Environment Much Improved for Medicare Private
Insurance Plans
Dramatic changes encouraging a second look by HMOs,
PPOs
Sept. 20, 2005 Although Medicare private plans
HMOs, PPOs, etc. have met with limited success in enrolling senior
citizens out of the traditional Medicare program, an article in the
current issue of Health Affairs says the environment is changing
dramatically and becoming more attractive for insurance companies. Only
about 13 percent of Medicare beneficiaries are currently enrolled in
the Medicare Advantage private plans, according to the author.
The article by Marsha Gold, a senior fellow at
Mathematica Policy Research, suggests that private firms sponsoring
health plans may now find participation in Medicare attractive for the
following reasons:
(1) higher rates of payment (more than traditional
Medicare), along with special provisions that apply to new regional
Medicare Advantage (MA) products, designed to encourage private plans to
participate;
(2) the sheer size of the Medicare program, which opens up a large new
market and the possibility of substantial financial gains to firms that
participate;
(3) a program structure allowing a diversity of products firms can
choose among in ways that correspond to their interests and needs; and
(4) in a sharp departure from past policy, the fact that any Medicare
beneficiary who wants the new Medicare drug benefit must enroll in a
private plan to receive it.
The Medicare Modernization Act (MMA) of 2003
expanded opportunities for private plans to participate in Medicare,
generally in association with the launch of the new voluntary drug
benefit (Part D). In addition to local MA offerings that have
traditionally existed, the MMA also authorizes new regional MA plans
that are intended to make MA options more universally available
throughout the nation.
Firms can also offer stand-alone prescription drug
plans (PDP-only plans). For 2006, firms are gearing up to take advantage
of these opportunities. MA plans integrate Medicare benefits with
supplemental coverage, and individuals in these plans who want the new
drug benefit will receive it through their MA plan. But nearly 90
percent of beneficiaries are currently enrolled in traditional Medicare.
Those who want to continue receiving coverage under
traditional Medicare can do so but also will need to enroll in a PDP-only
plan to get the drug benefit. Preliminary information from CMS (August
29, 2005) anticipated that there would be around will be 12 to 23 such
choices available to each beneficiary in the nation (depending on
location).
The article notes that the current private market
in Medicare is highly concentrated, so the decisions of only a small
number of firms can drive the market and industry response. (For
example, in 2005, 64 percent of MA enrollees were in plans offered by
one of seven firms or in companies affiliated with BlueCross/BlueShield.)
Many of these firms are dramatically expanding their offerings in 2006,
including expanded local MA options, selected regional MA offerings, and
PDP-only plans throughout or in most parts of the nation.
Despite the attractiveness of participation, Gold
notes that challenges will abound in offering an effective private
product, at least in the long run.
The most critical challenge is that high rates of
payment may not be sustainable in the future as budgets get tight.
Furthermore, extensive private plan offerings could fundamentally change
Medicare, but the changes are likely to be challenging for Medicare
beneficiaries to understand and unlikely to save money, at least in the
short term, because Medicare will be paying more for beneficiaries in
private plans than for those served by traditional Medicare.
In addition, MA has been historically difficult to
sustain in rural areas. Although Congress authorized new regional PPOs
in an attempt to encourage universal availability of MA, 20 percent or
more of the beneficiaries in 16 of the 26 regions established for this
purpose live in rural areas.
In three of the regions, rural beneficiaries
outnumber urban ones. The number of beneficiaries in some regions is
also very small, and it may be hard to sustain products in these
areas-particularly given the large number of plans that will be offered
and the challenges beneficiaries may have in choosing among them.
Because of past difficulties sustaining the program in rural regions, it
is uncertain whether recent changes will be sufficient to overcome
historical market barriers in the future. Moreover, multi-state regions
may involve differing state regulatory hurdles and environments.
Although preliminary indications from CMS are that
at least one regional MA plan will be offered in all but 5 of the 26
regions established for this purpose (Aug. 9, 2005), the long- term
viability of such offerings remains uncertain.
"The MMA has expanded choice, but expansion will
place a burden on beneficiaries seeking to understand their options and
add to the financial stress on Medicare," said Gold. "Only time will
tell whether Medicare's new policies will be sufficient to offset the
barriers that historically have limited the role of private plans in
Medicare."
The article, "Private Plans in Medicare: Another
Look," appears in the September/October 2005 issue of "Health Affairs."
It draws on research conducted with support from the Henry J. Kaiser
Family Foundation, the Commonwealth Fund, and the Robert Wood Johnson
Foundation.
"Health Affairs," published bi-monthly by Project
HOPE, is a multidisciplinary journal devoted to publishing the leading
edge in health policy thought and research. Copies of the
September/October issue will be provided free to interested members of
the press. To obtain a copy, contact Jon Gardner at 301-656-7401 ext.
230, or email at
press@healthaffairs.org.
Mathematica, a nonpartisan research firm, conducts
policy research and surveys for federal and state governments,
foundations, and private-sector clients. The employee-owned company,
with offices in Princeton, N.J., Washington, D.C., and Cambridge, Mass.,
has conducted some of the most important studies of health care,
welfare, education, employment, nutrition, and early childhood policies
and programs in the U.S. Mathematica strives to improve public
well-being by bringing the highest standards of quality, objectivity,
and excellence to bear on the provision of information collection and
analysis to its clients.
