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Saving Medicare Advantage the Easy Way

Al Lewis

Brokers who enroll senior citizens in Medicare Advantage (MA) plan often make more on those members than the health plans themselves.  Up to $500 can be spent on a broker fee by the health plan, contributing to a total member acquisition cost which can exceed 10% of the premium dollar.  Even if Medicare Advantage plans can deliver the actual health benefit at a considerably lower cost than Medicare Fee For Service (FFS), it is possible that the entire savings could be consumed by member acquisition costs.

These costs are a tax on Medicare as a whole, a tax whose existence becomes simply unsupportable when the dire forecasts of Medicare solvency are considered.  And an unnecessary burden on health plans as we enter an era in which cutbacks are likely.

The solution is easy enough.  Where MA is available, make Fee For Service an Opt-Out rather than something which has to be “sold.”  When the benefits of both FFS and the various MA plans are laid side by side and people are told that they can simply select a plan from the chart or else complete a lot of paperwork to go FFS, more people will select the MA plans without a broker than would select those plans with an expensive broker if they are put in FFS originally and need to be “sold” to get into an MA plan.

Since so much money is being saved to the system, a bonus of some type could be given to people who select health plans.  Better to pay the individuals than the middlepeople.  Or, $100 could be allocated to an independent, unaffiliated help line to answer questions and guide a decision.

Excluding the bonus, this “opt-out” approach is not unlike the Medicaid health plan approach today.  It is actually kinder and gentler, because in Medicaid people are often not given an option of FFS.  And yet, no one hears an outcry from Medicaid beneficiaries about constraints on their health care. 

Further, there need be no concept of “renewal,” which currently also generates a broker fee.  People can stay in the plans as long as they like.  If they want to change plans or go FFS, they can take that initiative themselves.

Yes, there is a slight inconvenience to people who want to stay in FFS.   But most MA plans offer comparable or better benefits at a lower cost than FFS and most doctors who accept Medicare assignment are also in many MA health plans.  The inconvenience to some people is far outweighed by the savings to the system as a whole, which creates the bonus opportunity.

Al Lewis is credited with having  “invented disease management” by many observers, including everybody's favorite: Google  His creative ideas blog, which covers all policy disciplines, offers a $1-million prize for the first idea which becomes national policy.

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24 replies »

  1. There is an incredible amount of regulation in MA. If you don’t believe me, you should look at all the certification that is required by all brokers who offer these plans. Depending on the county that a MA member resides in, they will recieve upto $800 per month. That is alot. It is a difficult issue

  2. Tyler
    most MA plans have a D component that has a much better selection of meds then the equivalent medicaid plan. The MA plans use the D componant as a significant selling point…..a loss leader if you will. the MA plans cover additional management services and benefits such as vision, hearing aids and medical transport that M/M do not. Finally, rarely will a specialist take a new M/M patient, both the employed physicians and indigent care clinic associated with our local NFP hospital won’t even if the private physicians will (for now) so the best arguement is that an MA plan retains you option to a variety of specialty physicians that you don’t have under M/M. Of course, you need a referral from your PCP to do so but in the hands of a good Physician, the MA HMO is the best choice for many folks.

  3. This is an intresting blog. Not all your facts are right, as mentioned earlier. You where off by $100 on brokers commissions for MA. There are alot of brokers out there that do a very good job finding plans for their clients that best meet their needs. We don’t get paid for nothting. I guess what ever sector you are in could cut their cost if they just cut your job out too! What a foolish statement by you. I am neither a proponent for MA nor a detractor for MA. I see their obvious flaws, and yet, I see the purpose.
    Privitizing Medicare seems logical, as most government run programs, once privitized, operate with more efficiency. I am not sure that the idea is right but the design is wrong.
    There is an incredible amount of regulation in MA. If you don’t believe me, you should look at all the certification that is required by all brokers who offer these plans. Depending on the county that a MA member resides in, they will recieve upto $800 per month. That is alot. It is a difficult issue. I would much rather market Medicare supplements, but some folks, once they get a Medicare supplement quote, can’t afford it, and elect to go with a MA plan.
    These plans (sometimes) have “advantages” over Medicare. While other times, have clear dis-advantages. For instance, why a broker would EVER take a dual eligable (Medicare+Medicade) and put them on an Advantage Plan, especialy an HMO style Advantage Plan, is beyond me. It is unethical really. Plus the fact that many doctors don’t like them, as they are slower to pay than Medicare, and there is a different billing method that, they have to pay to have their billing dept.’s learn.

  4. I have a Medicare Advantage Plan. It is run by a Non-Profit Company that was started by Seniors to help Seniors. This plan seems to be run better than any I have be involved with. I am in good health and don’t need to doctors but one or twice a year.
    I have seen too many seniors and people on Medicad shop doctors for illnesses that don’t exist or really don’t need a doctor.

  5. Sam,
    “Seeing the vehemence with whcih brokers are defending their turf makes me think it’s even a more profitable business than I feared”
    Does this logic apply both ways or only when smearing people you disagree with?
    Those wishing to abolish the broker role and “reform” our healthcare system have been attacking with equal if not greater vehemence, do you question their profit motive? I personally defend the role of brokers because they are all sterotyped and disparaged when most truely have the best interest of their client at heart and because the majority of the arguments against them are ignorant and factually void of any truth. What is the motivation of those propogating these lies and carte blanch demeaning the work of so many? You need to be asking why someone with no skin in the game or knowledge of the industry attack brokers so, what do they gain????

  6. I follow these stocks and this debate and a numebr of thigns are perfectly obvious
    (1) The data can be interpreted multiple ways. Humana’s acquisition cost as a % of premium is NOT THE SAME as their acquisition cost for the first year of members who come through brokers, duh.
    (2) FFS is only cheaper than MA because of the rural subsidy, which is not relevant to this question
    (3) Seeing the vehemence with whcih brokers are defending their turf makes me think it’s even a more profitable business than I feared
    (4) Obviously an opt-out would work, just like it does with Medicaid HMOs, duh part two
    (5) No one has yet countered the central thesis, which is that it is cheaper to do an opt out than an opt in

  7. we draw a circle on the ground with each MA plan represented by a slice.
    We then toss the seniors in the air and which ever slice they fall in is the plan they are enrolled in.

  8. OK gentlemen, if you are almost done trading insults, can somebody explain to me how will this “opt-out” arrangement work? There are multiple MA plans in any given region and multiple companies competing for enrollees, so which MA plan are you going to automatically sign a person that turns 65 with? Do they have a say in that assignment?

  9. Actually I have never in my life made $0.01 off MA. I use to make some fairly decent money administering Medicare Supplements but that has been a year or two. So no I have no financial incentive to advocate for MA.
    I just want to keep the facts strait, as the CBO says HMOs in MA on a risk adjusted basis are 3% more efficient then Medicare FFS. The Self funded plans I administer are more efficient then Medicare. If cost effectivness is a concern Medicare for all is obviously not the answer.
    You need a carrat to suck people into MA so you can more aggresivly manage their cost. That is why Medicare pays extra so they can start moving everyone off FFS into managed care. Remember Seniors are very vocal and politicians rather destroy our national economy then piss them off. If we are going to restore Medicare solvancy with the cowards we have in office now seniors are going to have to be bribed into reform not legislated into it.
    So you and I agree now and can move on in peice and harmany that Medicare is less efficient and government ran healthcare is a bad idea?

  10. Nate, I didn’t say you were wrong about the total “benefits” being given via MA. And I dont really care about those poor minority seniors that AHIP trots out whenever their money train is threatened. I’m interested in the deal for the taxpayer…and it’s been clear for 15 years plus that the taxpayer is getting a lousy deal out of private plans in Medicare. There are NO overall cost savings and the additional costs, whether they’re going to insurer’s profits or costs of sale or extra benefits to beneficiaries, (and it’s clearly not just to the latter) are a bad deal for the taxpayer.
    Meanwwhile in FFS Medicare somewhere between 25% & 40% of spending is wasted (as per Dartmouth). That’s because it’s an uncoordinated plan with no controls over beneficiary activities (hence the parade of multiple specialists) nor control over provider activity (hence the massive practice variation and the 100% variation in AVERAGE costs per beneficiary in high cost (LA, FL) and low cost (NH, MN) states.
    The absolute disgrace is that private insurers which claim to do all those wonderful things (listen to any Karen Ignagni speech on the topic) ought to be able to deliver cost-effective and improved care to Medicare beneficiaries for about 25% less than they cost in FFS ON A RISK ADJUSTED BASIS (i.e. no creamskimming). I’d be happy for them to get 90% of what FFS pays, which should still leave them 15% to dole out extra goodies like health club passes, not to mention paying their executives huge salaries.
    But instead they’re totally incompetent in actually reducing the unnecessary care and waste in Medicare, and need huge subsidies from the taxpayer to be in the business. And when those subsidies are removed (as they were in 1998-2003) they run away.
    I’m sure a good conservative like you Nate is interested in protecting the taxpayer. So how come you’re such a defender of Medicare Advantage? It’s not because you make money off it, is it?

  11. I’m one of these awful brokers that Mr. Lewis talks about and I’m sorry that he has such a low opinion of what many of us do.
    I think his whole attitude is summed up in the beginning of his third paragraph where he objects to plans being “sold.” This of course implies something awful is happening.
    Now I’m certainly not well versed enough in the specifics of Medicare advantage policy to determine what is the correct reimbursement rates for these plans and it does appear from what I read that there are some problems that need to be addressed.
    However, what he is describing as far as help lines is essentially already available. It’s not necessary for individuals to speak with me about their Medicare Advantage choices. Many states have help lines, you can look on the Medicare website or even call the individual companies 800 lines and speak with a service rep (although that of course is biased information.)
    Why do they choose to do business with me? Because of the advice and service I can give over those other options and I get paid for providing that service. In fact, I would say most of my clients come to me after having already look or talked to those other resources and they still need help.
    The reason my advice and service are superior over those other options is not because I’m smarter. I have a financial incentive because of those awful renewal payments to understand my clients situation, make sure they are going to be happy, and decide to stay with me as clients for an extended period of time.
    I am constantly repeating to clients “I don’t care which plan you sign up with as long as you are happy and decide to continue to do business with our firm.”
    In fact, I have always tried to explain to clients that I get paid a commission for “selling” these plans. In fact, in Colorado now I’m required to disclose that exact commission in writing, which I think is a good step towards transparency in the plans.
    Now, I am not naive enough to think that all brokers are competent. However, that is going to be the case with help lines employees also. Who is more likely to give good advice though? Someone whose livelihood depends on a happy client or someone who gets paid a government salary. Has Mr. Lewis ever tried to call Medicare recently and get help. Good luck.
    Loren Camp
    ezmedicareinsurance.com

  12. On the recent Humana Q4 2008 earnings conference call, management stated that MA customer acquisition costs are approximately 5% of premiums, not 10% as stated in the post. Moreover, management also repeated a comment made at its Investor Day last December that, over time, it expects to be able to deliver care 15% less expensively than standard Medicare through such techniques as better care coordination for the sickest members, disease management, using the most cost-effective providers and the like. Finally, only about 2% of MA enrollees ultimately return to standard Medicare. Humana, by the way is the co-leader, along with UnitedHealth Group, in the MA marketplace.
    The extra benefits that MA and MA PD plans offer are especially popular among the lower income elderly because they eliminate the need for a Medicare Supplemental policy which most of these folks cannot afford. This probably helps to explain why MA enrollment has been growing each year and is now approaching 25% of the Medicare eligible population. As an interesting aside, management also pronounced itself satisfied with CMS’ risk adjustment mechanism. Humana’s medical cost ratio (MCR) for its sickest MA members with the higher risk scores and higher premium revenues is approximately the same as the MCR for its healthier members.

  13. “Brokers are cheaper than help lines, Nate?”
    Grapes are cheaper then bananas, Edward? Did you not notice the list of very specific reasons why the service provided by a broker is more complex and thus more expensive then what can be provided over a phone line? Please try to explain the workings of Medicare and MA to a senior citizen over the phone, until you have done it you really don’t have any clue what you are talking about do you?
    This is shocking but Matt is either butchering the facts or making an extremely dishonest comparison.
    “Hmmm, Al. Given that MA is about 15% more expensive than trad Medicare for the taxpayer,”
    This is true but that money goes to the enrollee in the form of additional benefits, if you take away that 15% then grandma needs to come up with it. For those that don’t know how MA works here is it in short;
    http://www.cbo.gov/ftpdocs/82xx/doc8268/06-28-Medicare_Advantage.pdf
    If a plan’s bid is less than the benchmark, Medicare pays the plan its bid plus 75 percent of the amount by which the benchmark exceeds the bid. Such a plan must return that 75 percent to beneficiaries as additional benefits or as a rebate of their Part B or Part D premiums. For example, if a county’s benchmark is $800 per person per month and a plan bids $700, Medicare will pay the plan $775, and $75 of that amount must be returned in some form to the beneficiaries.
    Benchmarks are required to be at least as high as per capita expenditures in the FFS program in every county and are higher than FFS expenditures in many counties. For 2007, the ongressional Budget Office calculates that benchmarks are 17 percent higher, on average, than projected per capita FFS expenditures nationwide.
    Since carriers bids are less then the benchmark which is 17% higher on average, and the 75% difference they get paid goes back to the beneficiary there is no mathematical way for MA to be 15% more expensive then FFS. That margin is paying for the difference in benefits. If Matt had claimed that MA cost more then FFS because it delivers greater benefit he would be accurate but that betrays his argument that MA is inefficient and costly.
    This leads to the obvious answer to his question;
    “How about paying MA plans the SAME as Medicare FFS, and seeing how they get on?”
    How about paying apple growers the SAME as Orange growers and seeing how they get on? Makes just as much sense.
    Contrary to your claim MA HMOs actually save money;
    “In contrast, payments to HMOs averaged 10 percent above FFS costs, MedPAC estimates. On average, HMOs offered extra benefits and rebates equal to 13 percent of FFS costs; those additional benefits and rebates reflected the difference between the benchmark (which averaged 10 percent above FFS costs) and the plans’ bids (which averaged 3 percent below FFS costs).”
    That sort of kills your argument doesn’t it? If we pushed everyone into MA HMOs and offered the same benefits as FFS we would save 3%. How do you and the CBO differ by 18% Matthew?
    Edward care to define what people like me are? This is really just for my humor as you have no idea who I am or what I do but seeing you try would be enjoyable.
    “Nate, how does Medicaid put the disabled population in HMOs without high member acquisition costs?”
    Can you provide a link to these numbers so I can explain where your wrong, I have a strong feeling your citing a hunch and not actual numbers.
    Opting out of FFS will not work. The target population is not knowledgeable enough about their choices to pick FFS or MA. Unless your going to start some massive member education program it will blow up horrendously.

  14. I notice the same things everyone else has noticed — that the basic opt-out concept is not being criticized. yes, Matthew has a point that MA is more expensive than FFS to the taxpayers currently. That is a poltical debate I would not like to join because it is politics, not economics. My view is, let’s make the economics as favorable as possible for MA before making a decision to can it vs. FFS despite its popularity.
    Also, why is there a concept of renewal? Why doesn’t someone just stay in as long as they are happy? And why is a broker cheaper than a member services line?
    the member acquisition cost has to include other things besides broker fees and that is why it is so high. True, in other businesses member acquisition is 10% or more but this is taxpayer money and Medicaid HMO member acquisition is far less expensive

  15. I notice that nobody has actually slammed the point of the posting, which is that middleperson fees drive up MA costs and coule be dramatically reduced if people opted out rather than opted in.

  16. Brokers are cheaper than help lines, Nate? Maybe on your planet. Nate, how does Medicaid put the disabled population in HMOs without high member acquisition costs? Answer, they enroll them collectively, cutting people like you out of the proces.

  17. As a portfolio manager with positions in healthcare stocks I am always looking for ways to save MA. This makes huge sense to me. The numbers are right –total member acquisition cost does indeed approach 10%.
    I notice that no one has crtiticized the basic point: that member acquisition costs are much lower in an opt-out model rather than an opt-in?

  18. Al & Rick,
    For everyone’s benefit how many Medicare Advantage plans have you sold?
    How many senior’s have you discussed FFS and MA with?
    From the glaring factual errors and omissions I would guess 0.
    According to the 2008 CMS rate book the lowest premium is $745.73 or $8,948.76 per year, how are you getting $500 to be 10% of that?
    “Even if Medicare Advantage plans can deliver the actual health benefit at a considerably lower cost than Medicare Fee For Service (FFS), it is possible that the entire savings could be consumed by member acquisition costs.”
    Year one, are we pretending these are one year policies and the whole process starts over again? The retention for MA is extremely high, you have to look at savings over the life of the policy not first year. If carriers looked at cost like you did no one would sell life insurance. Nor sell cell phones, cable TV, or just about any other service. Very poor and misleading analysis of acquisition cost.
    If you have every actually worked with Medicare enrollees ( I have over 10 years experience administering a Medicare Supplement) you would know they are not your average consumer. They take considerably more hand holding and explanation. Seldom have email access and usually can’t fax. Frequently you must meet them at their place as they have limited mobility. They don’t work so they call and call a lot and talk for a very long time. Most are very sweet and pleasant; in fact our offices looked like a bakery around the holidays with all the cookies and treats they would send. They are very loyal and enjoyable customers just considerably more expensive then your average customer.
    “When the benefits of both FFS and the various MA plans are laid side by side and people are told that they can simply select a plan from the chart or else complete a lot of paperwork to go FFS, more people will select the MA plans without a broker than would select those plans with an expensive broker if they are put in FFS originally and need to be “sold” to get into an MA plan.”
    You have never tried to explain FFS and MA benefits to a eligible senior. CMS spends hundreds of millions trying to educate the over 65 on their benefits. To sell MA requires special training as a requirement of CMS because there has always been a problem educating beneficiaries. It would be more accurate to say CMS authorized $500 as an attempt to get someone explaining benefits as they have always struggled, see all the money spent on the annual Medicare Guide and all the millions pored into the CMS help line. From experience most Medicare beneficiaries are not able to make the decision to leave FFS for MA without guidance.
    “Or, $100 could be allocated to an independent, unaffiliated help line to answer questions and guide a decision.”
    Another example of lack of knowledge. How many people will call the help line and not purchase a MA plan? Probably 2-4 for everyone that does buy. So your plan is going to spend $200-$400 to save $500 but require all assistance be done over the phone, again calling on my experience not something seniors like. In fact doesn’t the government currently spend millions trying to protect seniors from giving their information out over the phone and buying stuff from people they don’t know? If I was a scam artist I would love your plan, could be collecting tons of HICNs and personal information.
    “And yet, no one hears an outcry from Medicaid beneficiaries about constraints on their health care. “
    In theory Medicare beneficiaries paid their whole life for these benefits, Medicaid is charity for those that haven’t paid, let one of them start crying about the lack of options in their tax payor provided charity and see where they are told to stick it.
    “Further, there need be no concept of “renewal,” which currently also generates a broker fee. People can stay in the plans as long as they like. If they want to change plans or go FFS, they can take that initiative themselves.”
    Note from reality; without this brokers or even your $100 help line would have financial motive to move their block of business every year. It’s in no ones interest to have wholesale migration every 12 months. If you have ever read a carrier compensation agreement you would also know this “renewal” comes with requirements for servicing. If the enrollee has a question or problem they have an advocate on their side. Someone besides the carrier and CMS, both known for their great customer service, to help them. Or would you propose another help line at $50 a pop to perform that service? Agents don’t want to lose their $75 a year so they provide the needed service.
    “But most MA plans offer comparable or better benefits at a lower cost”
    By law they offer better benefits and I don’t think there is a way they could legally charge you more then FFS.

  19. Hmmm, Al. Given that MA is about 15% more expensive than trad Medicare for the taxpayer, your solution would still leave it 5% MORE expensive than traditional Mdicare FFS, and put virtually everyone in it—back of the envelope you’d save 10% for 25% of the population who are in it now and add 5% for 75% who aren’t. Which would leave the taxpayer worse off (even if we had the fun of stiffing the broker).
    How about paying MA plans the SAME as Medicare FFS, and seeing how they get on?

  20. From a business perspective, 10% acquisition cost is not bad….As pointed out here, if it is so good, it should stand on its own merits.
    Our problem with any of the approaches in healthcare solution remains that we are focussing too much on marketing, sales and technology…We need to get back to basic and the goal…healthcare for all at much much lower cost. If we truly set that as vision, rest will happen.
    rgds
    ravi
    blogs.biproinc.com/healthcare

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