MEDICARE ADVANTAGE in 2009
Options for Health Care Reform
Brian Biles, MD, MPH
Professor
Department of Health Policy
George Washington University
1
AGENDA

New commitment in 2009 to pay MA plans the
same as costs in FFS Medicare

Current amount of extra payments to MA plans

History of extra payments to MA private plans


Options to pay MA plans the same as FFS
Medicare
The option selected for a new MA payment
system is important to plans and plan enrollees
2
COMMITMENT TO
REFORM PAYMENTS to MA PLANS



“We need to eliminate the excessive subsidies to Medicare
Advantage plans and pay them the same amount it would
cost to treat the same patients under regular Medicare.”
Obama for President platform, Fall 2008
“Congress must act to level the playing field between
traditional Medicare and Medicare Advantage payments
and the Baucus plan would do so.”
Call to Action: Health Reform in 2009
Sen. Max Baucus , November 2008
Payments to MA plans were phased-down to 100% FFS in
each county
Child Health and Medicare Protection Act (CHAMP)
Passed by the House of Representatives, July 2007
3
EXTRA PAYMENTS TO MA PLANS
$11 b in 2009



Payments to MA plans exceed costs in FFS Medicare
for the same beneficiaries by $11 b in 2009
Extra payments to MA plans are projected by CBO at
over $150 b over 10 years
The $150 b in Medicare savings are needed to cover
part of the $1+ t in costs to subsidize new coverage
for low-income individuals in health care reform
legislation
4
EXTRA PAYMENTS TO MA PLANS
DUE to POLICIES ADOPTED from 1997 to 2003


Beginning in 1992, Medicare plans were paid 95% of
FFS costs in each county
Between 1997 to 2003, new policies paid Medicare
private plans more than FFS costs in the county



In 1997, the BBA paid M+C plans in rural counties more
than 100% FFS costs
In 2000, BIPA paid M+C plans in urban counties with low
FFS costs more than 100% FFS cost
In 2003, the MMA paid MA plans in all counties in the
nation more the 100% FFS costs
5
EXTRA PAYMENTS TO MA PLANS
HAVE BEEN REDUCED SINCE 2006

Since 2006, new Medicare polices have somewhat
reduced payments to MA plans


Phase out of Budget Neutral Risk Adjustment Payments
in 2006 and Indirect Medicare Education double
payments in 2008
Elimination of PFFS plans in most counties in 2008
6
EXTRA PAYMENTS TO MA PLANS
BY COUNTY PAYMENT TYPE
Total Payments
($ billions)
Percentage of
Total Payments
Rural Floor
$1.3 billion
11%
Urban Floor
6.0
53%
100% Fee-forService
3.5
30%
$11.4
100%
County Payment
Type
National
7
OPTIONS TO PAY MA PLANS
THE SAME AS FFS MEDICARE

100% of FFS costs in the county

75/25% blend of local and national FFS costs

Bid-based payment system

Regional average of FFS costs
8
OPTIONS TO PAY MA PLANS
THE SAME AS FFS MEDICARE

100% of FFS costs in each county




Would be same policy for payments to plans from 1983
thru 1997 but 100% rather than 95%
Provides that plans must be efficient in relation to FFS
Medicare costs in their local area
Most closely follows the MedPAC viewpoint
75/25% blend of local and national FFS costs


Would pay plans blend of 75% local county FFS costs and
25% national average FFS costs
Counties with high FFS costs would be paid less than
FFS costs and counties with low FFS costs more than FFS
9
OPTIONS TO PAY MA PLANS
THE SAME AS FFS MEDICARE

Bid-based payment system



Plans now submit annual bids that are projections of their
costs of providing Medicare A & B services
Analysis indicates that plan costs/bids are now lower than
FFS costs in the local county in high FFS cost counties
and higher than FFS costs in low cost counties
Regional average of FFS costs

Would pay plans beneficiary weighted average of FFS costs in
a region such as an MSA or rural health services area
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OPTIONS TO PAY MA PLANS
THE SAME AS FFS MEDICARE
All options would pay close to 100% FFS as the
national average


100% FFS costs in each county would pay all areas
100% of FFS in the local area
Blend, bid-based and regional average approaches
would all


Pay some areas less than 100% FFS costs
The savings would be used to cross-subsidize costs of
paying other areas more than 100% FFS costs
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PAYMENT at
100% FFS COSTS in EACH COUNTY
Ratio to 100% Local FFS
1.4
1.3
Current Payments
National Average:
1.12
1.2
1.1
100% Local
FFS
1
0.9
0.8
0
0.2
0.4
0.6
0.8
1
Cummulative Percentage of Enrollment
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PAY at 100% FFS in EACH COUNTY
High Cost Counties
County
MiamiDade, FL
Annual % of
FFS National
Costs Average
$14,600
169%
Low Cost Counties
County
Erie, NY
Annual % of
FFS National
Costs Average
$7,000
81%
Kings, NY $10,800 125%
Multnomah
$7,100
OR
82%
Harris, TX
$10,700
124%
Sacramento,
$7,300
CA
84%
Los Angeles
$10,600
CA
123%
Pima, AZ
93%
$8,000
13
PAYMENT at
75/25% LOCAL/NATIONAL BLEND
Ratio to 100% Local FFS
1.4
1.3
Current Payments
National Average: 1.12
1.2
1.1
1
Blend
National Average: 0.99
0.9
0.8
0
0.2
0.4
0.6
0.8
1
Cummulative Percentage of Enrollment
14
PAY at BLEND of 75/25%
LOCAL/NATIONAL FFS vs 100% FFS
Losing Counties
County
Percent
Loss
Miami-10.2%
Dade, FL
Kings,
NY
Harris,
TX
Los Angeles
CA
-5.1%
Gaining Counties
Annual
Loss
County
Percent
Gain
Annual
Gain
-$253 m
Erie, NY
+5.7%
+$33 m
Multnomah
+5.5%
+$17
+4.7%
+$24
Pima, AZ +1.9%
+$10
-$53
-4.8%
-$45
-4.6%
-$197
OR
Sacramento
CA
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PAYMENT at
Ratio to 100% Local FFS
AVERAGE of PLAN BIDS
1.6
1.5
1.4
1.3
1.2
1.1
1
0.9
0.8
0.7
0.6
Current Payments
National Average: 1.13
Current Bids
National Average: 1.01
0
0.2
0.4
0.6
0.8
1
Cummulative Percentage of Enrollment
16
PAY AMOUNT of INDIVIDUAL PLAN BIDS
Losing Counties
County
Percent Loss
Gaining Counties
Annual Loss
County
Miami-16%
Dade, FL
-$400 m
Erie, NY +16%
Kings,
NY
-$168
-16%
Harris,
TX
-16%
-$161
Los
Angeles,
CA
-16%
-$684
Multnomah
Percent Gain Annual Gain
+$96 m
+16%
+$53
+16%
+$88
Pima, AZ +10%
+$54
OR
Sacramento
CA
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COMPETITION AMOUNG MA PLANS



The Herfindahl Index is used by Department of
Justice Anti-Trust divisions and the FTC as a measure
of market competition
Value for each market is equal to the sum of the
square of each plan’s market share within the county
The index uses a scale of 0 – 10,000



>1800 = low competition
1000 – 1800 = moderate competition
<1000 = high competition
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LEVEL of MARKET COMPETITION
IN 100 LARGEST COUNTIES
19
LOW LEVEL of
COMPETITION AMONG MA PLANS

Low market competition in 2,114 of 2,958 for 71%
of US counties with MA plan enrollment


Low market competition in 73 of the 100 counties
with the largest number of beneficiaries


These counties account for 74% of total MA plan
enrollment and 70% of total Medicare beneficiaries
Plans from 6 firms are the largest in 52 of these 73 counties
33 of the 100 largest counties have a firm with 50%
or more of the market share
20
PAY at BENEFICRY WEIGHTED
REGIONAL BLEND
Baltimore, MD
County
Region
Baltimore
City
Baltimore
County
Howard
Annual 100%
Local Cost per
Beneficiary
County Cost vs.
Regional
Average
Percentage of
Blacks in
General
Population
Percentage of
Poverty in
General
Population
$9,926
-0-
27%
9%
$10,955
110%
65%
20%
$9,808
99%
22%
7%
$9,053
91%
14%
5%
21
PAY at REGIONAL BLEND
Philadelphia, PA
County
Annual 100%
Local Cost per
Beneficiary
County Cost vs.
Regional
Average
Percentage of
Blacks in
General
Population
Percentage of
Poverty in
General
Population
Region
$8,905
-0-
21%
10%
Philadelphia
$9,493
107%
45%
20%
Delaware
$9,053
102%
16%
8%
Chester
$8,676
97%
6%
5%
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CONCLUSION





MA payment goal in 2009 is to save $150 b from
Medicare over 10 years
Rationale is to pay MA plans “the same as costs in
regular Medicare”
The “same as costs in regular Medicare” may be set at
100% of FFS costs in the local county or other options
Paying by a national blend would pay some areas +/5% than local FFS costs and by bids +/-15% or more
than local FFS costs
The design of the new payment system will have a major
impact on the presence of MA plans and the extra
benefits provided to enrollees by geographic area
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MEDICARE ADVANTAGE in 2009
Options for Health Care Reform
Brian Biles, MD, MPH
Professor
Department of Health Policy
George Washington University
24