ENHANCING VALUE IN MEDICARE Brian Biles, MD, MPH The George Washington University January 14, 2007

2 Two Approaches to VALUE IN MEDICARE  Traditional fee-for-service Medicare 83 percent of total Medicare beneficiaries 83 percent of total Medicare beneficiaries Use of private plans in Medicare Use of private plans in Medicare 17 percent of total Medicare beneficiaries 17 percent of total Medicare beneficiaries

3 Focus for VALUE IN MEDICARE Value to Federal government Value to Federal government Value to Medicare elderly and disabled beneficiaries Value to Medicare elderly and disabled beneficiaries

4 Value to Federal Government PAYMENTS TO MA PLANS Private MA plans are now paid, in the aggregate, more than average costs in traditional fee-for-service Medicare Private MA plans are now paid, in the aggregate, more than average costs in traditional fee-for-service Medicare Average of 12.4 percent Average of 12.4 percent $922 per enrollee $922 per enrollee $6 billion in total annual extra payments $6 billion in total annual extra payments

5 Value to Federal Government PAYMENTS TO MA PLANS Private MA plan payment benchmarks are higher than fee-for-service (FFS) Medicare in every county in the nation Private MA plan payment benchmarks are higher than fee-for-service (FFS) Medicare in every county in the nation Payment in urban and rural floor counties are set by statute at a projected average of 20 percent and 17 percent more than FFS Payment in urban and rural floor counties are set by statute at a projected average of 20 percent and 17 percent more than FFS Double payment for hospital indirect medical education costs Double payment for hospital indirect medical education costs Extra payments for risk adjustment payments through 2010 Extra payments for risk adjustment payments through 2010

6 Extra Payments to MA Plans Above Fee-for-Service Costs 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 Market Penetration data file for the quarter ending December 2005 and Medicare Advantage 2007 Ratebook; Transcript of Public Meeting, Medicare Payment Advisory Commission (MedPAC), April 21, Note: Projections for Figures above include BNRA and FFS normalization. Assumes 4 percent reduction in extra payments to account for MA benchmark-based bidding.

7 Share of Extra Payments to MA Plans 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 Market Penetration data file for the quarter ending December 2005 and Medicare Advantage 2007 Ratebook; Transcript of Public Meeting, Medicare Payment Advisory Commission (MedPAC), April 21, Note: Projections for Figures above include BNRA and FFS normalization. Assumes 4 percent reduction in extra payments to account for MA benchmark-based bidding.

8 Value for Medicare Beneficiaries ENROLLMENT IN MA PLANS Private MA plan enrollment is heavily concentrated Private MA plan enrollment is heavily concentrated 55 percent of MA enrollment is in just 4 States: California, Pennsylvania, Florida, and New York 55 percent of MA enrollment is in just 4 States: California, Pennsylvania, Florida, and New York Even in those states with the highest share of MA enrollment, less than one third of total beneficiaries in the state are enrolled in MA plans: Even in those states with the highest share of MA enrollment, less than one third of total beneficiaries in the state are enrolled in MA plans: California31% California31% Pennsylvania25% Pennsylvania25% Florida20% Florida20% New York19% New York19%

9 MA Enrollment is Heavily Concentrated Source: CMS Dec 2005 Enrollment data Percentage of Medicare Beneficiaries Enrolled in MA Plans, by State

10 Value for Medicare Beneficiaries MA BENEFITS FOR SENIORS Private MA plan benefits vary greatly Private MA plan benefits vary greatly Out-of-pocket costs for MA enrollees in poor health range from an average of about $600 per year in Miami to nearly $6,000 per year in Providence, St. Louis and San Francisco Out-of-pocket costs for MA enrollees in poor health range from an average of about $600 per year in Miami to nearly $6,000 per year in Providence, St. Louis and San Francisco Private MA plans may design their own benefit package Private MA plans may design their own benefit package Not like Medigap plans that must provide one of a set of defined benefit packages Not like Medigap plans that must provide one of a set of defined benefit packages

11 Estimated Out-of-Pocket Costs for MA Enrollees in Poor Health by Plan Note: Figures for Plans shown.

12 Value to Medicare Beneficiaries MA PLAN COSTS FOR PROVIDING BENEFITS Private MA plans can have higher costs for providing benefits than FFS Medicare for good reasons: Private MA plans can have higher costs for providing benefits than FFS Medicare for good reasons: Administrative costs of 11 percent Administrative costs of 11 percent Higher payments to providers of up to 20 percent Higher payments to providers of up to 20 percent Less utilization review for quality and intensity of care since managed care backlash at end of 1990s. Less utilization review for quality and intensity of care since managed care backlash at end of 1990s.

13 ENHANCING VALUE IN MEDICARE Medicare payments to MA private plans average 12.4 percent more than average FFS costs Medicare payments to MA private plans average 12.4 percent more than average FFS costs MA plan enrollment is heavily concentrated by state and city MA plan enrollment is heavily concentrated by state and city Out-of-pocket costs vary widely for MA enrollees Out-of-pocket costs vary widely for MA enrollees

ENHANCING VALUE IN MEDICARE Brian Biles, MD, MPH The George Washington University January 14, 2007