1. Medicare Managed Care

2. Plan for Medicare Managed Care Today –Enrollment patterns and trends –Pros and cons for beneficiaries –How Medicare has traditionally been paid plans –Risk selection as a payment issue Exercise/homework practice Next Tuesday –Homework review –Fruit Basket! Medicare + Choice

3. Data source Medicare Statistics –1998 Medicare Chartbook –http://www.hcfa.gov/stats/stats.htm Kaiser Family Foundation Fact Sheet

4. Enrollment in Managed Care (1998) Total Medicare enrollees = 39+ million Managed care enrollees = 5.8 million –15 percent More growth (CBO projects 29% in 2008) High penetration in a few geographic areas –CA (37%), AZ (39%), CO (29%), FL (26%), RI (32%) Geographic concentration in a few states

5. Advantages for Beneficiaries Plans required to return cost-savings as –Lower premiums –Additional benefits –Lower copayments Can switch back to fee-for-service –Immediately (until 2002) –In first 3 months, then once a year

6. Percent of Medicare HMOs That Offer Additional Benefits, 1998

7. Monthly Additional Premiums for Medicare HMO Enrollees (1998)

8. Disadvantages Managed care –Limited provider choice –Gatekeepers Travel and seasonal movement out of service area Will have to replace Medicare supplement, too, if ever go back to fee-for-service

9. HMO payment historically based on Average Adjusted Per Capita Cost (AAPCC) 95 percent of average fee-for-service claims According to Age (10 categories) Sex (2 categories) Medicaid, not Medicaid, working, institutionalized By county Revised by Balanced Budget Act of 1997 Blend county and national rate, with floor Risk-adjustment, based on inpatient stays

10. Payment variation U.S. average = $491 per enrollee (1999) 3-fold difference from lowest to highest county ($210 to $782) in 1997 –Reduced to $402 to $794 in 2000, with floor Higher HMO penetration in counties with high rates

11. Who Wins?? If provider selection and utilization management in HMOs really do save 5% over fee-for-service… –Does Medicare save money? –Can plans make money?

12. AAPCC = $399 x.95 = $379 67% low risk - $300.33% high risk - $600 Fee-for-service claims.67 x $300 = $201.33 x $600 = $198 Average = $399

13. HMOs attract healthier-than- average enrollees For example, – 80% low risk (vs. 67%) – 20% high risk (vs. 33%) Risk selection - HMOs’ mix of low and high risks does not match the average –More low risks than average ~ “Favorable selection” –More high risks than average ~ “Adverse selection”

14. Plan costs = $360 x.95 = $342 80% low risk - $300 20% high risk - $600 Fee-for-service claims.80 x $300 = $240.20 x $600 = $120 Average = $360