office of the Actuary, National Health Statistics Group, January 2005

Medicare

Private Health Insurance

The result….

Consumers increasingly concerned about approach – private and public

Private market changedEasiest to hold tight and not change

In Medicare, M+C plans:Revised, expanded networksEstablished, increased premiums, coinsurance

Decreased supplemental benefits

That lessened attractiveness of plans for beneficiariesPlans either stabilized or exited markets

Back to today…

What will MA enrollment be? Differences between CBO and CMS

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14

16

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2013

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Congressional Budget Office. The Budget and Economic Outlook: An Update Washington, DC, 2004*MMA Projections from CBO

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MMA 2003

CBO 13%

Administration

24%

What is future of Medicare Advantage ?

Depends on:

Federal funding for all Medicare

What happens in the private market

Enrollment shifts – especially Medigap population

Viability of PDP only plans

Ability to implement low income provisions

What will happen to Medicare funding levels – FFS and MA?

MMA was coupled with initial payment increases (lesson from 1997?)

But what about longer-term?

Fiscal situation points to reductions.

The current policy deficit could begin to shrink, but not if tax cuts are extended – with Iraq …

-200

-100

0

100

200

300

400

500

2001 2002 2003 2005p 2006p 2007p 2008p 2009p 2010p 2011p 2012p 2013p 2014p 2015p

Deficit, current policy

Deficit, assuming AMT, extension of tax cuts

$ B

illi

ons

Congressional Budget Office. The Budget and Economic Outlook Washington, DC, 2005

Federal interest payments on the national debt increase as deficits accumulate

0

50

100

150

200

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400

450

2001

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2004

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2006

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2007

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2012

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2013

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2015

p

Net interest, current policy

Net interest, assuming extension of tax cuts

Congressional Budget Office. The Budget and Economic Outlook Washington, DC, 2005

$ B

illi

ons

Federal spending is dominated by five key items – including Medicare (2015 projections)

13%

23%

19%

10%

13%

14%

8%

Other Discretionary

Net

InterestDefense

Social Security

MedicareMedicaid

Other Mandatory

Congressional Budget Office. The Budget and Economic Outlook Washington, DC, 2005

2015 Total Federal Outlays =

$3,706 Billion

Outlook - Funding

MMA increases for 2005-2006? –2007? will likely be maintained

Anticipate constraints for all Medicare, including the Medicare Advantage program . . .

. . . Any plan that enters the MA program in anticipation of funding at the 2004-2006 levels FOR LONG TERM (2007-8? or later) is either

foolish, a short-term participant, or can’t count

What is happening in private market?

Commercial market started shifting to looser managed care after BBA 1997 enacted

25%24%26%23%27%31%21%16%

15%17%18%22%24%14%

7%

55%54%52%48%35%

28%

26%

11%

5%5%5%7%14%

27%

46%

73%

0%10%

20%30%

40%50%60%

70%80%

90%100%

2004

2003

2002

2001

1998

1996

1993

1988

HMO POS PPO ConventionalSource: Kaiser/HRET Survey of Employer-Sponsored Health Benefits: 2004

Now, even more changes - more firms offering employees a high-deductible health plan, 2003-2004

0%

5%

10%

15%

20%

25%

All Firms Jumbo Firms

20032004

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits 2004

5%

17%

10%

20%

(5,000+ Workers)

Employers with high likelihood of offering high-deductible health plan with a personal or health savings account option in the next two years

28%21%

22%

6%

0%

10%

20%

30%

40%

50%

60%

Jumbo Firms (5,000+ Workers)All Firms

Somewhat Likely Very Likely

Kaiser/HRET Survey of Employer-Sponsored Health Benefits 2004

Where would enrollment shifts come from?

Medicare beneficiaries currently have a range of options

28%

9%

16%2%

12%

33%

MedPAC. Healthcare Spending and the Medicare Program June 2004.Note: Data based on noninstitutionalized Medicare beneficiaries. Chart depicts 2001 percentages.

Medigap

No Supplemental

Managed CareOther Public Sector

Medicaid

Employer Sponsored

What will Medicare beneficiaries opt for as choices expand in future?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Employer

Medicaid

MA LocalMA Regional PPOMA HSA, PFFS

MFFS + PDP

MedigapMFFS onlyMFFS

Medigap

M+C

Medicaid

Employer

What will employers do – will they drop?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

?

Employer

Medicaid

MA LocalMA Regional PPOMA HSA, PFFS

MFFS + PDP

MedigapMFFS only

Employer

Medicaid

M+C

Medigap

MFFS

What happens in Medicaid – active and default?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Employer

Medicaid

MA LocalMA Regional PPOMA HSA, PFFS

MFFS + PDP

Medigap

MFFS only

?Medicaid

Employer

M+C

Medigap

MFFS

What will current MA beneficiaries do – and what type plan might they join?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Employer

Medicaid

MA LocalMA Regional PPOMA HSA, PFFS

MFFS + PDP

MedigapMFFS only

? ??

?Medicaid

M+C

Employer

Medigap

MFFS

What will Medigap enrollees do?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Employer

Medicaid

MA LocalMA Regional PPOMA HSA, PFFS

MFFS + PDP?

MedigapMFFS only

?

??

?Medicaid

M+C

Employer

Medigap

MFFS

Who will reach lower income individuals, given MMA’s spending on low-income Rx drug subsidies?

Low-income subsidy

$192 billion

Remaining Investment

$208 billion

48% 52%

Total Federal Investment = $400 billion

Total number of beneficiaries, 2006 =

41 million

14 million low-income-

eligible beneficiaries

Remaining beneficiaries

35%

Congressional Budget Office

Increasing segmentation puts incredible pressure on already-stressed geographic and risk adjusters

Duals

M’GapAged

Retiree Disabled

Low incomeAged aged

M FFS

Employer plan PDP only

PPO

Local HMO

PFFS

HSAChronic

Plan X

Geog. Adjustment

Risk Adjustment

Major difference, 2006 - Beneficiary must act

Major difference in 2006, compared with 1997, is the new Rx drug benefit

Beneficiaries have to sign up for something – either a PDP only plan or MA plan

Doing nothing incurs a cost

So there will be more movement – but where?

Summary – what will happen to MA

What are funding levels – base and rate of changeHow accurate are payments/risk adjustment – or risk sharing – critical for sustainability?Where do Medigap enrollees (about 30%) go? Do Medigap carriers offer PPOs?How available and attractive are the PDP-only plans –that is crucial factor for the beneficiary decision of FFS v. MA

Another important question…

What happens within MA – is it dominated by:

Regional PPO?

Local MA?

Health Savings Accounts?

Private Fee For Service?

Is it worth it? Long term, how do MA plans demonstrate value?

Transaction processers?

Risk bearing insurers?

Benefit redesigners?

Organizers of care?

What will MA enrollment be? Don’t know, but…

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Congressional Budget Office Comparison of CBO and Administration Estimates of the Effect of H.R. 1 on Direct Spending February 2004

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MMA 2003

CBO 13%

Administration

32%

Thank you