The Future of Medicare The Future of Medicare Advantage: Advantage:

Will Past Be Prologue?Will Past Be Prologue?

By Marsha Gold, Sc.D.By Marsha Gold, Sc.D.Senior FellowSenior Fellow

Mathematica Policy Research Inc.Mathematica Policy Research Inc.

For Presentation at the NASI 17For Presentation at the NASI 17thth Annual Conference Annual ConferenceJanuary 27, 2005January 27, 2005

2

Quick Review: What Medicare Advantage Is:

Absorbs previous M+C options for county by county risk-Absorbs previous M+C options for county by county risk-based private health plans (HMO, PPO, private fee-for-fee based private health plans (HMO, PPO, private fee-for-fee service) effective 2004.service) effective 2004.

Authorizes new regional MA PPO option in 2006 Authorizes new regional MA PPO option in 2006 concurrent with the introduction of a voluntary Medicare concurrent with the introduction of a voluntary Medicare drug benefit via private prescription drug plans (PDPs). drug benefit via private prescription drug plans (PDPs). Short term risk sharing and bonuses to encourage entry.Short term risk sharing and bonuses to encourage entry.

Both local and private regional plans will provide Both local and private regional plans will provide integrated Medicare A/B and drug benefits which serve integrated Medicare A/B and drug benefits which serve as alternative to traditional Medicare with or without PDP. as alternative to traditional Medicare with or without PDP. Rates reflect a blend of bids and FFS benchmarks. Rates reflect a blend of bids and FFS benchmarks.

3

Quick Review: What Medicare Advantage Is: (continued)

Regional plans must reconfigure Medicare Regional plans must reconfigure Medicare cost sharing on A/B benefits and include an cost sharing on A/B benefits and include an out-of-pocket maximum (can be higher for out-of-pocket maximum (can be higher for out-of-network benefits)out-of-network benefits)

Higher rates in 2004 and 2005 to stabilize the Higher rates in 2004 and 2005 to stabilize the market via minimum payment of 100 percent market via minimum payment of 100 percent FFS and higher annual minimum increase FFS and higher annual minimum increase than previous two percentthan previous two percent

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My Interpretation of What MMA Seeks To Do With Medicare Advantage

Give all Medicare beneficiaries a choice to enroll in a Give all Medicare beneficiaries a choice to enroll in a private Medicare plan regardless of where they live (finally)private Medicare plan regardless of where they live (finally)

Use regional MA options to create a reconfigured Medicare Use regional MA options to create a reconfigured Medicare benefit package that could ultimately replace traditional benefit package that could ultimately replace traditional Medicare benefitsMedicare benefits

Reduce county by county variation in private plan benefits Reduce county by county variation in private plan benefits and premiums (at least within regions for MA plans)and premiums (at least within regions for MA plans)

Position private plans in Medicare so that they ultimately Position private plans in Medicare so that they ultimately will compete, or even replace, the traditional Medicare will compete, or even replace, the traditional Medicare programprogram

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What is Underlying Policy Motivation—the “Why”

Private plans and more choice are perceived Private plans and more choice are perceived as better by influential legislators.as better by influential legislators.

Regional plans address perceived inequity Regional plans address perceived inequity because some beneficiaries (e.g., in rural because some beneficiaries (e.g., in rural states) are not able to benefit from private states) are not able to benefit from private plan options (which come with expanded plan options (which come with expanded benefits at a competitive price.)benefits at a competitive price.)

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What is Underlying Policy Motivation—the “Why” (continued)

Potential effects on Medicare costs unclear:Potential effects on Medicare costs unclear:

– Short term costs to Medicare cannot be lower (because Short term costs to Medicare cannot be lower (because of how rates are set and what it takes to attract plans.)of how rates are set and what it takes to attract plans.)

– Potential for gains in care management are gains unclear Potential for gains in care management are gains unclear if products are loosely managed or not managed at all.if products are loosely managed or not managed at all.

– There could be potential or long term savings (if There could be potential or long term savings (if competitive savings are generated; if shift allows competitive savings are generated; if shift allows Medicare to shift from a defined benefit to a defined Medicare to shift from a defined benefit to a defined contribution program and private plans stick with the contribution program and private plans stick with the program).program).

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Will It Happen? We don’t know. Nothing as expansive as this We don’t know. Nothing as expansive as this

has been tried before.has been tried before.

Congress is asking private plans to have faith Congress is asking private plans to have faith that they will be a better business partner than that they will be a better business partner than they have in the past—rates sufficiently high they have in the past—rates sufficiently high and stable to maintain participation; and stable to maintain participation; requirements consistent with firms’ business requirements consistent with firms’ business models.models.

Model assumes that private plans will Model assumes that private plans will overcome market-based barriers to managed overcome market-based barriers to managed care in some areas of the country and in rural care in some areas of the country and in rural areas—or that a private fee-for-service or areas—or that a private fee-for-service or similar product that is more feasible can be similar product that is more feasible can be supported.supported.

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Will It Happen? (continued)

Model assumes that many beneficiaries Model assumes that many beneficiaries will find MA attractive if it is offered.will find MA attractive if it is offered.

+ Potential for competitive benefits and + Potential for competitive benefits and premiums especially for those with no premiums especially for those with no other subsidized Medicare supplement other subsidized Medicare supplement (integrated product, higher payments (integrated product, higher payments on average than FFS).on average than FFS).

+ Ability to make a single choice and + Ability to make a single choice and receive integrated benefits versus receive integrated benefits versus Medicare, Medigap and PDPMedicare, Medigap and PDP

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Will It Happen? (continued)

- Traditional Medicare is well regarded - Traditional Medicare is well regarded and trusted by many beneficiariesand trusted by many beneficiaries

- In contrast, prior history of MA - In contrast, prior history of MA instability, withdrawals has left a sour instability, withdrawals has left a sour taste (especially in some markets)taste (especially in some markets)

- Out-of-pocket costs could be high - Out-of-pocket costs could be high especially if providers are not “in especially if providers are not “in network”network”

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Salient Facts: What We Do Know

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MMA Helped Stabilize MA in 2004-2005

2004 average rate increase was 10.9 percent (15.3 2004 average rate increase was 10.9 percent (15.3 percent in markets previously below 100 percent of percent in markets previously below 100 percent of FFS). In 2005, plans received at least a 6.6 percent FFS). In 2005, plans received at least a 6.6 percent increase.increase.

About half of higher 2004 payments went to benefits About half of higher 2004 payments went to benefits and premiums with most of the rest going to providers and premiums with most of the rest going to providers (CMS)(CMS)

MA premiums dropped an average of $9 per month MA premiums dropped an average of $9 per month versus 2003. The share of private plans covering versus 2003. The share of private plans covering brand name drugs (versus generics only) increased. brand name drugs (versus generics only) increased. Some decrease in copayments for physician services. Some decrease in copayments for physician services. Out-of-pocket costs in post MMA 2004 costs returned Out-of-pocket costs in post MMA 2004 costs returned to pre-MMA 2003 levels (Achman and Gold 2004).to pre-MMA 2003 levels (Achman and Gold 2004).

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MMA Helped Stabilize MA in 2004-2005 (continued)

Slow growth in number of MA contracts, Slow growth in number of MA contracts, especially the second half of 2004/2005.especially the second half of 2004/2005.

Enrollment slowly increasing now, but Enrollment slowly increasing now, but penetration still low (12.3 percent).penetration still low (12.3 percent).

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Average Medicare Advantage Premiums, 1999-2004

$6

$14

$23

$32

$37

$34

$25

$0

$5

$10

$15

$20

$25

$30

$35

$40

1999 2000 2001 2002 2003 Jan-Feb2004

Mar-Dec2004

Source: MPR Analysis of Medicare Compare for The Commonwealth Fund.  Note: With the exception of the January-February 2004 data, all other data is weighted by March enrollment of each year. January-February 2004 data is weighted by February 2004 enrollment.

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Changes in Type of Drug Coverage in Medicare Advantage Plans, 1999-2004

1622

30 28 31 31 29

8

2928

4438

8478

62

43 41

2533

0

10

20

30

40

50

60

70

80

90

100

1999 2000 2001 2002 2003 Jan-Feb2004

Mar-Dec2004

Per

cen

t o

f M

A E

nro

llee

s

No Drug Coverage Generic Only Brand and Generic

Source: MPR analysis of Medicare Compare for The Commonwealth Fund.  Note: With the exception of the January-February 2004 data, all other data is weighted by March enrollment of each year. January-February 2004 data is weighted by February 2004 enrollment. Information on generic-only prescription drug coverage was not tracked in 1999 and 2000. The number of enrollees with generic-only coverage during those two years is assumed to be neglible.

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Average Enrollee Out-of-Pocket Costs in MA Plans, 1999-2004

$976$1,185

$1,438$1,786

$1,964 $2,119$1,942

$0

$500

$1,000

$1,500

$2,000

$2,500

1999 2000 2001 2002 2003 Jan-Feb2004

Mar-Dec2004

Source: MPR analysis of Medicare Compare data using HealthMetrix Research’s Medicare HMO Cost Share Report Methodology.  Notes: With the exception of the January-February 2004 data, results are weighted by March enrollment of each year. January-February 2004 data is weighted by February 2004 enrollment. Average costs assume 79 percent of enrollees are in good health, 15 percent in fair health, and 6 percent in poor health. This distribution corresponds to the distribution of self-reported health status among Medicare managed care enrollees in the 1999 Medicare Current Beneficiary Survey (Liu and Sharma 2003).

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MA Presence Still Very Uneven

72%

69%

74% 75%77%

84% 85%

72%

69%

64%

61% 62%64% 65%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1999 2000 2001 2002 2003 2004 12/2004

Any MA Plan

CCP+PPO demo only

Percent of Medicare Beneficiaries with Access to an MA Private Plan, 1999-2004*

Source: MPR Analysis of CMS data for The Kaiser Family Foundation

*Data for March of that year, unless otherwise indicated

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MA Availability in Rural Areas Very Limited

Source: MPR Analysis of CMS data for The Kaiser Family Foundation

*Data for March of each year.

**All includes PFFS; offerings have been highly unstable over the period as Sterling has withdrawn from many markets

25% 22%

37%44%

63%

48%

25% 22%15% 14%

22%15%

0%

10%

20%

30%

40%

50%

60%

70%

1999 2000 2001 2002 2003 2004

Any MA Plan**CCP+PPO demo only

Percent of Rural Beneficiaries with MA Plan Access, 1999-2004*

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Enrollment in non-HMO MA Plans Remains Low

December 2004December 2004

AllAll 5,300,9035,300,903

CCPCCP 4,672,5144,672,514

PPO DemoPPO Demo 107,730107,730

PFFSPFFS 47,63947,639

Source: MPR Analysis of CMS data for The Kaiser Family Foundation

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A Small Number of Firms Dominate the Market

Health Net4%

Cignia1%

UnitedHealthcare4%

Aetna2%

BCBS Affiliates 17%

Kaiser-Permanente 16%

Other or Unaffiliated 35.937%

PacifiCare13%

Humana6%

Distribution of By Firm or Affiliation, 2004

Source: MPR Analysis of CMS data for The Kaiser Family Foundation

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Regions Vary Substantially in Size and Urban/Rural Mix

47 percent of beneficiaries are in seven of the 26 47 percent of beneficiaries are in seven of the 26 regions with more than 2.0 million (another 32 regions with more than 2.0 million (another 32 percent are in eight regions with 1.5-2.0 million)percent are in eight regions with 1.5-2.0 million)

At least 20 percent of beneficiaries are in rural At least 20 percent of beneficiaries are in rural counties in 16 of the 26 regions. counties in 16 of the 26 regions.

In three regions rural beneficiaries outnumber urban In three regions rural beneficiaries outnumber urban beneficiaries.beneficiaries.

– #19 (seven states in north central US) 55 percent#19 (seven states in north central US) 55 percent

– #1 (Maine, NH) 54 percent#1 (Maine, NH) 54 percent

– #26 (Alaska) 51 percent#26 (Alaska) 51 percent

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Some Regions are Very Heterogeneous

For example:For example:

Region 2 includes Vermont (no MA) with MA, Region 2 includes Vermont (no MA) with MA, RI, CT.RI, CT.

Region 6 includes WV (almost no MA) with Region 6 includes WV (almost no MA) with Pennsylvania.Pennsylvania.

Region 16 includes MS (no MA) with Louisiana.Region 16 includes MS (no MA) with Louisiana.

Region 19 includes seven states of whom two Region 19 includes seven states of whom two have no MA (MT, WY), and two have only PFFS have no MA (MT, WY), and two have only PFFS (ND, SD) along with Minnesota where MA has a (ND, SD) along with Minnesota where MA has a long history. (The other states—Nebraska and long history. (The other states—Nebraska and Iowa—have limited MA penetration.)Iowa—have limited MA penetration.)

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Current MA Availability is Much Less than MA Intends

Percent of Beneficiaries with MA Plan Available 2004*Percent of Beneficiaries with MA Plan Available 2004*

67%+67%+ 30-66%30-66% 30%30%

Number of Regions Number of Regions 1111 1010 77

Percent of Medicare Percent of Medicare BeneficiariesBeneficiaries##

46%46% 31%31% 21%21%

Percent of the nation’s Percent of the nation’s rural beneficiariesrural beneficiaries##

22%22% 35%35% 40%40%

Regions includedRegions included #3 (NY), #4 (NJ), #8 (FL)#3 (NY), #4 (NJ), #8 (FL)#12 (OH), #20 (CO, NM)#12 (OH), #20 (CO, NM)#21 (AZ), #22 (NV)#21 (AZ), #22 (NV)#24 (CA), #25 (HA)#24 (CA), #25 (HA)

#10 (AL, TN), #11 (MI)#10 (AL, TN), #11 (MI)#14 (IL, WI), #14 (IL, WI), #15 (AK, MO), #17 (TX)#15 (AK, MO), #17 (TX)#18 (KS, OK)#18 (KS, OK)

#1 (ME, NH), #7 (NC, VA)#1 (ME, NH), #7 (NC, VA)#8 (GA, SC),#13 (IN, KY)#8 (GA, SC),#13 (IN, KY)#26 (Alaska)#26 (Alaska)

Highly UnevenHighly Uneven Highly UnevenHighly Uneven Highly UnevenHighly Uneven

#2 (CT, MA, RI, VT)#2 (CT, MA, RI, VT)#6 (PA, WV)#6 (PA, WV)

#23 (ID, OR, UT, WA)#23 (ID, OR, UT, WA) #16 (LS, MS)#16 (LS, MS)

#19 (IA, MN, MT, NE, ND, #19 (IA, MN, MT, NE, ND, SD, WY)SD, WY)

Source: Author’s analysis based on a variety of information sources.

*Highly Uneven = in multiple state regions includes a state that no CCP choice (or less than 10 percent with it) for regions in the substantial or some categories. In states with limited choice, means that the region includes a state that would qualify as moderate choice.

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Challenges to Entry and Retention Vary By Type of Region

Limited MA history—why did the market Limited MA history—why did the market not support it before? Can it now?not support it before? Can it now?

Intra-regional variation in MA—will plans Intra-regional variation in MA—will plans find it feasible to serve the entire region?find it feasible to serve the entire region?

Substantial local MA market share—will Substantial local MA market share—will plans be concerned about the impact of plans be concerned about the impact of regional entry on their local product?regional entry on their local product?

Past history of instability—will it scare Past history of instability—will it scare plans or beneficiaries away, signal future plans or beneficiaries away, signal future instability?instability?

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Looking to the Future

History suggests regional MA plan entry will be History suggests regional MA plan entry will be limited and retention could be a problem.limited and retention could be a problem.

History also suggests that PFFS type products History also suggests that PFFS type products will dominate any offerings in at least some will dominate any offerings in at least some regions if they are allowed: What is a PFFS?regions if they are allowed: What is a PFFS?

But past is not necessary prologue.But past is not necessary prologue.

Medicare is an enormous program. If industry Medicare is an enormous program. If industry believes that Congress truly will support an believes that Congress truly will support an enlarged private role over time, they may try to enlarged private role over time, they may try to make it work.make it work.

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Looking to the Future (continued)

““One stop choice” an attractive package One stop choice” an attractive package made possible by higher payments, and made possible by higher payments, and pharmacy experience could make private pharmacy experience could make private plans more attractive to beneficiaries. plans more attractive to beneficiaries.

Whether this will be in regional versus Whether this will be in regional versus local plans is unclear.local plans is unclear.

However you look at it, Medicare has However you look at it, Medicare has become a more complex and uncertain become a more complex and uncertain program.program.