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MEDICARE ADVANTAGE PLANS:MEDICARE ADVANTAGE PLANS:MEDICARE COSTS IN 2007MEDICARE COSTS IN 2007

Brian Biles, MD, MPHBrian Biles, MD, MPH

Department of Health PolicyDepartment of Health Policy

George Washington UniversityGeorge Washington University

June 3, 2007June 3, 2007

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MEDICARE ADVANTAGE PLANS:MEDICARE ADVANTAGE PLANS:Costs in 2007Costs in 2007

AGENDAAGENDA Background Background for Medicare Advantage issues in 2007for Medicare Advantage issues in 2007

Methods and data Methods and data for analysis of MA costs for analysis of MA costs

MA payment patterns MA payment patterns and trends and trends

Medicare policy Medicare policy implications implications

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MA ISSUES IN 2007MA ISSUES IN 2007Background for Congressional ConsiderationBackground for Congressional Consideration Possible Possible new Federal health initiatives new Federal health initiatives

SCHIP extension at $50 bSCHIP extension at $50 b over 5 years over 5 years

Physician payment fix at $40 bPhysician payment fix at $40 b over 5 years over 5 years

Improvements toImprovements to Medicare coverage for low-income Medicare coverage for low-income elderly and disabledelderly and disabled at $10 b at $10 b over 5 yearsover 5 years

Fiscal disciplineFiscal discipline

PAYGO budget rule PAYGO budget rule requires that any new Federal requires that any new Federal spending must be off-set by equal Federal savingsspending must be off-set by equal Federal savings

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MA ISSUES IN 2007MA ISSUES IN 2007BackgroundBackground

MA plansMA plans are a possible source of are a possible source of reduced reduced Medicare spending Medicare spending

Clear reference point Clear reference point for extra payments to MA plans for extra payments to MA plans

100% of FFS costs in the county100% of FFS costs in the county

Other provider paymentsOther provider payments could be a source of could be a source of reduced Medicare spending reduced Medicare spending

Hospital payments Hospital payments have increased but no reference have increased but no reference point for extra payments point for extra payments

Physician payments Physician payments are scheduled to drop 10%are scheduled to drop 10%

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MA ISSUES IN 2007MA ISSUES IN 2007BackgroundBackground

In 2003, during the development of the MMA RIn 2003, during the development of the MMA Rx x drug drug

bill, it was asserted that bill, it was asserted that MA plans would reduce MA plans would reduce Medicare costs Medicare costs

Managed care has been presented as a Managed care has been presented as a market-based market-based & non-regulatory solution to the Medicare cost & non-regulatory solution to the Medicare cost problemproblem since the early 1970ssince the early 1970s when expansion of when expansion of HMOs was first proposed HMOs was first proposed

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METHODS FOR ANALYSISMETHODS FOR ANALYSISMA Payments in 2007 MA Payments in 2007

Calculation of Calculation of MA county plan payments and FFS MA county plan payments and FFS costscosts by MA county payment type, by urban/rural, by MA county payment type, by urban/rural, and by state and by state

MA payments in each county MA payments in each county weighted for weighted for enrollmentenrollment in individual MA plans in individual MA plans

County FFS costs County FFS costs adjusted for IME paymentsadjusted for IME payments to to MA plansMA plans

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DATA FOR ANALYSIS DATA FOR ANALYSIS MA Payments in 2007MA Payments in 2007

CMS Excel data file of county level CMS Excel data file of county level MA plan ratesMA plan rates in 07in 07

CMS csv. data file of county level CMS csv. data file of county level enrollmentenrollment in MA in MA plans Feb 07plans Feb 07

MedPAC analysis of MedPAC analysis of MA plan bidsMA plan bids for 07 for 07

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PAYMENTS TO MA PLANS PAYMENTS TO MA PLANS Findings of Analysis of MA PaymentsFindings of Analysis of MA Payments

Medicare payments to MA plans Medicare payments to MA plans exceed FFS exceed FFS costs costs in 2007 byin 2007 by

13.3% 13.3% per MA plan enrolleeper MA plan enrollee

$1,008 $1,008 per MA plan enrolleeper MA plan enrollee

$7.5 billion $7.5 billion total nationwidetotal nationwide

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PAYMENTS TO MA PLANS PAYMENTS TO MA PLANS 4 Factors Set Medicare Payments in 20074 Factors Set Medicare Payments in 2007

Medicare policies provide Medicare policies provide four factorsfour factors that combine to that combine to set Medicare payments to MA plans in 2007set Medicare payments to MA plans in 2007 at at 13.3%13.3%

County level benchmarksCounty level benchmarks for MA payments set at the for MA payments set at the highest of seven different calculations and highest of seven different calculations and average 17.3% average 17.3% more than fee-for-service costs more than fee-for-service costs

Double payment for Double payment for Indirect Medical EducationIndirect Medical Education payments for hospitalized MA plan members payments for hospitalized MA plan members contribute contribute 2.3%2.3% on average to the benchmarks on average to the benchmarks

Budget neutral risk adjustmentBudget neutral risk adjustment payments payments contribute contribute 3.9% 3.9% to benchmarksto benchmarks inin all counties all counties

Plan bidsPlan bids reducereduce MA payments from the benchmark by an MA payments from the benchmark by an average of 4.0%average of 4.0%

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PAYMENTS TO MA PLANSPAYMENTS TO MA PLANS77 County Payment CategoriesCounty Payment Categories

Medicare policies result in Medicare policies result in seven county payment seven county payment types types in 2007in 2007

Rural Floor Rural Floor

Urban Floor Urban Floor

Blend Blend

Minimum UpdateMinimum Update

100% FFS in 2004100% FFS in 2004

100% FFS in 2005100% FFS in 2005

100% FFS in 2007 100% FFS in 2007

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PAYMENTS TO MA PLANS PAYMENTS TO MA PLANS Findings of Analysis of MA PaymentsFindings of Analysis of MA Payments

County Payment Type

Medicare Beneficiaries

(millions)

MA Plan Enrollees (millions)

Total Annual Extra

Payments to MA Plans (millions)

Average Extra

Amount per MA Plan Enrollee

Average Extra

Payment to MA Plans

Greater than FFS Costs

National 42.9 7.4 $7,500 $1,008 13.3%

Rural Floor 7.6 0.7 $843 $1,194 18%

Urban Floor 11.3 2.1 $3,166 $1,494 21%

Blend 1.4 0.3 $398 $1,262 16%

Minimum Update

2.4 0.5 $535 $1,017 12%

100% FFS 04 3.2 0.5 $642 $1,272 15%

100% FFS 05 14.0 2.7 $1,762 $661 8%

100% FFS 07 2.8 0.6 $155 $257 3%

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PAYMENTS TO MA PLANSPAYMENTS TO MA PLANSExtra Payments to MA Plans Vary GreatlyExtra Payments to MA Plans Vary Greatly

Medicare payments to MA plans in excess of FFS Medicare payments to MA plans in excess of FFS costs costs vary greatly by countyvary greatly by county payment typepayment type

Urban floorUrban floor counties: counties: 21% and $1,49021% and $1,490 per per enrolleeenrollee

Rural floorRural floor counties: counties: 18% and $1,19418% and $1,194

100% FFS in 2005100% FFS in 2005 counties: counties: 8% and $661 8% and $661

100% FFS in 2007100% FFS in 2007 counties: counties: 3% and $2503% and $250

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100% FFS '07, 2%

Blend, 5%

Urban Floor, 42%

Rural Floor, 11%100% FFS '05,

24%

100% FFS '04, 9%

Minimum Update, 7%

SHARE of EXTRA PAYMENTS to MA Plans SHARE of EXTRA PAYMENTS to MA Plans 20072007

Source: George Washington University analysis of CMS Managed Care quarterly State County Plan data file for the quarter ending December 2005, Medicare Managed Care quarterly State/County/Contract data file for February 2007 and Medicare Advantage 2007 Rate Calculation Data spreadsheet.

Note: Figures above include BNRA. Assumes 4 percent reduction in extra payments to account for MA benchmark-based bidding. See: Medicare Payment Advisory Commission (MedPAC), “Report to the Congress: Medicare Payment Policy” (Washington, DC: MedPAC, March 2007)

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PAYMENTS TO MA PLANSPAYMENTS TO MA PLANSExtra Payments to MA Plans Vary Greatly by StateExtra Payments to MA Plans Vary Greatly by State

Medicare payments to MA plans in excess of FFS Medicare payments to MA plans in excess of FFS costs costs vary greatly by statevary greatly by state

Oregon: Oregon: 30% 30% and $1,893 per enrolleeand $1,893 per enrollee

Texas: Texas: 17% 17% and $1,541and $1,541

Arizona: Arizona: 15% 15% and $1,118and $1,118

New York: New York: 14% 14% and $1,113and $1,113

California: California: 12% 12% and $940 and $940

Pennsylvania: Pennsylvania: 11%11% and $844 and $844

Florida: Florida: 4% 4% and $343and $343

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$290-$999 (20 States)

$1,000-$1,499 (20 States & DC)

$1,500 + (10 States)

Source: GWU Analysis of the CMS Medicare Managed Care State/County/Contract data file for February 2007, CMS Medicare Managed Care Quarterly State County data file for the quarter ending December 2005 and the Medicare Advantage 2007 Rate Calculation data spreadsheet.

MEDICARE AVERAGE EXTRA PAYMENT MEDICARE AVERAGE EXTRA PAYMENT AMOUNT per MA PLAN ENROLLEEAMOUNT per MA PLAN ENROLLEE 2007 2007

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PAYMENTS TO MA PLANSPAYMENTS TO MA PLANSTotal Extra Payments to MA Plans Vary by StateTotal Extra Payments to MA Plans Vary by State

Total extra paymentsTotal extra payments to MA plans to MA plans are heavily concentrated in limited are heavily concentrated in limited number of statesnumber of states

50 percent50 percent of total MA extra payments of total MA extra payments go to just 6 statesgo to just 6 states: California, New : California, New York, Pennsylvania, Texas, Oregon, and York, Pennsylvania, Texas, Oregon, and ArizonaArizona

In contrast, In contrast, 14 percent14 percent of total MA extra of total MA extra payments go to a payments go to a total of 30 statestotal of 30 states

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PAYMENTS TO MA PLANSPAYMENTS TO MA PLANSExtra Payments per Beneficiary Vary GreatlyExtra Payments per Beneficiary Vary Greatly

Some states have high levels of Some states have high levels of extra extra paymentspayments and and high MA enrollmenthigh MA enrollment rates rates

States with the States with the highest paymentshighest payments per per Medicare beneficiaryMedicare beneficiary include: include: Oregon $617Oregon $617 Rhode Island $496Rhode Island $496 New Mexico $472New Mexico $472 Arizona $386 Arizona $386 HawaiiHawaii $328$328

More than More than 30 states30 states are are below the below the national averagenational average MA extra payments of MA extra payments of $174 per beneficiary $174 per beneficiary Many are predominantly Many are predominantly rural statesrural states

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PAYMENTS TO MA PLANSPAYMENTS TO MA PLANSExtra Payments per Beneficiary in Urban/Rural AreasExtra Payments per Beneficiary in Urban/Rural Areas

Urban and rural areas have Urban and rural areas have similar extra similar extra payment ratespayment rates Urban 13.3% Urban 13.3% Rural 13.7%Rural 13.7%

Urban areasUrban areas have much have much higher MA enrollment higher MA enrollment ratesrates Urban 21%Urban 21% Rural 8%Rural 8%

Urban areas have much Urban areas have much higher paymentshigher payments per per Medicare beneficiaryMedicare beneficiary:: Urban $217Urban $217 Rural $74Rural $74

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PAYMENTS TO MA PLANS PAYMENTS TO MA PLANS Extra Payments from 2008 to 2012Extra Payments from 2008 to 2012

Medicare payments to MA plans are projected by Medicare payments to MA plans are projected by CBO toCBO to exceed FFS costs from 2008 to 2012 exceed FFS costs from 2008 to 2012 by a by a total of $70 b total of $70 b

$64 b $64 b for thefor the benchmark-based bidding system benchmark-based bidding system

$4 b $4 b forfor double payment of IME costsdouble payment of IME costs

$1.6 b $1.6 b forfor Regional PPO stabilization fund Regional PPO stabilization fund

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POLICY IMPLICATIONS OF MA POLICY IMPLICATIONS OF MA PAYMENTSPAYMENTS

PAYGO PAYGO Savings May Fund Health InitiativesSavings May Fund Health Initiatives Extra payments to MA plans may be reduced and the Extra payments to MA plans may be reduced and the

savings contributed to PAYGO funding savings contributed to PAYGO funding for priority health for priority health initiatives in 2007initiatives in 2007

Impact ofImpact of MA payment reductions wouldMA payment reductions would vary greatly by vary greatly by county payment type, state, and urban/rural areacounty payment type, state, and urban/rural area

MA paymentMA payment reductions would include reductions would include urban areas with urban areas with long history of managed care long history of managed care

Funds from MA payment reductions would be used toFunds from MA payment reductions would be used to offset increases in SCHIP and Medicare physician offset increases in SCHIP and Medicare physician spending that would have their own variation by state spending that would have their own variation by state and other factorsand other factors

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MEDICARE ADVANTAGE PLANS:MEDICARE ADVANTAGE PLANS: MEDICARE COSTS IN 2007MEDICARE COSTS IN 2007

The Cost of Privatization: Extra Payments to Medicare Advantage Plans – Updated and Revised. The Commonwealth Fund: Issue Brief , November 2006.

www.cmwf.orgwww.cmwf.org

Extra Payments to Medicare Advantage Plans: Updated Tables for 2007. The George Washington University Center for Health Services Research and Policy, May 2007. http://www.gwumc.edu/sphhs/healthpolicy/chsrp/medicaid_publicathttp://www.gwumc.edu/sphhs/healthpolicy/chsrp/medicaid_publications.cfmions.cfm