Some Medicare Advantage Plans Do Provide Value—the HMOs

When I reported on the waste in Medicare Advantage plans not long ago, HealthBeat reader Don Grunt pointed out that not all MA plans are alike. He wrote: “I'm a Medicare Advantage product manager in Oregon where 45% of beneficiaries sign up for MA plans (highest in the country) because we offer good plans and the competitive market keeps us honest.  So I don't work in Miami or any of the wild west of MA plans.”

Oregon is one of those states that belongs to what I like to call “Canada South” (a region that includes part of the Northwest as well as the northern tip of New England--Vermont, New Hampshire and Maine). These are states where medicine seems less “money-driven,” and by and large, patients get better value for their health care dollars. In many of these states, care is more collaborative. It struck me that Don Grunt, who knows the MA system from the inside, was probably right.

I kept his remarks in mind when I wrote a piece for the Washington Post’s “HealthCare Rx” last week. (I am part of the “HealthCare Rx” standing panel, a group that spans a spectrum of opinion, ranging from Ezra Klein to Newt Gingrich. Each week, Rachel Saslow, the Rx editor, poses a question.  Last week’s query: “The Senate Finance Committee is debating a bill that would trim $113 billion from the privately-run Medicare Advantage plans over the next decade, a move that proponents say will bring its funding in line with traditional Medicare coverage. Do you think such a move will hurt beneficiaries?”

In my response, I began by reiterating what I had said in that earlier HealthBeat post:  If the cuts become part of the final health reform bill,  “the potential savings are enormous and research shows that the benefit cuts needed to achieve them will not be terribly missed."

That’s the big picture. But I also pointed to the response by another member of the Rx panel, Dr. Mark Kelley, chief executive officer of the Henry Ford Medical Group, who reported that his patients “love their Medicare Advantage HMO plans.”  Kelley recommended that, before giving up on MA, the government should look at plans "on a case-by-case basis, examining the performance of every contractor."

Taking in what Kelley had to say, and putting it together with HealthBeat reader Don Grunt’s comment, I decided to do more research. At that point, I found the 2009 Medicare Policy Advisory Commission (MedPAC) report on Medicare Advantage, which confirmed that all MedPAC plans are not alike.   It also told me that we don’t need to pay for-profit insurers a double-digit bonus to persuade them to offer Medicare Advantage.

After reading the MedPAC report, and thinking about what both Kelley and Grunt had written, here is what I ultimately said in the Washington Post: 

Kelley is right: there are individual MA insurers out there providing value for tax-payer dollars.  But it is crucial to realize that, by and large, these are insurers that offer Medicare Advantage  HMOs –plans that do a much better job of managing costs than Medicare Private Fee-For-Service plans (PFFS).  (And, unfortunately, the PFFS plans have been growing far faster.)

The average PFFS plan feeds, pig-like, at the Medicare trough. It receives $114 more per member per month than traditional Medicare would spend on the same senior. Meanwhile, it delivers "extra" benefits worth $35 a month. And who is paying the $114 tip? Medicare Advantage is financed by traditional Medicare.

Thus, the 78 percent of Medicare beneficiaries who have stuck with traditional Medicare are funding the bonus for PFFs.  (They pay higher deductibles and co-pays to keep Medicare going while it dispenses such largesse to MA insurers.) Not only that, seniors in regular Medicare are spending $3 for $1 of extra benefits going to someone else. This hardly seems fair.

Why are PFFS so expensive? They are not designed to rein in spending. Quite the opposite, "fee for service" encourages over treatment: the more a provider does, the more he is paid. There are so many gray areas in medicine, and this is where fee-for-service creates incentives to "do more."

By contrast, the Medicare HMOs that Kelley is talking about receive a fixed annual payment for every beneficiary. It's up to them to figure out how to use that money to keep their patients healthy. If they fail, the cost of patient care may exceed the yearly payment.

These HMOs "bid" for patients, telling Medicare how much they think they will need to care for the average patient for a year. The 2009 Medicare Payment Advisory Commission (MedPAC) report explains that this year, the average HMO is offering to provide patient care for 2 cents less than it would cost traditional Medicare. So for every dollar spent, the average beneficiary in a Medicare HMO receives an extra 2 cents worth of benefits.  And some MA HMO’s offer far more…As MedPac points out, the quality of the HMOs varies widely; the more established HMOs typically offer the best value.

This suggests that some private insurers have found ways to enrich the benefit package by being more efficient. These providers take care to find a network of doctors and hospitals who are “patient- centered.” They put patients first, avoid exposing them to the risks of unnecessary tests and treatments, listen to patients in order to diagnose them, and collaborate with each other.

I take this as persuasive evidence that private insurers do not need corporate welfare. The best can provide comprehensive care without spending more than traditional Medicare. The most experienced HMOs have figured out how to do this, and Kelley is not the only witness who reports that patients are satisfied with the results. I have heard from patients and doctors in the Northwest where Medicare Advantage is working well. Often, the insurers are non-profits.

But don't very expensive-Medicare Advantage programs provide freebies that seniors like, such as eyeglass frames and gym memberships? Yes, they do. But this does not justify asking the 78 percent of seniors receiving traditional Medicare to foot the bill for the 22 percent in Medicare Advantage who are receiving premium benefits-especially when Medicare is paying three times what the benefits are worth. Nor is there medical evidence that most of these extras improve health.

Here, let me add that I continue to support cutting Medicare Advantage. If Medicare continues to overpay MA insurers, make no mistake, eventually everyone in the Medicare program will lose—including those now enjoying Medicare Advantage benefits.

If Medicare continues to spend at the current rate, in seven years it will begin to run out of money. At that point, it would have to slash payments to MA, the program would no doubt collapse, and when seniors now on MA return to traditional Medicare, they would find that they, along with all other Medicare beneficiaries, would have to pay substantially higher co-pays and deductibles as Medicare struggles to stay afloat.

Medicare Advantage seniors need to understand that they are still part of Medicare. Their fate depends on Medicare’s solvency. It’s not worth risking that for a pair of over-priced eyeglass frames.

Finally, and most importantly, if health care reform means eliminating the windfall bonus to inefficient MA plans, those MA insurers that are able to provide better care for less, will flourish. The cuts will separate the wheat from the chaff.

Comments

[George Fulmore]

I agree with the column's Medicare Advantage overpayment positions. They make no sense. I'm on one in northern California under Kaiser's Senior Advantage. Sure, we get some money for eyeglasses every other year, and there may be some benefits, but that does not make it "fair" for others on traditional Medicare. MA should make it less expensive, not more expensive. For one thing, under MA that has to be less paperwork, as the provider does not bill Medicare for services rendered. MA providers get their money up front, and, I think they get to comingle it with all their other insome. Who knows how Kaiser does under MA as a profit or loss? I'm sure whatever it is is buried in their overal financials.
Good stuff, Maggie. I read your book, "Money-Driven Medicine," and loved it.

[Robb A. Cohen, MBA, Chief Government Affairs Officer, XLHealth]

Many Medicare Advantage plans (not just HMO plans, but PPO as well) such as chronic condition special needs plans, provide care coordination services that deliver value to Medicare members with chronic diseases by supporting their health, aligning their care providers, and reducing costly hospitalizations. Data on managed care’s ability to support Medicare’s chronically ill beneficiaries powerfully demonstrates the benefits of care management and is instructive of how care management should be incorporated into traditional Medicare in the future.

Managed care approaches within Medicare have shown to reduce costly complications and lower out-of-pocket costs for some of Medicare’s most needy beneficiaries, both through care coordination and the provision of additional benefits. For example, complex case management services for beneficiaries with diabetes can reduce the rate of hospital admissions by over 50%. 1 In addition, a 2008 GAO report found that average out-of-pocket spending for Medicare managed care enrollees was 42 percent of what it would have been had they remained in fee for service Medicare.

While it is true that not all Medicare Advantage plans are created equal, “separating the wheat from the chaff” should be handled in a manner that won’t have devastating consequences for Medicare Advantage plan members who depend on the necessary services coordinated care plans within the Medicare Advantage program provide.

[Maggie Mahar]

George & Robb--

Thanks very much for your comments.

George--T

hank you for the kind words.

And far more importantly, thanks for being a Medicare recipient who takes a larger view of the program--beyond the small benefits you might be receiving today under MAA. Wise beneficiaries see the larger, long-term picture.

Robb--

I completely agree that Medicare Advantage plans that do a good job of controlling chronic conditions are delivering excellent value for our health care dollars.

If plans that do that while paid "fee-for-service"-- more power to them.

But the research shows that well-established HMOS (that pay doctors, not fee-for-service (a.ka. "piecework"), but a lump sum to care for a patient for 12 montns are more likley to keep patients "well" while managing chronic diseases--and keeping those patients out of the hospital.

Nevertheless, let me be clear: there is No One @ay to deliver better outcomes for less. There are solo practioners out there who are paid fee-for-service and doing an excellent job of managing their patients' chronic diseases.

But this is very, very hard. Unless they are praticing in an area wheretheir overhead is very low, the business model is all but impossible.

At the same time, the House bill (HR 3200) urges Medicare to try a variety of ways to pay physicians bonuses for delivering higher quality care. And, going forward, in the final reform bill, I suspect we will want to pay for quality in many different ways.

When I was writing my book, I recall one doctor (who I respected very much), waying to me: "This ia large country. Different things will work in different places."
When it comes to how we pay doctors, and how they deliver servcies, I completely agree.

When it comes to how doctors care for patients, however, I, along with vritually all health care reforomers, think we need to ask doctors to pay more attention to guidelines (not rules) based on medical evidence.