Copyright 1999 Federal News Service, Inc.
Federal News Service
JUNE 9, 1999, WEDNESDAY
SECTION: IN THE NEWS
LENGTH:
5272 words
HEADLINE: PREPARED STATEMENT OF
STEVEN
M. LIEBERMAN
EXECUTIVE ASSOCIATE DIRECTOR
OFFICE OF THE DIRECTOR
CONGRESSIONAL BUDGET OFFICE
BEFORE THE SENATE COMMITTEE
ON FINANCE
SUBJECT - MEDICARE+CHOICE
BODY:
Mr. Chairman, Senator Moynihan, and Members of the Committee, it's a
pleasure to appear before you today to discuss the enrollment and payment issues
confronting the Medicare+Choice program. The growth in that program's enrollment
is closely linked to the adequacy and appropriateness of Medicare's capitated
payments. The recent withdrawal of plans from Medicare+Choice, coupled with
reduced growth in payments, has prompted some observers to worry about the
future of the Medicare+Choice program.
My testimony discusses the
Congressional Budget Office's (CBO's) projection of enrollment in
Medicare+Choice plans over the next 10 years and the factors influencing growth
in that enrollment. Financial incentives play a critical role in determining
whether plans participate in Medicare+Choice, whether beneficiaries enroll, and
whether providers deliver appropriate services in an efficient manner. For
Medicare+Choice to be a viable program, beneficiaries must have incentives to
relinquish traditional fee-for-service and enroll instead in competing health
plans. The challenge is to have a system that yields greater returns when it
efficiently provides necessary, high-quality services and smaller returns when
it provides inefficient, low-quality, or unnecessary services. Meeting that
challenge requires that plans, providers, and beneficiaries each bear some
degree of financial risk. Serious problems can result if Medicare payments do
not bear a reasonable relationship to the costs of care for each group of
beneficiaries for which plans andproviders accept risk. Payments to providers
must be fair and, ideally, give incentives to control costs while rewarding
quality.
If consumers have a choice of health plans offering various
combinations of benefits and premiums, they can select the plan that best meets
their needs. Enrollment in Medicare+Choice plans would grow if those plans
offered better benefits or lower costs than traditional Medicare. If consumers
have no choice of plans or if those plans offer unattractive benefits, high
costs, or poor quality, beneficiaries will remain in fee-for-service Medicare.
ENROLLMENT IN THE MEDICARE+CHOICE PROGRAM
CBO projects that growth in
Medicare+Choice enrollment will average 9 percent annually between 1999 and
2009. Though quite rapid, that rate of increase represents a sharp reduction
from earlier trends.
The Balanced Budget Act of 1997 (BBA) established
Medicare+Choice and changed payment provisions for both health maintenance
organizations (HMOs) and fee-for-service providers. CBO had assumed that
Medicare+Choice enrollment would continue to grow at the dramatic rates of the
program it replaced. The annual rate of growth in enrollment in Medicare's
risk-based plans peaked at 36 percent in fiscal year 1996, however, and slowed
in subsequent years. CBO projects that 31 percent of all Medicare beneficiaries
will join Medicare+Choice plans in 2009, up from 16 percent this year (see Table
1).
TABLE 1. ACTUAL AND PROJECTED ENROLLMENT IN RISK-BASED HMO PLANS AND
MEDICARE+CHOICE Enrollees Number Percentage of Medicare Annual Growth in Fiscal
Year (Millions) Beneficiaries (Enrollment Percent) Actual 1992 1.4 4.0 n.a. 1993
1.6 4.5 13.8 1994 1.9 5.2 18.9 1995 2.5 6.7 29.7 1996 3.4 8.9 36.0 1997 4.5 11.7
32.4 1998 5.5 14.1 22.2 1999 6.2 15.7 12.7 Projected 2000 6.6 16.6 6.5 2001 7.1
17.7 7.6 2002 7.6 18.7 7.0 2003 8.4 20.4 10.5 2004 9.2 22.0 9.5 2005 10.1 23.8
9.8 2006 11.0 25.6 8.9 2007 12.0 27.4 9.1 2008 13.1 29.3 9.2 2009 14.1 30.9 7.6
SOURCE: Congressional Budget Office. NOTE: HMO = health maintenance
organization; n.a. = not applicable.
HMO Withdrawals
Last year, 99 HMOs
announced they were either terminating or, far more commonly, scaling back their
Medicare+Choice operations in certain counties. The potential disruption
involved 407,000 enrollees, accounting for 7 percent of all Medicare+Choice
enrollment. Plan withdrawals occurred in 406 counties--42 percent of the
counties covered by Medicare managed care. Nonetheless, the overwhelming
majority of the affected beneficiaries had the option to switch to a competing
Medicare+Choice plan.
The unanticipated withdrawal of plans from the
Medicare market has heightened awareness that plans can leave the market. That
perception is likely to reduce the willingness of some Medicare beneficiaries to
enroll in plans in the next few years. Although the effects of plans' withdrawal
on Medicare+Choice enrollment seem relatively clear, explaining why plans
withdrew appears more controversial.
In a recent report, the General
Accounting Office concluded that most likely more than one factor was
responsible for the withdrawals.No one factor can explain why plans choose to
participate in particular counties. Although plans obviously consider payment
rates, many other factors also influence their business decisions.
The
current movement of plans in and out of Medicare may be primarily the normal
reaction of plans to market competition and conditions .... Other factors
associated with plan withdrawals-- recent entry in the county, low enrollment,
and higher levels of competition--suggest that a number of Medicare plans
withdrew from markets in which they had difficulty competing.2
By contrast,
the HMO trade group, the American Association of Health Plans (AAHP), attributes
the withdrawals to inadequate payment rates, exacerbated by the administrative
burdens imposed by the Health Care Financing Administration's (HCFA's) "MegaReg"
for implementing the BBA's provisions. AAHP believes that without substantial
revisions to Medicare+Choice, additional plans will withdraw from the program.3
Adverse publicity associated with the health plans' withdrawal from
Medicare+Choice is likely to temporarily slow growth in enrollment.
But
over the longer term, that growth depends critically on the size of payment
increases and the ability of plans to offer attractive additional benefits, such
as prescription drugs.
Constraining Medicare+Choice Payments
Health
plans, as businesses, will participate in Medicare+Choice markets only if they
have an expectation of an adequate rerum--at a minimum, if they can reasonably
expect at least to cover costs. If payments are perceived as being inadequate,
health plans will tend not to participate in Medicare+Choice, especially if they
foresee little prospect of Medicare payments becoming adequate.
A similar
dynamic applies to providers. Regardless of mission or not- forprofit status,
physicians and other providers cannot afford to participate indefinitely when
their enterprises are losing money.
In addition to causing plans to
withdraw, inadequate Medicare+Choice payments have another, compounding effect
on enrollment growth. Reducing payment increases to Medicare+Choice plans will
impede their ability to offer extra benefits or limit beneficiary cost sharing.
Taking steps such as eliminating prescription drug benefits or requiring hefty
monthly premiums instead of "zero premiums" will make Medicare+Choice plans less
attractive to consumers. As a result, fewer beneficiaries will choose to join
those plans.Are Medicare+Choice payments inadequate? The adequacy of payments
can be evaluated from five often-competing perspectives.
o Are plans able to
provide appropriate services while remainingfinancially stable?
o Are
payments fair, permitting (if not encouraging) plans andproviders to serve
sicker patients?
o Is there an adequate choice of health plans in both urban
and ruralparts of the country?
o Do the payments offered by Medicare+Choice
plans attractphysicians, hospitals, and other providers to participate in
theirnetworks?
o Do the payments help keep Medicare affordable for both
beneficiariesand taxpayers? Having well-established plans "vote with their feet"
and withdraw from their key Medicare+Choice markets is an indication that
payment and other conditions of participating in Medicare+Choice may be too
stringent. But health plans havepowerful incentives to convince policymakers
that Medicare+Choice payments need to be increased without having to withdraw
from the program.
CHANGES TO MEDICARE+CHOICE PAYMENTS UNDER THE BALANCED
BUDGET ACT
The BBA enacted six policies that affected Medicare+Choice
payments.
o The BBA significantly reduces fee-for-service spending, which
alsoslows the growth of payments to health plans because annual updatesto
Medicare+Choice payment rates are tied to the growth in per-enrollee spending in
the traditional Medicare program.
o The BBA sets the annual increases in
Medicare+Choice payment rates below the growth in fee-for-service spending from
1998 through 2002.
o The portion of Medicare+Choice payment rates that is
attributable to fee-for-service spending for graduate medical education will be
gradually eliminated.
o HCFA will withhold about 0.2 percent of payments
toMedicare+Choice plans to pay for dissemination of information tobeneficiaries
about their coverage options.
o A blend of local and national payment rates
will be phased in forMedicare+Choice plans. That blending provision
redistributes moneyfrom areas with high payment rates to those with low payment
rates.
o New payment risk adjusters will be implemented in two stages. Those
adjusters are intended to more accurately reflect the expectedcosts of providing
health care to enrollees in Medicare+Choice plans.
The first four policies
were enacted with the expectation that they would slow the growth of Medicare
spending. Those policies reduce the cumulative growth in Medicare+Choice payment
rates relative to fee- for-service payments by 6 percent. The blending of local
and national payment rates is purely redistributive, but particular counties
will see substantial changes in payment rates. The new risk adjusters were not
necessarily expected to lower average payments to Medicare+Choice plans but, as
discussed below, they could yield substantial program savings when they are
implemented.
Impact of the Payment Blend
Because of the blending of
national and local payment rates, payment increases are projected to vary
enormously from county to county. For example, some counties would experience
such large increases in payment rates from 1997 to 2000 that the theoretically
available Medicare+Choice payment rates--if any plans operated in the areas--
would exceed 180 percent of the 1997 (pre-BBA) payment rates. In contrast, some
counties with high payment rates would see only a 6.1 percent increase in their
rates over the same period.
Historically, both the level of and increase in
Medicare spending per beneficiary varied dramatically in different counties.
HCFA, however, no longer produces those data on county-specific spending trends.
If past trends continue, some Medicare+Choice plans will face payment rates that
are projected to be substantially below both per capita fee-for-service spending
and 1997 Ore-BBA) amounts.
Over half (52) of the 100 counties with the most
Medicare+Choice enrollees are projected to have payment rates fall by 5 percent
or more using as the standard of comparison the rates that Medicare would have
paid if 1997 payments were increased by the national average growth in per
capita fee-for-service spending and the BBA payment provisions were fully in
effect. Using that methodology, the steepest reduction is estimated to be 12
percent. In the top 100 counties, 88-- hometo 78 percent of the enrollees--would
experience declines in payment rates, compared with 1997 rates. These estimates
do not include the lower payments resulting from HCFA's implementation of
risk adjustment.
Impact of Risk Adjustment
Until 1999, CBO had assumed that Medicare+Choice payments would be adjusted
for risk without changing total outlays. In January, the Administration
published plans to phase in risk adjustment in a manner that
would reduce payment rates for enrollees in Medicare+Choice plans. The first
stage of risk adjustment would be based on the use of inpatient
hospital services by individual enrollees. That change would reduce payments for
existing enrollees by 7.6 percent when fully phased in-by 2004. The
Administration also announced a second stage of risk adjustment
that would be based on use of services in all settings. The Administration
expects that such an adjustment would reduce payments by another 7.5 percent,
beginning in 2004. If both plans are implemented as announced, the combined
effect could reduce payments by about 15 percent.
Payment reductions related
to risk adjustment on the order of 15 percent would be likely
to cause plans to drop out of the program and enrollment in Medicare+Choice to
drop sharply. Because of the magnitude of the plannedreduction and the
discretion retained by the Administration in implementing the adjusters, the CBO
baseline does not assume the full savings from risk adjustment.
For the same reason, the projections of Medicare+Choice enrollment discussed in
my testimony today explicitly do not reflect the full savings. Instead, CBO
assumes that risk adjustments will ultimately reduce payments
by lesser amounts.
RISK SELECTION AND RISK ADJUSTMENT
Risk selection occurs when groups of beneficiaries, such as those who enroll
in a Medicare+Choice plan, have average costs that axe systematically different
from the average costs of beneficiaries who are treated as similar by the risk
adjuster. When monthly payments axe made on a fixed, prospective (or capitated)
basis, those groups of enrollees are referred to as "risk pools." If
Medicare+Choice enrollees tend to have lower costs than comparable
fee-for-service beneficiaries, the result is known as "favorable" risk
selection. Conversely, "adverse" risk selection occurs when groups or risk pools
have costs that axe higher than those of comparable fee-forservice
beneficiaries.
Risk selection is incompletely understood and
imperfectly measured. It can arise from many different sources.4 If unchecked,
risk selection can destroy an insurance system. Systematically selecting people
who are healthier than average pays off handsomely: the returns on favorable
selection can overwhelm any potential savings from operating an efficient system
for managing care. Health insurance systems in which biased selection segments
the risk pool are said to enter a "death spiral" if the problem is not fixed.
One goal of risk adjustment is to pay more fairly. In a
fair system, the amounts paid for different risk pools would closely approximate
the average cost of providing services to their members. Under that framework, a
good risk adjuster would pay groups with sicker, more expensive people
proportionately more and groups with healthier, less expensive beneficiaries
proportionately less.
Medicare+Choice Risk Adjuster
There are a wide
variety of potential approaches to mitigating the effects of risk selection.
HCFA has adopted a mechanism for risk adjustment that relies on
inpatient hospital admissions for specific diagnoses to trigger higher capitated
payments in the following year. That mechanism, which is known as the principal
inpatient/diagnostic cost group (or PIP/DCG), attempts to adjust payments
statistically to account for individuals with persistently high costs. On
average, PIP/DCGs would reduce payments somewhat for most beneficiaries but
increase them significantly for the minority of beneficiaries who were
hospitalized in the prior year for specific conditions (such as congestive heart
failure).
HCFA has had to overcome significant analytical and operational
obstacles in setting up the PIP/DCG system. The agency appears to be
successfully implementing that complex system, for which it deserves
recognition. But it is important to understand the limitations of that system
for adjusting payments.
Developing a Medicare Risk Adjuster
Although the
PIP/DCG system is a significant improvement over demographic adjusters, it has
had limited success in achieving the goal of "fair" payments-payments that are
closely related to the costliness of beneficiaries (based on their health
status). Two factors contribute to the difficulty of developing an adequate
Medicare risk adjuster.
First, the health care costs for individuals are
enormously difficult to predict. That difficulty is compounded when the
predictions are based on the administrative data available from processing
claims. Second, Medicare spending is extremely skewed--that is, the sickest
beneficiaries are extraordinarily costly. The most expensive 5 percent of
Medicare beneficiaries cost almost as much as the remaining 95 percent of all
Medicare beneficiaries. On average, those in the top 5 percent cost over $70,000
annually-more than 10 times the average annual cost for all Medicare
beneficiaries.
The variation in cost per beneficiary has two critically
important implications. On the one hand, it highlights the potential financial
consequences associated with both risk selection and inadequate risk
adjustment. On the other hand, assuming neutral risk selection--that a
risk pool has an "average" population--the skewness of the distribution of costs
may require relatively large numbers of participants for a risk pool to be
stable. Very large risk pools are unlikely to be undermined by having one too
many-- r too few--million- dollar cases in a year. Small risk pools, however,
could be seriously disrupted by having just one person who incurs catastrophic
health care costs.
Large health plans may be able to assume full financial
risk for their enrollees. Even without risk selection, small plans may not be
well positioned to assume full financial risk. In many large Medicare+Choice
markets, health plans base payments to physicians or other providers on a
percentage of premiums, thereby passing risk on to the providers.These
compensation arrangements do not directly connect HCFA to provider payments. Yet
HCFA remains vitally involved for two reasons. First, HCFA regulates the terms
and conditions under which physicians may be placed at substantial financial
risk, approving their contracts with Medicare+Choice plans. Second, HCFA has a
vital interest in and regulatory responsibility for assuring that beneficiaries
have adequate access to sufficient providers and receive high-quality care.
The numerous Medicare+Choice providers who are paid on a capitated,
percentage-of-premium basis subdivide a health plan's risk pool. As a result,
even relatively large risk pools at the health plan level may become too small
at the provider level. PIP/DCGs may not be a desirable system for adjusting
payments to small risk pools.
Problems with Using an Inpatient Risk Adjuster
The first phase of the PIP/DCG relies solely on inpatient hospital
admissions and excludes care delivered in other settings. One can argue that the
reliance on inpatient hospital admissions hurts managed care plans, many of
which have reduced their useof inpatient hospital services. Some plans have
implemented effective disease management and other protocols that may alter the
pattern of care, possibly minimizing the specific admissions that are rewarded
by the PIP/DCG methodology.
What are the implications of the inpatient
PIP/DCG payment system for a Medicare+Choice plan that has invested in
developing sophisticated disease management systems for chronic conditions?
Unlike acute episodes of care, chronic conditions, such as congestive heart
failure, can frequently have high and recurring costs. Paradoxically, that makes
such conditions ideal for both disease management interventions and for creating
a PIP/DCG payment adjustment.
With chronic conditions, an HMO can identify
who is at risk and develop intervention strategies to improve outcomes.
Typically, successful interventions stress prevention, investing in patients'
education, and gaining their compliance with protocols. Although such strategies
do not "cure" chronic conditions, they improve patients' outcomes and frequently
save money by avoiding hospitalizations. Success in avoiding hospitalizations,
however, means that the Medicare+Choice payment rate is never increased to
compensate for the beneficiary with high-cost, chronic conditions. Without a
hospitalization for congestive heart failure, for example, the PIP/DCG system
does not recognize that the beneficiary has the condition.Is this "Catch 22"
real? Preliminary findings from an analysis being conducted by John Bertko, a
principal in the actuarial consulting finn of Redden & Anders, provide some
guidance. A highly sophisticated Medicare+Choice plan appears to have
implemented effective disease management protocols for several conditions,
including congestive heart failure. By investing about $3,000 annually in each
patient, that HMO has apparently managed to avoid about half the expected
hospital inpatient admissions for congestive heart failure. Such an HMO could
become the victim of its own success in managing care. In cases in which a
beneficiary with congestive heart failure avoids hospitalization because of
better medical management, for example, the HMO would forgo over $12,000 in
higher PIP/DCG payments in the subsequent year if the system was fully phased
in. Not only would the HMO's success in avoiding hospitalization preclude its
receiving the higher revenues, but the plan would also have incurred higher
expenses to finance the disease management program.
These findings are
preliminary. But even if the completed analysis confirms the initial findings,
it is unclear how many Medicare+Choice plans have the sophistication to
implement comparable programs. It is also unclear how many conditions would be
susceptible to disease management interventions that avoided hospitalizations
that trigger higher PIP/DCG payments. However, sophisticated disease management
programs for conditions such as diabetes with complications or chronic
obstructive pulmonary disease might generate similar "Catch 22s."
Problems
with Refining PIP/DCGs
The successful development of the second stage of
PIP/DCG risk adjusters faces formidable obstacles. Relying on hospital inpatient
data means that the data sets are, compared with the total volume of Medicare
claims, relatively manageable. Expanding the adjustment system to include
outpatient procedures markedly increases the number of claims to be analyzed.
Including all Medicare services could further increase the number of claims by
an order of magnitude. Simply manipulating the data will pose significant
challenges.
Hospitals have long had strong incentives to precisely code
inpatient admissions, making the claims and diagnostic information relatively
reliable.
HCFA may encounter significant problems with the reliability
and validity of some of the data that would be used in the second stage of
PIP/DCGs. The accuracy of hospital outpatient data, for example, might prove
problematic for use in the more comprehensive risk-adjustment
system.
ALTERNATIVE APPROACHES TO RISK ADJUSTMENT
The
discussion earlier in my testimony highlighted some of the problems associated
with devising and improving an adequate mechanism for adjusting payments for
risk.HCFA and others have funded extensive research in efforts to develop viable
mechanisms. The inability to devise more effective tools underscores how
difficult the challenge actually is.
An alternative to using a statistical
approach to adjust payments is to alter the level of risk borne in the payment
pool. Some payers, such as state Medicaid agencies, are using a variety of
approaches that, in effect, adjust the risk pool, not the payments.
Under
fee-for-service, physicians and other providers can be viewed as revenue
centers: the more services they provide and bill, the more they get paid. That
arrangement provides strong incentives to use more, rather than fewer, services.
In stark contrast, under capitated payment arrangements, providers are cost
centers: their revenue is fixed, so that providing services adds only to costs,
not to payments. One explanation for the differing utilization patterns between
fee- for-service and (capitated) managed care is that providers are converted
from "revenue centers" to "cost centers."
In a Health Affairs article,
Joseph Newhouse and colleagues have argued in favor of partial capitation.5 They
raise concerns about stinting on needed care when a provider must bear 100
percent of the marginal cost of providing services. That concern may be
strongest where providers' risk pools are too small to be stable or where
providers are thinly capitalized.
Payment systems that combine attributes of
fee-for-service and capitation create incentives to avoid unnecessary services
but not stint on needed care. Many such approaches are possible.
I will
describe four generic types of hybrid payment systems that combine some
capitation with additional payments as services or costs increase. Those
approaches are currently used in commercial markets, Medicaid, or Medicare
demonstrations. They all limit the mount of risk assumed by a risk pool by
paying extra for high-cost cases; that permits smaller risk pools to be more
stable, lessening their volatility and susceptibility to big financial swings.
To keep such systems budget neutral, the average capitation payments must be
reduced by the mount being "carved out" for separate payment.
First-Dollar
Partial Capitation. HCFA is experimenting with partial capitation payments in a
demonstration project with an academic health center at the University of
California at San Diego (UCSD). For inpatient hospital services, HCFA pays the
UCSD health plan half of the Medicare fee-for-service payment plus a capitated
amount. In part because of the reduced risk associated with this payment
system,UCSD chose to offer a managed care plan that permitted direct access to
the specialists on its medical school faculty.
Condition-Specific
Carve-Outs. Pregnancy, acquired immunodeficiency syndrome (AIDS), solid organ
transplants, and end-stage renal disease (ESRD) are all examples of disease or
condition-specific carve-outs being employed by Medicaid agencies, HMOs, or
Medicare. Some Medicaid agencies remove AIDS or other high-cost conditions from
their capitation rates. Others exclude pregnancy-related costs from their normal
capitated payments. Instead, special payments are made for each case or each
delivery.
Such payment systems can easily be adjusted to promote specific
objectives. For example, if a goal was to promote prenatal care and limit
caesarian deliveries, a flat "bundled" payment could be made for all hospital
and physician services. In contrast, paying separate, higher rates for
C-sections and lower rates for vaginal deliveries would instill fewer incentives
to avoid C-sections.
For decades, Medicare has separated individuals with
ESRD into a distinct risk pool. Now, Medicare is experimenting with paying for
ESRD beneficiaries on a capitated basis. Similarly, some HMOs carve out solid
organ transplants from their capitation payments to providers, retaining the
risk (and payment responsibility) at the plan level.Individual (Specific)
Stop-Loss Coverage. Many providers and health plans purchase private reinsurance
to limit the costs of specific individuals or cases, which is often referred to
as "specific stop-loss" coverage. Coverage thresholds, known as "attachment
points," vary considerably. Some entities choose very high reinsurance
thresholds, seeking to handle only catastrophically expensive cases. Others
choose lower attachment points, seeking to reduce their financial exposure. The
lower the attachment point, the higher the reinsurance premium-- the mount
carved out of the capitation rates-- necessary to finance the costs.
Like
the attachment points, the amount of excess costs reimbursed can also vary. In
some cases, reinsurance pays 50 percent of costs in excess of the first
threshold and 80 percent of costs above a second, higher threshold. Other
policies pay 100 percent of costs in excess of a threshold. By varying both the
attachment point(s) and the share of costs paid, specific stop-loss policies can
significantly moderate risk. At the extreme, certain stop-loss policies approach
first-dollar partial capitation. (That occurs if the initial payment threshold
is the first dollar.)
Aggregate Stop-Loss Coverage. Aggregate stop-loss
coverage is also a commercially available product. Typically, that coverage
presupposes the existence of an underlying specific stop-loss policy. If the
cost of services for all members of the riskpool exceeded a specific level, the
aggregate reinsurance policy could reimburse those excessive costs.For example,
assume that a physician has 300 capitated Medicare beneficiaries in his or her
risk pool and buys both specific and aggregate reinsurance. Any costs of
physician services for an individual in excess of $7,500 would be paid by
specific reinsurance. None of the amounts above the attachment point would be
counted when calculating aggregate costs. However, all costs up to $7,500 would
be included in calculating whether aggregate reinsurance payments would be
triggered. In this example, two individuals might require extensive cardiac
services and openheart surgery, generating physician fees in excess of $10,000
each. The specific reinsurance policy would pay the costs over $7,500 in each
case. Assume further that the average cost of physician services for each member
of this physician's Medicare risk pool equals $1,800 (after excluding the
catastrophic costs over the threshold) but that the physician only averaged a
capitation payment ors 1,440 per patient per year. Any costs averaging in excess
of $1,728 per patient per year, which is 120 percent of the annual capitation
payment, would qualify for aggregate reinsurance.
CONCLUSION
The success
of Medicare+Choice is tied to how much, and how, Medicare pays. Low rates of
increase in payments will tend to cause health plans to withdraw from or limit
their presence in the Medicare+Choice market. Constrained payment rates will
make benefit offerings less attractive to consumers, which will further slow
growthin enrollment. Even though it is an improvement over the prior demographic
adjuster, the PIP/DCG is a flawed mechanism for adjusting for risk selection.
HCFA is working to develop an improved method for implementing stage two that
would take account of service use in all settings. Because of the difficulty in
markedly improving mechanisms that adjust payments, however, the Congress may
wish to consider other approaches that would limit the risk borne by a pool.
FOOTNOTES:
1. General Accounting Office, Medicare Managed Care Plans:
Many Factors Contribute to Recent Withdrawals; Plan Interest Continues,
GAO/HEHS-99-91(April 1999), p. 22.
2. Ibid., p. 44.
3. Ibid., Appendix
V. 4. Biased selection can occur without a clear basis. For example, in the
early 1990s, Mathematica Policy Research conducted evaluations for HCFA and
concluded that Medicare HMOs benefited from favorable selection. Yet Mathematica
also suggested that how selection occurred was not well understood--and might
have been the result of enrollment decisions by beneficiaries. In one report,
Mathematica concluded that a small underrepresentation of the most expensive
group of beneficiaries in the HMO risk pools probably accounted for most of the
favorable selection they identified.
5. Joseph P. Newhouse, Melinda Beeuwkes
Buntin, and John D. Chapman, "Risk Adjustment and Medicare:
Taking a Closer Look," Health Affairs, vol. 16, no. 5 (September/October 1997),
pp. 26-43.
END
LOAD-DATE: June 10, 1999
