MA enrollment could jump to 6.6 million in coming months

November 1, 2004

Health and Human Services Secretary Tommy Thompson happily announced last month that Medicare beneficiaries will have more coverage choices in 2005.

Health and Human Services Secretary Tommy Thompson happily announced last month that Medicare beneficiaries will have more coverage choices in 2005. Instead of a wave of HMOs dropping out of Medicare, as in recent years, 35 new Medicare Advantage plans are signing up, and 20 others are expanding service areas. If HHS approves all the new applications, the number of seniors enrolled in MA plans could jump from 5 million to 6.6 million in the coming months.

Secretary Thompson also maintains that Medicare is getting its money's worth, as higher rates prompt MA plans to lower premiums and copays while expanding benefits. The Centers for Medicare and Medicaid Services estimates that premiums and cost sharing for Medicare-covered services will drop by 10%, and that seniors in MA plans will pay half as much out-of-pocket as beneficiaries in the Medicare fee-for-service (FFS) program.

GLASS HALF-EMPTY? While Secretary Thompson and CMS Administrator Dr. Mark McClellan emphasize that 66% of Medicare beneficiaries will be able to join at least one coordinated care plan next year (up from 62% now), critics note that this still leaves one-third of seniors without access to any MA plan. About 20% of beneficiaries in rural areas will be able to join a plan, but the vast majority will have only FFS Medicare available.

A main concern among insurers is that Congress could decide that the $12 billion earmarked to boost Medicare managed care payments over 10 years is too big a subsidy to private plans, as critics contend. The Medicare Payment Advisory Commission reported earlier that payments to MA plans are higher on average than it would cost to cover the same beneficiaries under the traditional Medicare program.

One counter-argument is that managed care payments will be more rational in coming years, once a revised Medicare risk adjustment approach kicks in. In 2005, 50% of payments to MA plans will be risk-adjusted, which will boost payments to plans enrolling chronically ill patients.

PROBLEMS WITH PPOs A main feature of the Bush administration's campaign to increase choice for Medicare beneficiaries involves recruiting PPOs to provide coverage to seniors on a regional basis beginning in 2006. CMS is developing policies to encourage these less-restrictive plans to offer Medicare beneficiaries broad provider networks and more benefits, similar to what most Americans experience in the under-65 market.

There is one major question, however: Will PPOs be able to deliver quality service at lower cost? Signs of trouble have emerged from a Medicare PPO demonstration project launched in January 2003. The program attracted 33 health plans in 214 counties, but has enrolled only 105,000 seniors out of the 10 million who were eligible, according to Congress' Government Accountability Office (GAO). While CMS says that this is a reasonable number for a short-term demo, GAO notes that almost all of the participants shifted from HMOs, and very few came out of Medicare FFS.

GAO investigators also criticized CMS for allowing the PPOs to charge members more for services from out-of-network providers; they claim that PPOs failed to achieve expected cost-savings and instead limited choices and boosted cost-sharing for beneficiaries.

CMS aims to avoid these problems by offering risk-sharing and bonus payments to PPOs that bid for Medicare business.