1 Medicare Advantage: Choices Jeanne Lambrew, PhD Associate Professor, George Washington University / LBJ School Senior Fellow, Center for American Progress July 16, 2007

2 OVERVIEW Medicare Overpays Plans –$54 billion / 5 years –2 years on Trust Fund –$24 / year Part B premium Significant Variation –Payments vary by location –Benefits vary by plan Growth –Increased by 2/3 rds since ‘03 –Nearly 3 x overall growth Is It Worth It? –Quality –Access –Cost Is There a Better Way? –Medicare –Health system THE “GIVENS”:THE QUESTIONS:

3 IS IT WORTH IT? Quality of Care Theory: –Creates incentive for maintaining health –Promotes teams and integrated care –Able to adopt innovative payment & benefits Practice: –Churning leads to little health investment –Enrollees remain healthier than average –Research: No evidence of quality advantage

4 Costs Theory: –Networks allow for price discounts –Competition lowers prices Practice: –Networks unpopular –Price discounts offset by administrative costs –Constraints on use may exceed those on price –Overpayments eliminate competitive pressure

5 Access to Care & Benefits Theory: Private plans can: –Align extra coverage with quality –Give enrollees the benefits they want Practice: –Insurers determine what, where benefits are offered Cream skimming may be more profitable the volume Access to providers may be constrained At a cost: up to 50% in PFFS –Concerns persist about Truth in advertising Sick people less protected than in traditional Medicare Instability

6 IS THERE A BETTER WAY? Improving quality –Primary care improvements –Care coordination –Comparative effectiveness research Extra benefits –Across the board –Low-income Improving fiscal integrity –Overpayments > Medicare fraud Enough for: –AIDS prevention worldwide –An electronic medical record for all Americans Enough to cover half of all uninsured children –$1,000 overpayment per MA enrollee only slightly less than the Federal cost per child in Medicaid/SCHIP May be last chance to act Medicare:Health System: