Medicare Advantage: Moving toward a Better Model for American Health Care

Medicare Advantage: Moving toward a Better Model for American Health Care

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Robert PearlDespite the political angst, the doomsday predictions and a very rocky launch, the Affordable Care Act has enabled more than 8 million Americans to acquire insurance coverage through the public exchanges.

Health insurance increases the probability that patients will access the medical care they need. And my colleagues at Kaiser Permanente are already seeing some positive stories emerging as a result.

Beginning in 1978, Medicare beneficiaries had a second option. They could enroll in private Health Maintenance Organizations (HMOs) under a “risk contract” between CMS and the HMOs.


Over the next 25 years, many modifications to the original legislation were enacted by Congress. And in 2003, this program was renamed Medicare Advantage.

Unlike the government-run traditional Medicare option, the current Medicare Advantage program requires CMS to contract with private health plans on a prospective payment basis. These health plans then contract with individual medical groups and preferred provider networks to deliver the care that enrolled Medicare beneficiaries need.

Operating with a global budget and leveraging their capability to measure and report both quality performance and beneficiary satisfaction, Medicare Advantage plans have demonstrated increased care coordination and superior clinical outcomes.

As a result, these plans are becoming increasingly attractive to Medicare beneficiaries. In fact, 50 percent of new Medicare enrollees choose a Medicare Advantage option – enrollment in the program has tripled in a decade, and now exceeds 16 million beneficiaries.

Some experts predict that Medicare Advantage enrollees will represent 30 percent of all Medicare beneficiaries by 2016.

Let’s explore three reasons why this program is so successful. 

Reason 1: Beneficiaries Enjoy Abundant Choice and Predictable Costs

Medicare beneficiaries who select a Medicare Advantage plan obtain their care through dedicated delivery systems or provider networks.

In 2014, beneficiaries have an average of 18 Medicare Advantage options from which to select. And they can make their choice through the CMS website, which offers an online marketplace, including comparisons of quality and cost. According to recent Kaiser Family Foundation research, beneficiaries last year paid average monthly premiums of only $49 and most of these Medicare Advantage plans included Part D Drug coverage.

Unlike traditional Medicare, Medicare Advantage enrollees benefit from a limit on out-of-pocket costs. In 2014, the average out-of-pocket maximum for Medicare Advantage plans was $5,000. This gives enrollees – often living on fixed monthly incomes – more predictable costs and greater financial security. 

Reason 2:  Program Structure Provides Incentives for Superior Quality Outcomes and Service

The structure of Medicare Advantage creates incentives for providers to deliver comprehensive preventive services, achieve superior clinical quality and offer an excellent patient experience.

They know that satisfied beneficiaries will stay with the same plan and delivery system during the next annual selection process – with positive financial outcomes to boot.

And since government payments are based on the age of patients and the diseases they have — not the number of procedures performed — Medicare Advantage programs do best when the physicians and hospitals provide comprehensive preventive services, intervene early for patients with chronic illnesses, and avoid complications.

Although it’s difficult to compare overall outcomes, data from the National Committee for Quality Assurance (NCQA) show that Medicare Advantage organizations that score the highest tend to use a dedicated, integrated delivery system (including a multi-specialty medical group), and deploy a comprehensive electronic medical record (EMR).

Their results are in the top 10 percent of all programs in a broad set of areas, including managing blood pressure, reducing the risk factors that lead to heart attacks and strokes, and screening for cancer.

In addition, their structure leads to more coordinated care, increased patient convenience, and greater access to technology, including both a comprehensive EMR and a variety of mobile device applications designed for ease of use by beneficiaries.  

Reason 3: Five-Star Quality Rating System Holds Delivery Systems Accountable

An important feature of the Medicare Advantage program is the use of a Five-Star Quality Rating System.

Organizations participating in the Medicare Advantage program must report quality and patient satisfaction data to CMS on an annual basis. Based on this information, each Medicare Advantage program is awarded one to five stars. The Medicare stars program rewards the highest-rated organizations – the ones with superior quality and service results – with additional payments.

And with these dollars, they can invest further in the care of their members. Over time, this approach encourages every program to strive for higher quality and helps direct patients to those delivery systems that accomplish these goals. Most importantly, it results in patients obtaining even better medical care and more comprehensive preventive services. 

Medicare Advantage Drawing Bipartisan Support, Sign of Program Success

For decades, liberal democrats have expressed antipathy toward the financing arrangements in Medicare Advantage. They’ve worried that this approach “privatizes” Medicare and allows insurance companies to benefit from this program by operating as “middlemen.”

But it is becoming clear is that the advantages of this program far outweigh the problems. By paying for value rather than volume – and by encouraging investments in superior quality, technology and coordination of care – the real winners are the Medicare beneficiaries and their health.

There’s increasing recognition across the country of our need to move from “fee-for-service” to “pay-for-value” payment models. And a growing number of democrats who were skeptical in the past are embracing this alternative to fee-for-service.

A recent bipartisan call to mitigate planned cuts in Medicare Advantage payments may be proof of this shifting perspective – whether or not those efforts are successful. 

Learning from Medicare Advantage

A lot goes in to achieving superior performance, increased care coordination and improved quality outcomes.

For starters, care providers can’t allow patients to “fall through the cracks” when they receive treatment from multiple doctors or in multiple venues. Achieving this increased degree of safety requires a dedicated delivery system committed to seamlessly transitioning patients and their medical information from one provider or venue to the next.

It also requires the deployment and “meaningful use” of a comprehensive electronic medical record (EMR) that provides vital information at every point of contact. Having this information rapid treatment and allows gaps in prevention to be addressed immediately and by all physicians involved in the patient’s care.

And prospective payment creates incentives to provide appropriate preventive services, minimize complications and ensure patients recover as soon as possible.

The Medicare Advantage program offers a model for broader delivery system reform as we continue the journey from a fee-for-service/pay-for-volume “sick care” system to a pay-for-value/health-promoting approach.

Accountable Care Organizations – structured along the same principles of prepayment, prevention, care coordination, integration between primary and specialty care, and a commitment to measuring and improving performance – have the potential to move the country forward on the path to true health care reform. And other models are likely to be developed in the future.

Medicare Advantage doesn’t solve all of today’s health care challenges, but it is a good start. And we can learn a lot from its success.

Robert Pearl, MD  (@RobertPearlMD) is the CEO of the Permanente Medical Group. He writes regularly about the business and culture of health care in Forbes, where this post originally appeared.

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6 Comments on "Medicare Advantage: Moving toward a Better Model for American Health Care"


Guest
Aug 26, 2014

“Very well compiled article. Yes, the Affordable Care Act is true innovation in the healthcare policy, which will be good for all, starting from patient to physician and to government. This will help to achieve good healthcare accessible to all and technology will be key role.

Guest
Dennis Byron
May 12, 2014

There is a lot of bad information about Medicare and particularly public Part C Medicare Advantage health plans both in this article and the comments that follow it. I am afraid it might harm senior citizens (not that they are likely to read this web site but what gets said here gets copied by journalists into mainstream media). In order of appearance but not in order of importance:
1. The original form of Medicare is called “Original Medicare” in everything we seniors receive from the government. It is only called traditional Medicare by academics and some politicians (who apparently think “traditional” sounds solid and “Original” sounds old).
2. The CMS “administers” both Original Medicare and public Part C Medicare Advantage health plans only in a very strained sense of that word. Nothing is “government run.” CMS hires private insurance companies (but they are not all for profit) to to do the administering and CMS pays the bills. (That’s the same way most large companies “administer” insurance for their employees.) The major difference is that Part C involves a capitated fee and the other is fee for service.
3. One of the major changes over time is that not all Part C plans are HMOs.
4. The statement that the “average premium” for Part C is $49 is quite misleading. That’s the average of policies offered, not policies selected.
5. There is an ACO program in Medicare but it does not involve public Part C Medicare Advantage health plans; these two concepts should not be mixed up for seniors in Medicare discussions. (Seniors on Original Medicare who do not have a Part C health plan supplement are often put in ACOs without their knowledge and are often moved around among differenct ACOs without their knowledge. In Medicare, ACOs work almost the opposite of what the author is describing.)
6. The government paid a higher capitation fee per Original Medicare enrolee with a Part C supplement between 2006-2010 than it would have paid on average for the same people had they remained on Original Medicare only and had had their providers compensated fee for service because that’s what a 2003 law said to do, not because of any “marginal cost” analysis

Guest
William Palmer MD
May 9, 2014

How can a purchaser giving a capitation payment to an Advantage plan –which is a form of global budget per beneficiary–be as accurate a purchaser as one that is giving a precise payment for a specific service? What a purchaser wants to do is to judge the marginal cost to produce as closely as possible and then offer this price. He will make more errors if he is purchasing a group of services rather than one. This is what the government does when it gives Advantage insurers capitation payments per beneficiary and why they paid too much compared to FFS. They guessed the sum of the costs/ patient improperly and were stuck with their number_ or _they wanted to grant a little corporate welfare.

Guest

I don’t believe most physicians in clinics like mine (Federally Qualified Health Center) treat their managed Medicare patients differently, with greater integration etc. In the trenches, the only difference is prior authorizations for MRIs and lots more requests for medical records for the for-profit insurer to review. And as for the patients’ view, many signed up without knowing what the difference was. The local area Agency on Aging helped many bail out once they realized they had been bamboozled.

Guest
WB
May 8, 2014

I’d be interested to see how much evidence there is that Medicare Advantage plans did that much “management”. My impression is that the subsidies were so generous (although they have become less generous following ACA) that the insurers could simply market to patients were somewhat less likely to be sick, pay providers at Medicare rates without tightly managing networks, and still make money. I think that Medicare Advantage will continue to grow as the coverage is most similar to what people experienced with coverage before Medicare, but let’s not give them too much credit.

Guest
Barry Carol
May 8, 2014

On its first quarter earnings conference call yesterday, Humana showed a chart that quantified the impact of Medicare Advantage rate cuts since 2010. Including an estimated 2% impact from the finalized rates for 2015, the total cumulative rate cut will be 16% which should bring rates about in line with standard FFS Medicare.

CMS payments to Medicare Advantage insurers are risk adjusted for each individual. So, if CMS pays $1,000 per month for a member with an average risk score of 1.0, it will pay $900 per month for one with a score of 0.9 and $1,100 per month for someone with a score of 1.1.

The insurers have been investing lots of money in clinical programs, especially for the management of chronic diseases like CHF, diabetes and asthma. The goal is to avoid or at least defer expensive hospitalizations by keeping patients healthier and ensuring that they take their medications and the programs seem to be working well. They are also investing to improve their star ratings. The networks are being managed and even tightened as payments from CMS have come down.

On the positive side, the utilization experience has come in better than expected for some time now both for MA and standard FFS Medicare. Indeed, according to the CBO’s latest Monthly Budget Review released yesterday, Medicare spending for the first seven months of fiscal 2014 rose only 0.7% net of beneficiary premiums despite a 2.0%-3.0% growth in enrollment. Something quite positive appears to be happening here.