1. Medicares New Alphabet Soup: A National and Historical Perspective by Marsha Gold, Senior Fellow Mathematica Policy Research Presentation to Families USA Health Action 2007 Conference Friday, January 26, 2007 Mayflower Hotel by Marsha Gold, Senior Fellow Mathematica Policy Research Presentation to Families USA Health Action 2007 Conference Friday, January 26, 2007 Mayflower Hotel

2. 1 Medicare AdvantageRevolution or Evolution? A little bit of both Time will determine the balance Short term benefits but potentially long term risks for beneficiaries Complexity assured A little bit of both Time will determine the balance Short term benefits but potentially long term risks for beneficiaries Complexity assured

3. 2 The Historical Perspective From the beginning Medicare aimed to accommodate the marketplace Prepaid group practices Medicare HMOsThe Medicare Risk Contracting Program (1985-1997) More choices (on paper)Medicare+Choice and the BBA of 1997 Withdrawals and reduced benefits, higher premiums1999-2003 collapse Resurrectionthe Medicare Modernization Act of 2003 From the beginning Medicare aimed to accommodate the marketplace Prepaid group practices Medicare HMOsThe Medicare Risk Contracting Program (1985-1997) More choices (on paper)Medicare+Choice and the BBA of 1997 Withdrawals and reduced benefits, higher premiums1999-2003 collapse Resurrectionthe Medicare Modernization Act of 2003

4. 3 A Graphical Perspective Enrollment in Medicare Risk/Medicare+Choice Plans, 1985-2003 Prevalence (Crude) (Percent) Source: Gold, 2003 updated. Note: Date for 1992-2002 are for enrollees in M=C coordinated care plans. Data for prior years are for enrollees in Medicare risk contracts. All data are for December of the given year. As of June 2004, 4.6 million were enrolled.

5. 4 What Medicare Advantage Did Continued expanded choice options: PPO, PSO, PFFS Dealt with restrictions on rate increases (starting 2004) to encourage plan entry Created regional PPO option to expand choice to rural and less urbanized areas Made MSA authority permanent and removed limit on enrollment Continued expanded choice options: PPO, PSO, PFFS Dealt with restrictions on rate increases (starting 2004) to encourage plan entry Created regional PPO option to expand choice to rural and less urbanized areas Made MSA authority permanent and removed limit on enrollment

6. 5 What Medicare Advantage Did - II Continued qualified phase out of cost contracts if other choices exist To get Part D, required beneficiary to join a private plan (PDP or MA-PD) Authorized Special Needs Plans Continued qualified phase out of cost contracts if other choices exist To get Part D, required beneficiary to join a private plan (PDP or MA-PD) Authorized Special Needs Plans

7. 6 What Proponents Intended Increase private plan contracts in Medicare and make them attractive More choice of provider, options with low premiums Financial tilt towards MA versus traditional program MA available across the country Increase private plan contracts in Medicare and make them attractive More choice of provider, options with low premiums Financial tilt towards MA versus traditional program MA available across the country

8. 7 MA Payment RatesA Crib Sheet Pre-MMA (through 2003) County based payments Based on costs in traditional Medicare program Movement away from FFS link to promote more even availability nationwide –Rural flood (BBA, 1998) –Urban floor (BIPA, 2001) –Blend and minimum 2 percent update (BBA, 1998) Any savings in providing Medicare benefits returned to enrollee MMA Changes – 2004 Annual minimum update 2 percent OR national growth rate Minimum county payment 100 percent of FFS Pre-MMA (through 2003) County based payments Based on costs in traditional Medicare program Movement away from FFS link to promote more even availability nationwide –Rural flood (BBA, 1998) –Urban floor (BIPA, 2001) –Blend and minimum 2 percent update (BBA, 1998) Any savings in providing Medicare benefits returned to enrollee MMA Changes – 2004 Annual minimum update 2 percent OR national growth rate Minimum county payment 100 percent of FFS

9. 8 MA Payment RatesA Crib Sheet MMA Changes - 2006 Shift from set county prices to benchmarks Plans submit bids. If below benchmark, 25% goes to government (new) and rest is returned to enrollee in extra benefits, lower premiums (including Rx benefits) If above benchmark, enrollee pays difference (little impact yet). Risk Adjustment Fully phased in 2007 Aggregate share in MA maintained (phase out starting 2007) Average MA rates in 2006 115 percent higher, FFS (112 percent after gave back) (MEDPAC). Higher in floor counties. MMA Changes - 2006 Shift from set county prices to benchmarks Plans submit bids. If below benchmark, 25% goes to government (new) and rest is returned to enrollee in extra benefits, lower premiums (including Rx benefits) If above benchmark, enrollee pays difference (little impact yet). Risk Adjustment Fully phased in 2007 Aggregate share in MA maintained (phase out starting 2007) Average MA rates in 2006 115 percent higher, FFS (112 percent after gave back) (MEDPAC). Higher in floor counties.

10. What Happened?

11. 10 MA Availability Increased Percent of Beneficiaries with Plan Available Source: MPR Analysis of CMS Data for The Kaiser Family Foundation for March of each year. a Exceptions are in Alaska and parts of New England.

12. 11 2006 Expansion Driven by Relatively Unmanaged Options Percent of Beneficiaries with Plan Available, 2006 Source: MPR analysis of CMS Data for Kaiser Family Foundation.

13. 12 MA-PDs Offered Competitive Alternative to PDPs in 2006 Source: MPR analysis of CMS November Landscape File for the Kaiser Family Foundation. *Includes supplemental benefits and Part D (in addition to Part B premium). Average Monthly Drug Premium, All MA-PDs, 2006*

14. 13 Beneficiaries Responded and MA Enrollment Grew 20052006 All Medicare Advantage6,121,6787,591,051 Local Coordinated Care Plan (HMO, PSO, PPO) 5,157,627 a 6,007,625 b Regional PPO 0 98,385 PFFS 208,990 864,100 Cost 321,555 318,274 Other 269,719 302,667 Number of MA Enrollees by Plan Type, 2005-2006 Source: CMS Monthly Summary report, December of each year. a Includes PPO demonstration enrollment b 5.5 million were in HMOs

15. 14 PFFSs Share of the Market Increased Substantially PFFS Enrollment Source: CMS Monthly Summary reports, December

16. 15 Choice Continues to Expand in 2007 All urban beneficiaries and 94 percent of rural beneficiaries have PFFS available Regional PPOs in same locations (a few more choices) Small growth in areas with available HMOs (not local PPOs) MSAs available for the first time in most areas of the country from Wellpoint All urban beneficiaries and 94 percent of rural beneficiaries have PFFS available Regional PPOs in same locations (a few more choices) Small growth in areas with available HMOs (not local PPOs) MSAs available for the first time in most areas of the country from Wellpoint

17. What Does it Mean for Beneficiaries?

18. 17 MA Provides Competitive Premium but Higher Out of Pocket Costs than Most Medigaps Source: MPR analysis of Medicare Compare data using HealthMetrix Researchs Medicare HMO Cost Share Report Methodology in Gold and Achman, August 2003. Note: Results are weighted by M+C plan enrollment. Includes only coordinated care plans. Costs include the Medicare Part B premium, the M+C plan premium and estimated out-of-pocket spending for pharmaceuticals, and selected acute care services (hospitalization, physician visits). Estimated Average Annual Out-of-Pocket Health Costs for Medicare+Choice Enrollees, 1999-2003

19. 18 Part D Benefits are Highly Competitive in MA Lower premiums, less out-of-pocket cost, some coverage generics in gap Advantage mainly seen in HMOs and enhanced plans (2006) Can use savings from A/B and overpayments to offset Part D (Rx ) costs HMOs possibly can negotiate better rates (more managed) Lower premiums, less out-of-pocket cost, some coverage generics in gap Advantage mainly seen in HMOs and enhanced plans (2006) Can use savings from A/B and overpayments to offset Part D (Rx ) costs HMOs possibly can negotiate better rates (more managed)

20. 19 Newer MA Options Provide Beneficiaries Less Financial Protection All MA-PD (Except SNPs) AllHMO Local PPO PFFS Regional PPO All $268 $239 $303 $337 $432 Healthy $831 $72 $104 $81 $180 Episodic Needs $686 $621 $749 $911 $983 Chronic Needs$1,656$1,487$1,819$2,254$2,382 Number of Contract Segments 1,349 909 269 126 47 Estimated Out-of-Pocket Costs Per Enrollee for Hospital and Physician Services in MA-PD Plans by Type, 2006 Source: MPR analysis for AARPs Public Policy Institute of CMSs November 2005 Personal Plan Finder using HealthMetrix cost sharing methodology.

21. 20 Free-Standing PDPs Remain More Popular with Beneficiaries PDPs Stand alone Dual eligible 10.4 million 6.1 million MA-PDs 6.0 million Enrollment, June 2006 Source: KFF PDP Fact Sheet (November 2006)

22. 21 Long Range Stability of MA Remains an Issue Expansion highly driven by MMA, increased rates. Growth in penetration (and nontraditional options) highly driven by decisions of a few firms (Humana, UnitedHealthcare, Wellpoint). Over 80 percent of PFFS enrollment is in floor counties, benefiting most by overpayments. Budgetary pressures may make higher MA payments harder to maintain. Expansion highly driven by MMA, increased rates. Growth in penetration (and nontraditional options) highly driven by decisions of a few firms (Humana, UnitedHealthcare, Wellpoint). Over 80 percent of PFFS enrollment is in floor counties, benefiting most by overpayments. Budgetary pressures may make higher MA payments harder to maintain.

23. 22 Issues for Beneficiary Concern Are beneficiaries aware of MAs cost sharing? Will providers accept a PFFS alternative to Medicare? If MA penetration grows, will traditional Medicare be viable? If not, will MA serve to limit the federal contribution to Medicare? What forms of beneficiary protection will help beneficiaries benefit by MA? Are higher MA payments a plus or negative for beneficiaries? Are beneficiaries aware of MAs cost sharing? Will providers accept a PFFS alternative to Medicare? If MA penetration grows, will traditional Medicare be viable? If not, will MA serve to limit the federal contribution to Medicare? What forms of beneficiary protection will help beneficiaries benefit by MA? Are higher MA payments a plus or negative for beneficiaries?