THCB

Medicare Advantage Quality, Savings, Access and Satisfaction: Can We Have It All?

Imagine a Medicare Advantage (MA) policy which increases the quality of health care for seniors, saves the government money, brings MA to the few remaining places that don’t have it, and puts checks in the hands of senior citizens. What you are about to read should do all that, in theory. However, I’m sure there are practical issues that I am overlooking, and I am hoping to attract comments noting those issues that, as Woody Allen once said, can take this from being a notion to an idea, and eventually a concept.

First, each county would have a “default” plan that would automatically enroll people on their 65th birthday, rather than have the traditional plan serve as the default option. (Those of us already in an HMO with a Medicare option can stay in it, seamlessly, rather than join the default plan.) Anyone could still opt out into the traditional plan or another MA plan, of course, at any time.

The default plan is chosen based partly on its Stars rating, but partly on a bid process, in which plans offer to pay the government for the right to be this default plan. The payment would be substantial for three reasons:

1. In some highly populous counties, MA is profitable enough to support fifteen or twenty plans, far more than would survive in a competitive market with market-based pricing. Much of this “excess profit” would be bid back to the government by the default plan, in exchange for access to many more enrollees;

2. Member acquisition costs for the default (“opt-out”) plan would be a small fraction of the $500- $1000 that a new member costs in today’s opt-in MA environment. Much of this savings would be included in the bid;

3. The bid would be calculated not based on just on one year’s profit, but rather on the expected lifetime value of a member, taking into account projected member retention and any scheduled or anticipated relative reductions in reimbursement.

The final part of the proposal is to ensure acceptability to seniors, via a rebate check. People who stay in any MA plan for one year get a check from the government, paid out of the bid proceeds. (Most people who stay in an MA plan for a year don’t later go back to fee-for-service, so a satisfactory first year should create a customer-for life.)

A brief review shows that perhaps we can have it all:

· Quality should increase because the Stars ratings –already a priority for many plans – would now have “teeth” beyond today’s small annual bonuses. It would be difficult to imagine low-rated plans routinely out-bidding higher rated plans. (If this happens, the bid formula should be changed to increase the importance of quality relative to the bid.)

· The Savings is obvious and immediate: the government receives checks capturing a chunk of the net present value of profits plus the savings in member acquisition costs. In addition, the government receives the biggest checks in the markets where the current pricing model generates the most profit. This phenomenon creates a “shadow price” that brings market forces to bear in areas where the federal pricing formulas are overly generous.

· Access is not a major issue any more, but counties in which no bids are made could be grouped together into one national contract, that would certainly reach the scale needed to attract bidders.

· And finally, satisfaction, already high in Medicare Advantage due to the better economics, would increase because of the rebate checks. The rebate checks should blunt or silence any objections by the AARP or any other organization purporting to represent seniors. Tough to argue against a policy in which participation is totally voluntary, quality increases, and checks are mailed out.

There are some logistical issues. One that comes to mind right away is that the default plan might have a higher premium than other plans in the market. People would be free to move to other plans. “Default” means just that — the choice still belongs to the member.

So where would the opposition come from? Well, we’ll see soon enough from the posted comments whose oxen are gored. Since excess profit is squeezed out of the private sector, some opposition will ironically come from health plans, especially those with low Stars ratings and high profitability – the ones who would be need to, and be likely to, submit the highest bids. More members joining a “default” plan will increase the plan’s contracting leverage, meaning that doctors and hospitals will make less money. The only beneficiaries of this idea are the seniors themselves and taxpayers, two constituencies not well-represented on THCB.

Al Lewis, called “the country’s leading outcomes measurement guru” in the 9th Annual Report on the Disease Management and Wellness Industries, is president of the Disease Management Purchasing Consortium, www.dismgmt.com. He was founder and first president of the Care Continuum Alliance. An excerpt from his forthcoming book Why Nobody Believes the Numbers: The Outcomes Measurement Guide for Grown-Ups may be downloaded here.

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Al LewisMikeStuartMary Troxellamadahomecare Recent comment authors
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Al Lewis
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Nate, the “excess profits” are determined not by me or the government (as today), but rather by the size of the bids. In markets where there are 20 Medicare Advantage plans, these bids will be high, reflecting the profitability of those markets.

And other plans can still market their services to you. You are still welcome to switch plans just as today if you find a better one.

As for your “rate of profit,” it would be like today. If you can improve outcomes and negotiate good provider contracts, you’ll make money.

Mike
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Mike

I’m a bit late to the party here, playing catchup on my recreational reading so thanks for leaving this on “editor’s choice.” I’ve read this posting and the comments up, down and sideways and there’s no question this “trumps” everything being discussed now, not to mention the current clunky system. The only problem with this is, it makes too much sense. Someone will find some reason to do something that enriches more industry stakeholders but creates less value. Meantime, someone should forward this to Obama or Romney, or even Gingrich to see if he’s as smart as he says he… Read more »

Stuart
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Stuart

The numbers do seem to add up. I’ve asked around since I first read this posting last month, because the “have it all” conclusion seemed too good to be true. But it works on paper. There are two sources of waste in MA: member acquisition costs and excess profits in some markets. This gets rid of both of them. That’s probably why this proposal will never see the light of day: the insurance companies, quite ironically, will oppose it. In fact, everyone will oppose it except the AARP (because of the rebates). This makes it just the opposite of most… Read more »

Nate Ogden
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Nate Ogden

what’s excess profits? If I could lower medciare cost 60% tomorrow, deliver better care, make people healthier, and create the idea system are you saying my rate of profit should be the same as someone that doesn’t achieve any of that? How do you determine excess profit? Is it a %? Is it a $? “There are two sources of waste in MA: member acquisition costs” I forget the exact number but something like 70% of insured drivers could save money by changing auto insurance carriers but the average driver only shops once every 5 years. How will MA mebers… Read more »

Mary Troxell
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Mary Troxell

Assuming Medicare is “going private’ this seems like the best way to do it, ideology aside. Money gets saved, seniors get rebates, and the high-quality plans get a boost. Much better than “vouchers”. that don’t save money (except on the backs of seniors), increase sales expense instead of reducing it, and don’t address the “excess profit” the way this proposal does.

amadahomecare
Guest

This is just so wrong on so many levels to me. First, I find it completely incongruous that we have to incent physicians to use a simple tool that is designed to make their life easier, their practice more efficient, and their care more effective. I can’t recall, but I didn’t see the need to incent the stethoscope, antibiotics, or any other health innovations. Second, the offer itself is just dripping with the grease and slime of “taking” something “while the getting is good”. Does anyone care that this “stimulus” money is subject to the grossest abuses. And third, perhaps… Read more »

Margalit Gur-Arie
Guest

Profit or no profit, I still don’t understand the purpose of these plans. Is there an assumption that they can reduce costs by managing care?
If so, what is the purpose of ACOs, which are also supposed to take risk and reduce costs by managing care?
How many levels of passing down risk and general bureaucracy do we really need?
And at each level a few pennies are taken out from every health care dollar….

Nate Ogden
Guest
Nate Ogden

They do deliver Medicare benefits 2-4% cheaper then Medicare does. The purpose was to provide better benefits and fill holes in Medicare, i.e. Rx, dental, vision. They were also created to hopefully get government out of healtcare, its easier to budget when you tell 10 insurers we will give you $x per month then let them ration and control cost then it is to actually run a healthplan.

Al Lewis
Guest

I’m a liberal and I don’t think profit is a dirty word. In this scenario if any health plan “rationed their services” people would simply move to another plan or back to fee-for-service.

Also, because you’re setting up a single, major competitive bid to be the “default” choice, a lot of what would have been profit gets traded back to the government for the promise of greater enrollment at a much lower acquisition cost.

Eric
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Eric

This is absurd! What a hand out to insurance companies. Seniors will be sorry once the for profit middle men start rationing their services to report big earnings to their share holders. Single payer works so much better, we just need to get the whole nation/state covered. Then were talking real leverage to negotiate provider/drug fees. I’ve lived in a single payer country and it is a wonderful thing…soon it will spread across America, perhaps pushing MA will get people to realize even sooner that private insurance companies shouldn’t be practicing medicine and getting in between people and doctors.

Barry Carol
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Barry Carol

I would just add that, to me, profit, within reason, is not a dirty word, even in the healthcare field. To many liberals, it is.

Barry Carol
Guest
Barry Carol

Margalit – Humana’s medical cost ratio on its Medicare Advantage business is probably in the 85% range as far as I can tell which, in a normal year, implies 10% for administrative costs and 5% for profit pretax. I think that’s reasonable. Medicare has numerous administrative functions performed for it by other government agencies that don’t count in its administrative cost calculation nor does the cost of fraud which, while difficult to quantify precisely, is virtually certain to be much higher than in the private insurance sector. Innovation is not Medicare’s strength. It took 41 years before it offered a… Read more »

Margalit Gur-Arie
Guest

Barry,
I think there should be something in between dual eligibility and wealthy seniors that could provide some assistance with Medigap to those who truly need it.
As to manage care, as always, I don’t see why care cannot be coordinated and managed within a fee for service framework. Perhaps Medicare should concentrate on that instead of feeding the private sector. Even those low profit margins you are quoting above (after “administrative” excesses) could probably pay for a lot of coordination and management.

Barry Carol
Guest
Barry Carol

“Wouldn’t it be cheaper to selectively help low income seniors with Medigap payments?” Margalit – We already do this. There are between 9 and 10 million people who are eligible for both Medicare and Medicaid (dual-eligibles). The question is where do you draw the line? Also, there are huge regional differences in living costs, especially related to the cost of housing and state and local taxes. Even within states the differences can be substantial – NY and CA for example. Another issue that’s not talked about is that the MA plans are doing some good work in the management of… Read more »

Margalit Gur-Arie
Guest

“people who opt for a Medicare Advantage plan don’t need a Medigap policy to fill in the large coverage gaps in standard Medicare. This is an especially important issue for lower income seniors.”

Right. But MA is available to seniors of all incomes. So while we are supposedly trying to reduce Medicare expenditures, we are effectively expanding covered benefits to those who need help and those who don’t. How does this make any sense? Wouldn’t it be cheaper to selectively help low income seniors with Medigap payments?

Stanley Dean
Guest

Barry,

Good points. However, I want to point out that your comment regarding provider choice only applies to MA HMO’s. The Private for Service provides that you can go to any physician who accepts the terms and conditions of the plan. The MA PPO plans provide lower reimbursements if you utilize an out of network provider.

Under Blue Cross of Idaho’s plans, if you elect to go back to original Medicare, you are allowed to enroll in Plan F without underwriting. I think that this might be a good safety net for those who do elect to return to OM.

southern doc
Guest
southern doc

Very few of the docs in my area take any of the MA plans, as it is impossible to keep up with their rules and fee schedules.

Barry Carol
Guest
Barry Carol

Al – I’ll offer a few thoughts on this. First, the profit margin on Medicare Advantage plans is not high. Humana, one of the two market leaders, builds a 5% pretax profit margin into its bids each year. If it does better than that, the following year it adjusts its premiums and benefit packages to reset the bid to a 5% margin again. I don’t see a lot of room for rebates here. Second, MA payments are phasing down toward standard FFS Medicare. What never gets talked about, though, is that people who opt for a Medicare Advantage plan don’t… Read more »