Medicare Managed Care

1. Medicare Managed Care

2. Plan for Medicare Managed Care • Today • Enrollment patterns and trends • Pros and cons for beneficiaries • How Medicare has traditionally been paid plans • Risk selection as a payment issue • Exercise/homework practice • Next Tuesday • Homework review • Fruit Basket! Medicare + Choice

3. Data source • Medicare Statistics • 1998 Medicare Chartbook • http://www.hcfa.gov/stats/stats.htm • Kaiser Family Foundation Fact Sheet

4. Enrollment in Managed Care(1998) • Total Medicare enrollees = 39+ million • Managed care enrollees = 5.8 million • 15 percent • More growth (CBO projects 29% in 2008) • High penetration in a few geographic areas • CA (37%), AZ (39%), CO (29%), FL (26%) , RI (32%) • Geographic concentration in a few states

5. Advantages for Beneficiaries • Plans required to return cost-savings as • Lower premiums • Additional benefits • Lower copayments • Can switch back to fee-for-service • Immediately (until 2002) • In first 3 months, then once a year

6. Percent of Medicare HMOs That Offer Additional Benefits, 1998

7. Monthly Additional Premiums for Medicare HMO Enrollees (1998)

8. Disadvantages • Managed care • Limited provider choice • Gatekeepers • Travel and seasonal movement out of service area • Will have to replace Medicare supplement, too, if ever go back to fee-for-service

9. HMO payment historically based on Average Adjusted Per Capita Cost (AAPCC) • 95 percent of average fee-for-service claims • According to • Age (10 categories) • Sex (2 categories) • Medicaid, not Medicaid, working, institutionalized • By county • Revised by Balanced Budget Act of 1997 • Blend county and national rate, with floor • Risk-adjustment, based on inpatient stays

10. Payment variation • U.S. average = $491 per enrollee (1999) • 3-fold difference from lowest to highest county ($210 to $782) in 1997 • Reduced to $402 to $794 in 2000, with floor • Higher HMO penetration in counties with high rates

11. Who Wins?? If provider selection and utilization management in HMOs really do save 5% over fee-for-service… • Does Medicare save money? • Can plans make money?

12. AAPCC = $399 x .95 = $379 Fee-for-service claims .67 x $300 = $201 .33 x $600 = $198 Average = $399 67% low risk - $300 .33% high risk - $600

13. HMOs attract healthier-than-average enrollees • For example, • 80% low risk (vs. 67%) • 20% high risk (vs. 33%) • Risk selection - HMOs’ mix of low and high risks does not match the average • More low risks than average ~ “Favorable selection” • More high risks than average ~ “Adverse selection”

14. Plan costs = $360 x .95 = $342 Fee-for-service claims .80 x $300 = $240 .20 x $600 = $120 Average = $360 80% low risk - $300 20% high risk - $600