Copyright 1999 Federal News Service, Inc.
Federal News Service
AUGUST 4, 1999, WEDNESDAY
SECTION: IN THE NEWS
LENGTH:
2444 words
HEADLINE: PREPARED STATEMENT OF
MARILYN
MOON
SENIOR FELLOW, THE URBAN INSTITUTE
BEFORE THE
HOUSE COMMERCE COMMITTEE
HEALTH AND THE ENVIRONMENT
SUBCOMMITTEE
MEDICARE+CHOICE: AN EVALUATION OF THE PROGRAM
BODY:
I appreciate the opportunity to be
here today to discuss issues surrounding holy private managed care plans are
operating under Medicare. The flux in the overall health care market and changes
brought about by the Balanced Budget Act of 1997 have generated challenges for
the private plans that serve Medicare. It is important to attempt to sort out
what is happening, why and whether it generates problems for the beneficiaries
that the program was designed to serve.
Although private plan options have
been around for quite a long time, they have recently begun to attract a larger
share of the Medicare population. This makes them an ever more important feature
of Medicare. Moreover, since many of the options for reforming Medicare now
being discussed would either place more reliance on such plans and/or change the
way in which they operate within Medicare, there may also be important lessons
for reform from studying what is happening today. The headline in a recent press
release from the American Association of Health Plans proclaimed, "Insufficient
Government Funding for Beneficiaries Forces Medicare HMO Cutbacks." My testimony
today will contend that announced withdrawals are not particularly surprising or
unusually large, that the reason offered by AAHP for such changes is only one of
several possible explanations for changes occurring in private plans, and that
the real issue is what will happen to Medicare beneficiaries as a result of
these changes. But first, it is important to examine some background on what has
been happening to Medicare + Choice.
The Role of Private Plans in Medicare
As an important option for beneficiaries, the Medicare program should foster
and encourage private plans to participate. But. in turn, private plans need to
be held accountable to the goals they are intended to achieve: 1) to use the
advantages of care management to achieve savings for the federal government and
beneficiaries, 2) to allow beneficiaries who like a managed care environment the
opportunity to receive their care from such a plan, and 3) to encourage plans to
offer innovative services and benefits. If these plans cannot do better than the
basic Medicare program in restraining costs and if they do not generate "value
added" in terms of providing alternatives that attract beneficiaries, then
should alarms be raised if this option does do not become a greater share of the
Medicare program?
The BBA sought to both offer additional alternatives to
beneficiaries and to achieve savings from private plans through various payment
reforms. Even more than many of the savings achieved from the traditional
fee-for-service part of the program, the BBA changes in payment reflected a
strong body of research that had demonstrated that payments to private plans
were too high on average. Medicare was losing money on each beneficiary who
signed up for this option. This was because beneficiaries opting for managed
care were (and according to a recent study by the General Accounting Office,
still are) healthier than others like them in the beneficiary population. The
existing risk adjustment mechanism failed to capture these
differences. Consequently, Medicare paid too much for each enrollee, enabling
plans to use these resources to offer additional benefits that made them
attractive to potential enrollees. Further, the Medicare program contains a
number of additional subsidies for certain hospitals in its fee-for-service
payments to help support medical education and coverage of indigent patients.
Because of the way in which premium payments to private, managed care plans were
made prior to BBA, these subsidies were passed on to the.plans. But plans were
not required to then pass on these benefits to the hospitals who should be
receiving such subsidies. Consequently, payments were too high for this reason
as well.
A look back over time indicates that Medicare's payments were not
only generous, they were often substantially higher than what was being received
by plans treating other population groups. At the same time that private managed
care plans were arguing that they were more efficient than fee-for-service and
were offering their services with low annual growth rates, they were getting the
fee-for-service growth rate increases (often in excess of 10 percent) handed to
them each year in Medicare.
The BBA attempted to rectify these issues with
three sets of changes: 1 ) addition of an improved risk
adjustment mechanism beginning next year, 2) short term reductions in
payment levels to bring the amounts closer to where they should have been if a
better risk adjustment factor had been in place in the past,
and 3) taking out of the premium payments for private plans part of the
cross-subsidies found in Medicare and instead giving them directly to hospitals.
These changes all have strong justifications and should not be thought of as a
"fairness gap." Rather, they are an attempt to level the playing field between
private plans and Medicare which for some time has been tilted in favor of
private plans. Further, if these changes had been fully applied, some plans
might actually have seen their payments decline; but the BBA placed a safety.
valve of a guaranteed 2 percent increase in payments each year even for plans in
very high premium areas.
Plans do have legitimate claims to fair treatment
in terms of payment levels, stability over time in payments and requirements on
their behavior. Reporting rules and regulations should be reasonable in terms of
the costs of complying.' And it is important to continue to monitor payment
levels to assure that they are Fair. But just because the payment levels have
been restricted is no reason to believe there is a problem, it is necessary to
look further.
To demonstrate that they are being unfairly treated, plans
have been pointing to the withdrawals and lower benefit offerings that occurred
in 1999 and that have been announced for January 1, 2000. But here again, it is
necessary to ask whether this is just due to Medicare payment changes and new
regulations or whether other factors are also at work.
Putting the Size of
Withdrawals into Context
A large number of plans announced withdrawals from
Medicare + Choice in 1999. But by June of this year, the number of total
participants in the program was 6.86 million beneficiaries, up over 260,000
persons from June of 1998 (when the figure was 6.40 million). Further, the
number of risk contracts, while smaller, was still over 400.
From
preliminary information available on what will happen in January, 2000 to plans
participating in Medicare + Choice, it appears that most beneficiaries will be
unaffected. That is, 95 percent of enrollees in these plans will not have to
make changes unless they elect to shift. Since enrollees in Medicare + Choice
accounted for a little over 17 percent of all Medicare beneficiaries, the share
of beneficiaries affected at all will be less than 1 percent. That is comparable
to the share of persons expected to be affected by the Federal Employees Health
Benefits Program (FEHBP) pullouts next year and just half the share of retirees
in FEHBP who normally change plans each year, for example. Further, over
three-fourths of those beneficiaries affected by withdrawals will still have at
least one other private plan to choose from in addition to traditional Medicare.
As this suggests, one. major reason why individuals may have to change plans has
more to do with the nature of a private-sector approach to Medicare.
What Are the Implications of Private Plans and Competition in
Medicare?
Choice among competing plans and the discipline that such
competition can bring to prices and innovation are often stressed as potential
advantages of relying on private plans for serving the Medicare population. But
imbedded in those characteristics are also some of the responses by plans that
are now being heavily criticized. That is, if there is to be choice and
competition, some plans will not do well in a market and as a result they will
leave. In a market system, withdrawals should be expected; indeed, they are a
natural part of the process by which uncompetitive plans that cannot attract
enough enrollees leave particular markets. If HMOs have a hard time working with
doctors, hospitals and other providers in an area, they may decide that this is
not a good market. And if they cannot attract enough enrollees to justify their
overhead and administrative expenses, they will also leave an area. The whole
idea of competition is that some plans will do well -- and in the process drive
others out of those areas. In fact, if no plans ever left, that would likely be
a sign that competition was not working well.
No one has raised major
objections to the fact that a share of FEHBP plans drop out of that program each
year, for example, or that individuals shift across plans. It seems
inconceivable then to criticize the Medicare program simply because some plans
leave various markets. That is the very nature of competition. And, from
preliminary data, it appears that many of the withdrawals by plans are only in
certain areas where the affected plans were unable to reach a critical mass to
continue in operation. This was also a key reason for withdrawals in January of
1999.
The Issue of Premium Increases and Benefit Reductions in Medicare +
Choice
Most plans routinely eliminate or reduce Medicare's cost sharing
requirements and add other benefits as well. Because managed care plans seek to
oversee the use of care directly rather than relying as much on cost sharing as
compared to fee-for-service plans, managed care organizations do not need to be
compensated for this additional offering; indeed, beneficiaries should expect
this as a tradeoff for having less autonomy in the care they receive. But in
addition, many managed care organizations also offer extra benefits such as
prescription drug coverage, dental and vision care at either no additional
premium or a premium substantially below the costs of private medigap coverage
that many fee-for-service patients purchase.
The announcement by some plans
who are remaining in Medicare that next year premiums will be increased or extra
benefits cut is likely related to Medicare policy changes (as well as to other
factors such as the increasing costs of prescription drugs). Because premium
payment levels by the federal government are not increased as fast as in the
past, it should not be surprising that plans respond by restricting the
generosity of the additional benefits they offer beyond what Medicare requires.
But some have suggested that the scaling back of extra benefits signals that
payments are too low for these plans. However, to the extent that these extra
benefits were made possible by overly-generous premium payments from Medicare,
these changes again may be viewed as leveling the playing field. Beneficiaries
who do not or cannot enroll in private plans have been at a disadvantage because
they do not have access to these extra benefits. If payments to plans were
raised to restore extra benefits, this would thus generate a critical fairness
issue. Although it is painful for beneficiaries attracted to these private plans
for promised extra benefits to lose them in the next year. a greater injustice
would be done by increasing payments to assure :hat private plan enrollees get
extra benefits, while those who remain in fee-for-service do not.
Beneficiaries at Risk
While a strong case can be made that many of the
changes affecting Medicare's private plans are a combination of market forces
and intended policy changes that require no intervention by the Congress, there
will be important and painful impacts on beneficiaries. And these consequences
should be carefully examined for lessons for the future.
While I have argued
above that it is important to recognize that withdrawal of plans is both a
natural and necessary part of a competitive, market-based approach to providing
health care, that does not mean that transitions will be smooth or painless for
beneficiaries. For those in poor health, for those in the middle of a treatment
regimen for a problem like cancer, for those who are frail or homebound, having
to make major changes in their personal health care delivery system will be
difficult. Finding ways to assure that there is as much stability in the system
as possible for these beneficiaries is crucial, and somewhat at odds with a
market-based approach.
Even if the benefits that individuals have enjoyed in
private plans came about because of overly generous federal contributions, that
will not make beneficiaries content to lose such benefits over time. Many older
and disabled persons have been attracted to managed care plans precisely because
of the extra benefits offered. They may have made sacrifices to join such plans,
including learning a new system of care and finding new doctors and other
service providers only to discover that next year these benefits will be scaled
back. How many beneficiaries understand that once they join a. plan with all its
promised benefits, that the promise extends for only one year?
Remedies that
sustain these windfall benefits are not fair to other beneficiaries who remain
in fee for service. Instead, better education and information on the issue of
what it means to enroll in a private plan option is needed. Recent surveys have
shown that many beneficiaries do not understand the full range of conditions and
requirements surrounding managed care, suggesting that they may be attracted by
extra benefits and other promises without understanding the full nature of that
decision. Advertising for such plans, for example, has a tendency to tout in
headlines the extra benefits but use the small print to caution about
restrictions. Managed care plans can have a lot to offer Medicare beneficiaries,
but the choice should be an informed one.
Another key issue raised by the
changes announced by plans this year, and a trend that has actually been going
on for several years, is the nature of the cutbacks in benefits. Many analysts
have noted and warned that prescription drugs are difficult to offer in a fully
voluntary environment because they naturally attract a sicker population who are
likely to be heavier users of health care of all sorts. It is thus natural for
plans looking for ways to reduce their costs to cut back on such benefits. If
these benefits are increasingly limited over time, it will increase the
importance of the debate over whether drugs ought to be offered as part of a
basic Medicare package.
END
LOAD-DATE: August
5, 1999 
