Medicare Advantage Overtakes Standard Medicare
The number of people enrolled in standard Medicare has stopped growing. Based on data from the Centers for Medicare and Medicaid Services, the number of people enrolled in what we knew as Medicare grew at less than a half of one percent between December 2014 and December 2015. This is not because the number of people in Medicare has gone down. Indeed, there are a number of factors that will continue driving up the numbers of Medicare beneficiaries.
So, what happened? The answer is the continued expansion of Medicare Advantage or what used to be called Medicare replacement plans. These are for profit insurance companies, like United Healthcare, Humana and Aetna (Humana now is Aetna or vice versa) that provide insurance to anyone enrolled in Medicare. Let’s look at the numbers of beneficiaries from 2009 through 2015:
What is the impact on beneficiaries, providers and the government spending from this transition? The answer lies in how the Medicare Advantage (we will shorten this to MA) plans are reimbursed for taking care of Medicare beneficiaries. They receive a per member per month or “PMPM” payment that, for a large part, is not impacted by the care provided. As the MA plans submit claims data to Medicare, each patient receives a “risk score” based not on services, but the diagnosis included in the claim data. MA plans that either fail to collect the correct risk score data or pay more out than they receive in will lose money.
First, let’s look at how this impacts physicians, hospitals and nursing homes. The MA plans call the ratio of premiums they receive for a member to the amount they spend the “medical loss ratio” or MLR. They create reports of members that have poor MLRs. They create reports of physicians and other providers with poor MLRs. They use these reports to determine who they wish to contract with. Different from the old version of Medicare, now called “Fee For Service,” they don’t have to contract with anyone signing up as a Medicare provider. It is in the interest of the MA plans to only contract with providers that give them the highest profits and lowest MLRs.
Why do people in Medicare enroll in MA plans? Well sometimes it is because these plans wave the Medicare Part B premiums Medicare beneficiaries have to pay. Sometimes they provide more services like a “Silver Sneaker” program with free memberships at a local health club. Some MA members like having the ability to call a nurse from the MA plan with health questions. Sometimes it is just robust marketing. Everyone that becomes eligible for Medicare should see if it would help them to enroll in an MA plan.
What are the pluses and minuses for the government? A big plus is that it gives the government an opportunity to fix a rate of spending and have a partner interested in keeping costs down. If the government is paying a PMPM to an MA plan, they should have more control over costs of care. On the down side, some of these MA plans have been bad actors both by going bankrupt through fiscal mismanagement and doing inappropriate things to Medicare recipients in the name of profits.
MA plans and the related concept of fixed monthly payments for taking care of patients looks like it is here to stay. The winners will be the MA plans and providers that understand the data and incentives for success.
Timothy Powell, CPA CHCP