MEDICARE ADVANTAGE PLANS: MEDICARE COSTS IN 2007

1. MEDICARE ADVANTAGE PLANS:MEDICARE COSTS IN 2007 Brian Biles, MD, MPH Department of Health Policy George Washington University June 3, 2007

2. MEDICARE ADVANTAGE PLANS:Costs in 2007AGENDA • Background for Medicare Advantage issues in 2007 • Methods and data for analysis of MA costs • MA payment patterns and trends • Medicare policy implications

3. MA ISSUES IN 2007Background for Congressional Consideration • Possible new Federal health initiatives • SCHIP extension at $50 b over 5 years • Physician payment fix at $40 b over 5 years • Improvements to Medicare coverage for low-income elderly and disabled at $10 b over 5 years • Fiscal discipline • PAYGO budget rule requires that any new Federal spending must be off-set by equal Federal savings

4. MA ISSUES IN 2007Background • MA plans are a possible source of reduced Medicare spending • Clear reference point for extra payments to MA plans • 100% of FFS costs in the county • Other provider payments could be a source of reduced Medicare spending • Hospital payments have increased but no reference point for extra payments • Physician payments are scheduled to drop 10%

5. MA ISSUES IN 2007Background • In 2003, during the development of the MMA Rx drug bill, it was asserted that MA plans would reduce Medicare costs • Managed care has been presented as a market-based & non-regulatory solution to the Medicare cost problemsince the early 1970s when expansion of HMOs was first proposed

6. METHODS FOR ANALYSISMA Payments in 2007 • Calculation of MA county plan payments and FFS costs by MA county payment type, by urban/rural, and by state • MA payments in each county weighted for enrollment in individual MA plans • County FFS costs adjusted for IME payments to MA plans

7. DATA FOR ANALYSIS MA Payments in 2007 • CMS Excel data file of county level MA plan rates in 07 • CMS csv. data file of county level enrollment in MA plans Feb 07 • MedPAC analysis of MA plan bids for 07

8. PAYMENTS TO MA PLANS Findings of Analysis of MA Payments • Medicare payments to MA plans exceed FFS costs in 2007 by • 13.3% per MA plan enrollee • $1,008 per MA plan enrollee • $7.5 billion total nationwide

9. PAYMENTS TO MA PLANS 4 Factors Set Medicare Payments in 2007 • Medicare policies provide four factors that combine to set Medicare payments to MA plans in 2007at 13.3% • County level benchmarks for MA payments set at the highest of seven different calculations and average 17.3% more than fee-for-service costs • Double payment for Indirect Medical Education payments for hospitalized MA plan members contribute 2.3% on average to the benchmarks • Budget neutral risk adjustment payments contribute 3.9% to benchmarksinall counties • Plan bidsreduce MA payments from the benchmark by an average of 4.0%

10. PAYMENTS TO MA PLANS7County Payment Categories • Medicare policies result in seven county payment types in 2007 • Rural Floor • Urban Floor • Blend • Minimum Update • 100% FFS in 2004 • 100% FFS in 2005 • 100% FFS in 2007

11. PAYMENTS TO MA PLANS Findings of Analysis of MA Payments

12. PAYMENTS TO MA PLANSExtra Payments to MA Plans Vary Greatly • Medicare payments to MA plans in excess of FFS costs vary greatly by countypayment type • Urban floor counties: 21% and $1,490 per enrollee • Rural floor counties: 18% and $1,194 • 100% FFS in 2005 counties: 8% and $661 • 100% FFS in 2007 counties: 3% and $250

13. SHARE of EXTRA PAYMENTS to MA Plans 2007 Source: George Washington University analysis of CMS Managed Care quarterly State County Plan data file for the quarter ending December 2005, Medicare Managed Care quarterly State/County/Contract data file for February 2007 and Medicare Advantage 2007 Rate Calculation Data spreadsheet. Note: Figures above include BNRA. Assumes 4 percent reduction in extra payments to account for MA benchmark-based bidding. See: Medicare Payment Advisory Commission (MedPAC), “Report to the Congress: Medicare Payment Policy” (Washington, DC: MedPAC, March 2007)

14. PAYMENTS TO MA PLANSExtra Payments to MA Plans Vary Greatly by State • Medicare payments to MA plans in excess of FFS costs vary greatly by state • Oregon: 30% and $1,893 per enrollee • Texas: 17% and $1,541 • Arizona: 15% and $1,118 • New York: 14% and $1,113 • California: 12% and $940 • Pennsylvania: 11% and $844 • Florida: 4% and $343

15. $290-$999 (20 States) $1,000-$1,499 (20 States & DC) $1,500 + (10 States) MEDICARE AVERAGE EXTRA PAYMENT AMOUNT per MA PLAN ENROLLEE 2007 Source: GWU Analysis of the CMS Medicare Managed Care State/County/Contract data file for February 2007, CMS Medicare Managed Care Quarterly State County data file for the quarter ending December 2005 and the Medicare Advantage 2007 Rate Calculation data spreadsheet.

16. PAYMENTS TO MA PLANSTotal Extra Payments to MA Plans Vary by State • Total extra payments to MA plans are heavily concentrated in limited number of states • 50 percent of total MA extra payments go to just 6 states: California, New York, Pennsylvania, Texas, Oregon, and Arizona • In contrast, 14 percent of total MA extra payments go to a total of 30 states

17. PAYMENTS TO MA PLANSExtra Payments per Beneficiary Vary Greatly • Some states have high levels of extra payments and high MA enrollment rates • States with the highest paymentsper Medicare beneficiary include: • Oregon $617 • Rhode Island $496 • New Mexico $472 • Arizona $386 • Hawaii$328 • More than 30 states are below the national average MA extra payments of $174 per beneficiary • Many are predominantly rural states

18. PAYMENTS TO MA PLANSExtra Payments per Beneficiary in Urban/Rural Areas • Urban and rural areas have similar extra payment rates • Urban 13.3% • Rural 13.7% • Urban areas have much higher MA enrollment rates • Urban 21% • Rural 8% • Urban areas have much higher paymentsper Medicare beneficiary: • Urban $217 • Rural $74

19. PAYMENTS TO MA PLANS Extra Payments from 2008 to 2012 • Medicare payments to MA plans are projected by CBO to exceed FFS costs from 2008 to 2012 by a total of $70 b • $64 b for the benchmark-based bidding system • $4 b fordouble payment of IME costs • $1.6 b for Regional PPO stabilization fund

20. POLICY IMPLICATIONS OF MA PAYMENTSPAYGO Savings May Fund Health Initiatives • Extra payments to MA plans may be reduced and the savings contributed to PAYGO funding for priority health initiatives in 2007 • Impact ofMA payment reductions would vary greatly by county payment type, state, and urban/rural area • MA paymentreductions would include urban areas with long history of managed care • Funds from MA payment reductions would be used to offset increases in SCHIP and Medicare physician spending that would have their own variation by state and other factors

21. MEDICARE ADVANTAGE PLANS:MEDICARE COSTS IN 2007 The Cost of Privatization: Extra Payments to Medicare Advantage Plans – Updated and Revised.The Commonwealth Fund: Issue Brief , November 2006. www.cmwf.org Extra Payments to Medicare Advantage Plans: Updated Tables for 2007. The George Washington University Center for Health Services Research and Policy, May 2007. http://www.gwumc.edu/sphhs/healthpolicy/chsrp/medicaid_publications.cfm