Do Medicare Advantage Plans Respond to Payment Changes? A Look at the Data from 2009 to 2014.

Issue: Medicare Advantage (MA) enrollment has grown significantly since 2009, despite legislation that reduced what Medicare pays these plans to provide care to enrollees. MA payments, on average, now approach parity with costs in traditional Medicare. Goal: Examine changes in per enrollee costs between 2009 and 2014 to better understand how MA plans have continued to thrive even as payments decreased. Methods: Analysis of Medicare data on MA plan bids, net of rebates. Findings: While spending per beneficiary in traditional Medicare rose 5.0 percent between 2009 and 2014, MA payment benchmarks rose 1.5 percent and payment to plans decreased by 0.7 percent. Plans' expected per enrollee costs grew 2.6 percent. Plans where payment rates decreased generally had slower growth in their expected costs. HMOs, which saw their payments decline the most, had the slowest expected cost growth. Conclusions: In general, MA plans responded to lower payment by containing costs. By preserving most of the margin between Medicare payments and their bids in the form of rebates, they could continue to offer additional benefits to attract enrollees. The magnitude of this response varied by geographic area and plan type. Despite this slower growth in expected per enrollee costs, greater efficiencies by MA plans may still be achievable.

The Evolution of Private Plans in Medicare.

Issue: Since the 1980s, private plans have played an increasingly important role in the Medicare program. While initially created with the goals of reducing costs, improving choice, and enhancing quality, risk-based plans--now known as Medicare Advantage plans--have undergone significant policy changes since their inception; these changes have not always aligned with the original policy objectives. Goal: To examine major policy changes to Medicare risk plans and the effects of these policies on plan participation, enrollment, average premiums and cost-sharing, total costs to Medicare, and quality of care. Methods: Review of key policy documents, reports, position statements, and academic studies. Findings and Conclusions: Private plans have changed considerably since their introduction into Medicare. Enrollment has risen to 33 percent of all Medicare beneficiaries; 99 percent of beneficiaries have access to private plans in 2017. Recent policies have improved risk-adjustment methods, rewarded plans' performance on quality of care, and reduced average payments to private plans to 100 percent of traditional Medicare spending. As enrollment in private plans continues to grow and as health care costs rise, policymakers should enhance incentives for private plans to meet intended goals for higher-quality care at lower cost.

Do Medicare Advantage Plans Minimize Costs? Investigating the Relationship Between Benchmarks, Costs, and Rebates.

Issue: Medicare Advantage (MA), the program that allows people to receive their Medicare benefits through private health plans, uses a benchmark-and-bidding system to induce plans to provide benefits at lower costs. However, prior research suggests medical costs, profits, and other plan costs are not as low under this system as they might otherwise be. Goal: To examine how well the current system encourages MA plans to bid their lowest cost by examining the relationship between costs and bonuses (rebates) and the benchmarks Medicare uses in determining plan payments. Methods: Regression analysis using 2015 data for HMO and local PPO plans. Findings: Costs and rebates are higher for MA plans in areas with higher benchmarks, and plan costs vary less than benchmarks do. A one-dollar increase in benchmarks is associated with 32-cent-higher plan costs and a 52-cent-higher rebate, even when controlling for market and plan factors that can affect costs. This suggests the current benchmark-and-bidding system allows plans to bid higher than local input prices and other market conditions would seem to warrant. Conclusion: To incentivize MA plans to maximize efficiency and minimize costs, Medicare could change the way benchmarks are set or used.

Does Medicare Advantage Cost Less Than Traditional Medicare?

The costs of providing benefits to enrollees in private Medicare Advantage (MA) plans are slightly less, on average, than what traditional Medicare spends per beneficiary in the same county. However, MA plans that are able to keep their costs comparatively low are concen­trated in a fairly small number of U.S. counties. In the 25 counties where the cost differences between MA plans and traditional Medicare are largest, MA plans spent a total of $5.2 billion less than what traditional Medicare would have been expected to spend on the same benefi­ciaries, with health maintenance organizations (HMOs) accounting for all of that difference. In the rest of the country, MA plans spent $4.8 billion above the expected costs under tradi­tional Medicare. Broad determinations about the relative efficiency of MA plans and traditional Medicare can therefore be misleading, as they fail to take into account local conditions and individual plans' performance.

Competition Among Medicare's Private Health Plans: Does It Really Exist?

Competition among private Medicare Advantage (MA) plans is seen by some as leading to lower premiums and expanded benefits. But how much competition exists in MA markets? Using a standard measure of market competition, our analysis finds that 97 percent of markets in U.S. counties are highly concentrated and therefore lacking in significant MA plan competition. Competition is considerably lower in rural counties than in urban ones. Even among the 100 counties with the greatest numbers of Medicare beneficiaries, 81 percent do not have competitive MA markets. Market power is concentrated among three nationwide insurance organizations in nearly two-thirds of those 100 counties.

Medicare Payment Reform: Aligning Incentives for Better Care.

The Affordable Care Act (ACA) has provided the Medicare program with an array of tools to improve the quality of care that beneficiaries receive and to increase the efficiency with which that care is provided. Notably, the ACA has created the Center for Medicare and Medicaid Innovation, which is developing and testing promising new models to improve the quality of care provided to Medicare beneficiaries while reducing spending. These new models are part of an effort by the U.S. Department of Health and Human Services to increase the proportion of traditional Medicare payments tied to quality or value to 85 percent by 2016 and 90 percent by 2018. This issue brief, one in a series on Medicare's past, present, and future, explores the evolution of Medicare payment policy, the potential of value-based payment to improve care for beneficiaries and achieve savings, and strategies for accelerating its adoption.

The Affordable Care Act's payment and delivery system reforms: a progress report at five years.

In addition to its expansion and reform of health insurance coverage, the Affordable Care Act (ACA) contains numerous provisions intended to resolve underlying problems in how health care is delivered and paid for in the United States. These provisions focus on three broad areas: testing new delivery models and spreading successful ones, encouraging the shift toward payment based on the value of care provided, and developing resources for systemwide improvement. This brief describes these reforms and, where possible, documents their initial impact at the ACA's five-year mark. While it is still far too early to offer any kind of definitive assessment of the law's transformation-seeking reforms, it is clear that the ACA has spurred activity in both the public and private sectors, and is contributing to momentum in states and localities across the U.S. to improve the value obtained for our health care dollars.

Variations in county-level costs between traditional medicare and medicare advantage have implications for premium support.

Concern about the future growth of Medicare spending has led some in Congress and elsewhere to promote converting Medicare to a "premium support" system. Under premium support, Medicare would provide a "defined contribution" to each Medicare beneficiary to purchase either a Medicare Advantage (MA)-type private health plan or the traditional Medicare public plan. To better understand the implications of such a shift, we compared the average costs per beneficiary of providing Medicare benefits at the county level for traditional Medicare and four types of MA plans. We found that the relative costs of Medicare Advantage and traditional Medicare varied greatly by MA plan type and by geographic location. The costs of health maintenance organization-type plans averaged 7 percent less than those of traditional Medicare, but the costs of the more loosely structured preferred provider organization and private fee-for-service plans averaged 12-18 percent more than those of traditional Medicare. In some counties MA plan costs averaged 28 percent less than costs in traditional Medicare, while in other counties MA plan costs averaged 26 percent more than traditional Medicare costs. Enactment of a Medicare premium-support proposal could trigger cost increases for beneficiaries participating in Medicare Advantage as well as those in traditional Medicare.

Analysis of early accountable care organizations defines patient, structural, cost, and quality-of-care characteristics.

Accountable care organizations (ACOs) have attracted interest from many policy makers and clinical leaders because of their potential to improve the quality of care and reduce costs. Federal ACO programs for Medicare beneficiaries are now up and running, but little information is available about the baseline characteristics of early entrants. In this descriptive study we present data on the structural and market characteristics of these early ACOs and compare ACOs' patient populations, costs, and quality with those of their non-ACO counterparts at baseline. We found that ACO patients were more likely than non-ACO patients to be older than age eighty and had higher incomes. ACO patients were less likely than non-ACO patients to be black, covered by Medicaid, or disabled. The cost of care for ACO patients was slightly lower than that for non-ACO patients. Slightly fewer than half of the ACOs had a participating hospital. Hospitals that were in ACOs were more likely than non-ACO hospitals to be large, teaching, and not-for-profit, although there was little difference in their performance on quality metrics. Our findings can be useful in interpreting the early results from the federal ACO programs and in establishing a baseline to assess the programs' development.

Medicare essential: an option to promote better care and curb spending growth.

Medicare's core benefit design reflects private insurance as of 1965, with separate coverage for hospital and physician services (and now prescription drugs) and no protection against catastrophic costs. Modernizing Medicare's benefit design to offer comprehensive benefits, financial protection, and incentives to choose high-value care could improve coverage and lower beneficiary costs. We describe a new option we call Medicare Essential, which would combine Medicare's hospital, physician, and prescription drug coverage into an integrated benefit with an annual limit on out-of-pocket expenses for covered benefits. Cost sharing would be reduced for enrollees who seek care from high-quality low-cost providers. Out-of-pocket savings from lower premiums and health care costs for a Medicare Essential enrollee could be $173 per month, compared to what an enrollee would pay with traditional Medicare, prescription drug and private supplemental coverage. Financed by a budget-neutral premium, we estimate that this new plan choice could reduce total health spending relative to current projections by $180 billion and reduce employer retiree spending by $90 billion during 2014-23. Given its potential, such an alternative should be a part of the debate over the future of Medicare.

Paying for value: replacing Medicare's sustainable growth rate formula with incentives to improve care.

This brief sets forth a set of policy options to improve the way health care providers are paid by Medicare. The authors suggest repealing Medicare's sustain­able growth rate (SGR) formula for physician fees and replacing it with a pay-for-value approach that would: 1) increase payments over time only for physicians and other provid­ers who participate in innovative care arrangements; 2) strengthen primary care and care teams; and 3) implement bundled payments for hospital-related care. These reforms would be adopted by Medicare, Medicaid, and private plans in the new insurance marketplaces, with the goal of accelerating innovation in care delivery throughout the health system. Together, these policies could more than offset the cost of repealing the SGR formula, saving $788 billion for the federal government over 10 years and $1.3 trillion nationwide. Savings also would accrue to state and local governments ($163 billion), private employ­ers ($91 billion), and households ($291 billion).

The impact of health reform on the Medicare Advantage program: realigning payment with performance.

The Affordable Care Act enacts a new payment system for private health plans available to Medicare beneficiaries through the Medicare Advantage (MA) program. The system, which is being phased in through 2017, aims to (1) reduce the excess pay­ments received by private plans relative to per capita spending in traditional Medicare, and (2) reward plans that earn high performance ratings. Using 2009 data, this issue brief pres­ents analysis of the distributional impact on MA plan payments of these new policies as if they had been fully implemented in that year. We find that, when the polices [sic] are in place, they will bring overall MA plan payments nationwide down from 114 percent to 102 per­cent of what spending would have been for the same enrollees if they had been enrolled in traditional Medicare. While payments will vary across the nation, high-performing MA plans stand to benefit from this new arrangement.

Identifying, monitoring, and assessing promising innovations: using evaluation to support rapid-cycle change.

The Center for Medicare and Medicaid Innovation (Innovation Center) was created by the Affordable Care Act to identify, develop, assess, support, and spread new approaches to health care financing and delivery that can help improve quality and lower costs. Although the Innovation Center has been given unprecedented authority to take action, it is being asked to produce definitive results in an extremely short time frame. One particularly difficult task is developing methodological approaches that adhere to a condensed time frame, while maintaining the rigor required to support the extensive policy changes needed. The involvement and collaboration of the health services research community will be a key element in this endeavor. This issue brief reviews the mission of the Innovation Center and provides perspectives from the research community on critical issues and challenges.

Medicare Advantage in the era of health reform: progress in leveling the playing field.

Payments to private Medicare Advantage (MA) plans have exceeded Medicare fee-for-service (FFS) costs since those payments were increased by the Medicare Modernization Act of 2003 (MMA). Payments to MA plans in 2010 exceeded average costs in FFS Medicare nationally by 8.9 percent, a total of $8.9 billion. While these extra payments are substantial, they represent a decrease relative to 2009, when MA payments were 13.0 percent, or $11.4 billion, greater than FFS costs. The decrease in MA payments relative to FFS costs, while mostly resulting from policy decisions and other factors not directly related to the health reform law, begins to shift MA payments toward levels mandated in the provisions that are set to go into effect in 2012.

Innovation in Medicare and Medicaid will be central to health reform's success.

The health reform legislation signed into law by President Barack Obama contains numerous payment reform provisions designed to fundamentally transform the nation's health care system. Perhaps the most noteworthy of these is the establishment of a Center for Medicare and Medicaid Innovation within the Centers for Medicare and Medicaid Services. This paper presents recommendations that would maximize the new center's effectiveness in promoting reforms that can improve the quality and value of care in Medicare, Medicaid, and the Children's Health Insurance Program, while helping achieve health reform's goals of more efficient, coordinated, and effective care.

The group employed model as a foundation for health care delivery reform.

With a focus on delivering low-cost, high-quality care, several organizations using the group employed model (GEM)-with physician groups whose primary and specialty care physicians are salaried or under contract-have been recognized for creating a culture of patient-centeredness and accountability, even in a toxic fee-for-service environment. The elements that leaders of such organizations identify as key to their success are physician leadership that promotes trust in the organization, integration that promotes teamwork and coordination, governance and strategy that drive results, transparency and health information technology that drive continual quality improvement, and a culture of accountability that focuses providers on patient needs and responsibility for effective care and efficient use of resources. These organizations provide important lessons for health care delivery system reform.

How health reform legislation will affect Medicare beneficiaries.

Despite criticism that health reform legislation will result in cuts to Medicare, the bills passed by the House of Representatives and the Senate, as well as President Obama's proposal, contain provisions that would strengthen the program by reducing costs for prescription drugs, expanding coverage for preventive care, providing more help for low-income beneficiaries, and supporting accessible, coordinated, and comprehensive care that effectively responds to patients' needs. The legislation also would help to extend the program's fiscal solvency--for nine years, under the Senate bill. This issue brief examines the provisions in the pending legislation and how each one would work to improve benefits, extend the fiscal solvency of the Medicare Hospital Insurance Trust Fund, reduce pressure on the federal budget, and contribute to moving the health care system toward better access to care, improved quality, and greater efficiency.