Real Reform For Medicare Advantage

Medicare Advantage (MA) is stuck in a cycle in which the government wants to micromanage MA plans and cut their reimbursement to satisfy deficit hawks, while the health plan industry lobbies for exactly the opposite. The result is a negative-sum game, a stalemate that benefits nobody.

It turns out that this stalemate would be remarkably easy to overcome, in a way that makes money for the government, gives seniors a visibly better deal, reinvigorates the Medicare ACO, and entices many more members into MA. Since MA plans are held to quality standards far beyond what Medicare fee-for-service requires (remember, straight Medicare is a payment system, not an insurance plan), I am going to assert that the increasingly popular MA plan option – especially plans with high Star ratings – provides better care coordination for seniors than fee-for-service (FFS). The government recognizes this implicitly by initiating Medicare ACOs. ACOs are supposed to close that care coordination gap in FFS but it does not look like that is going to happen on a broad scale in the near future.

If one accepts the premise that more care coordination is a worthy goal, here’s a better way of addressing that care coordination gap by getting more seniors into MA, rather than by setting up a parallel universe of ACOs…and do it in a way that clearly saves money for the government and seniors.

Start with the recognition that most 64-year-olds are already in an HMO or PPO. Today’s sign-up procedure for Medicare acts as though neither innovation exists. A senior becomes eligible for Medicare and then (in competitive markets) gets deluged with offers to join one or another MA plan, which requires switching out of FFS — a model that, while called “traditional,” is totally unfamiliar to patients coming out of commercial HMOs. These enticements to seniors are quite costly for the health plans, involving brokers, salespeople, advertising etc.

How about a system in which MA becomes an opt-out instead of an opt-in for 65-year-olds, meaning people would automatically start receiving their Medicare benefit through a health plan instead of FFS? As you read what follows, assume that MA would still be totally voluntary and that people who want the old-fashioned FFS can simply opt into it.

New beneficiaries would be assigned to a default MA plan based on a formula. This formula would involve matching seniors to their existing PCPs, a plan’s Star rating relative to others in the area, and – here is the part that makes this whole thing a winner for Washington – an MA health plan’s bid. A health plan (or ACO with an insurance license) would offer to pay the government for the opportunity to be the default plan in its area. The formula for selecting the default health plan would weigh both the bid and the Star rating, so the best plan in the area would have an edge in the bid process. And in any event people who have reported having a PCP not in the default MA plan’s network would be defaulted into a plan in which that PCP participates, creating a much more seamless transition than today into Medicare.

Remember, just like today, people could switch plans or switch into FFS. However, here’s what could make it attractive not to switch into FFS as well as visibly attractive for seniors: anyone who stays in MA for a year gets a check from the government. Since the government is receiving a windfall from the MA plans’ bids, it can afford to share some of that windfall and still spend less than currently.

Medicare ACOs willing to take 100% risk (essentially provider systems organized into local insurance companies) could also bid, and by doing so avoid most of the ACO micromanagement being proposed today in direct contracting with Medicare FFS. If they are really coordinating care in their catchment area, they should be able to both achieve a high Star rating and incur or project low enough medical spending to bid favorably.

Just as this system would be totally voluntary for members, it would be totally voluntary for health plans. To participate, though, and facilitate their new member recruitment this way, MA plans would have to forswear brokers and commissioned outbound salespeople, and agree to a tight cap on advertising. (Of course they would still have informational call centers for new members, and obviously web-based tools as well, the internet being another innovation not accounted for in MA enrollment rules today.) Middlepeople and advertising add no value to the system as a whole, but any health plan would be foolish to curtail those efforts except in concert with their competitors, and this proposal gives them an incentive to do exactly that. So this proposal hugely reduces health plan overhead as well as increasing its enrollment, which is key to creating scale sufficient to do care coordination.

Next, the government benefits not only by receiving these bids, but by getting out of reimbursement micromanagement. In very profitable markets, the MA plans would bid high, thus allowing the market to micromanage its own reimbursement. Instead of spending – as far as the system as a whole is concerned, wasting – money cancelling out one another’s marketing efforts, plans would “market” to the government by sending them a check. Some counties are not now profitable enough to support any MA plan. It is possible that, once the economics of opt-out enrollment are factored into the profit equation, a plan could submit a bid in those markets.

For providers organized into ACOs, this proposal would provide an opportunity to either bid against MA plans or partner with them, but either way should be a better option than signing up for the ultra-regulated baby steps in the likely ACO-direct-contracting environment as envisioned today. If they truly do coordinate care, they would be amply rewarded with lower medical expenses.

And, finally, for seniors the benefit is obvious: they get both better care coordination and a check.