More choices arrive for Medicare beneficiatires

Officials at the Centers for Medicare and Medicaid Services (CMS) began smiling last month. They were watching the letters and applications roll in from MCOs-a sign that seniors will be able to obtain care from a large number of local PPOs (preferred provider organizations) beginning next January. CMS received applications from plans to establish more than 70 local PPOs, while Medicare Advantage (MA) plans moved to expand current service areas and enter new markets.

CMS administrator Dr. Mark McClellan was able to tell attendees of America's Health Insurance Plans' (AHIP) national policy forum in Washington last month that he expects MA plans will be available to seniors in 47 states and will offer care to three-fourths of all rural Medicare patients. Plans began expanding noticeably this year, laying a "tremendous foundation" for a fuller range of Medicare choices in 2006, Dr. McClellan announced. One reason for the surge in PPO applications is that insurers have a narrow window to act. After September 5, 2005, PPO sponsors will have to wait until the end of 2007 to form new local Medicare PPOs.

While coverage options are expanding on the local level, insurers and health plans are holding off on establishing PPOs to serve most of the 26 MA regions.

DRUG COVERAGE CHALLENGES In addition to expanding Medicare HMOs and PPOs, plans have been busy establishing Part D prescription drug plans (PDPs), which makes them MA-PDs. All MA plans must offer at least one MA-PD plan that meets actuarial equivalency and access requirements. Such plans also have to establish formularies overseen by P&T committees that either cover the drug categories recommended by the U.S. Pharmacopoeia or justify an alternative approach. To minimize adverse selection, CMS will be scrutinizing whether plans discourage certain patient populations from signing up through formulary tier structures, prior authorization criteria, quantity limits, step therapy recommendations, and appeals and exceptions processes. MA-PDs also may lower deductibles or hike cost-sharing, provided the resulting plan meets actuarial value. Some experts believe that most plans will offer fairly similar benefit structures, while others anticipate considerable innovation.

One option for MA plans is to sign up for a CMS demonstration program that fills in the perplexing "donut hole" in the Medicare Part D program. Participating plans would receive a capitated add-on payment up front in lieu of catastrophic coverage for beneficiaries that spend $3,600 out-of-pocket on drug costs. CMS anticipates that established MA plans with a good history of patient drug costs may find this an attractive option: offering a drug plan with no coverage gap between basic benefits and the catastrophic level is expected to provide any plan with a strong marketing advantage.

EMPLOYERS WEIGH OPTIONS Meanwhile, everyone is watching to see if employers continue retiree drug benefits. The Medicare legislation offers a strong incentive to do so with a 28% subsidy to qualified retiree prescription drug plans. For the 2006 rollout of Medicare benefits, most employers appear willing to take the 28% subsidy and continue drug coverage.

A worst-case scenario is that employers will drop retiree prescription drug coverage altogether once seniors can obtain drug benefits through Medicare.