Nearly a quarter century ago, then Speaker of the House Newt Gingrich said this about the original Medicare program: “We believe it’s going to wither on the vine because we think people are voluntarily going to leave it — voluntarily.”
Gingrich argued that original Medicare — based on a 1960s-style fee-for-service benefit package with a confusing set of deductibles, co-insurance, and copays — was stuck in the past. He saw a day when Medicare-contracted private health plans would prove so attractive that Medicare beneficiaries would have to choose them.
It’s taken a generation, but Gingrich is on the verge of being right about Medicare.
Medicare began experimenting with managed care as an alternative to the original program in the 1970s, and annually contracted health plans — called Medicare+Choice — were made a permanent part of the program in the 1990s. Because of funding reductions, it initially floundered.
That changed in 2003 with the passage of the Medicare Prescription Drug, Improvement, and Modernization Act, which renamed the program Medicare Advantage, raised payment rates, and added risk adjustment to the payment methodology. Leading managed care companies, such as UnitedHealth Group, Humana, Aetna, and Blue Cross Blue Shield companies, began marketing Medicare Advantage products every fall. So did dozens of smaller and health system-owned health plans. Enrollment in these plans has increased every year since then. Today, more than 22 million beneficiaries choose Medicare Advantage, about 35 percent of all people with Medicare, up from about 11 million people a decade ago. This has occurred despite a gradual phase down in funding put in place by the Affordable Care Act.
In 2019, Medicare Advantage plans stepped up their coverage to include the delivery of meals, rides to physician appointments and pharmacies, home safety improvements, and a host of other new benefits. As described in a new report on Medicare Advantage plans that one of us (M.A.) co-authored, 153 Medicare Advantage plans are now leveraging new Trump administration guidance and experimenting with 842 “flex benefits” this year. These benefits fall into two broad categories: reducing costs to encourage members to receive preventive care, such as free primary and podiatry care for people with diabetes; and non-medical benefits, such as home-delivered meals following a hospital discharge, home safety interventions, and non-skilled in-home caregiving.
Medicare beneficiaries select Medicare Advantage for a variety of reasons. These include catastrophic cost protection, care management programs, and a range of mainly health-related supplemental benefits such as dental checkups, eyeglasses, hearing aids, over-the-counter drugs, and gym memberships. The trade-off for these extras is limited choice of providers and managed care tools like prior authorization. These limitations put off some Medicare beneficiaries, but have not dampened the high overall satisfaction with Medicare Advantage or its continued growth.
Medicare Advantage’s competitive edge over original Medicare will take another step forward in 2020 when plans are expected to gain additional flexibilities in offering non-medical benefits for people with chronic diseases. The next wave of new benefits can include anything that the Centers for Medicare and Medicaid Services deems “has a reasonable expectation of improving or maintaining the health or overall function” of enrollees with chronic diseases. While CMS has not yet offered its final guidance, this will likely include meals, transportation, pest removal, and activities that combat social isolation and depression, which could include companionship services and pet therapy.
Some of the brightest minds in managed care are working to determine whether relatively inexpensive, newly permissible benefits like these will pay for themselves by reducing the number of expensive medical procedures. Actuaries at Wakely Consulting, for example, have modeled the value of a falls reduction benefit. Using Medicare claims data, they determined that injury-causing falls are associated with spikes in medical costs that average about $10,000 compared to pre-fall costs. So an intervention that reduces falls by even 10 percent would likely pay for itself if it costs less than $1,000 per fall-prone member receiving the service. Hiring a handyman for a couple hundred dollars to install grip bars in a shower or modify cabinetry would be a bargain.
How does original Medicare stack up in comparison to Medicare Advantage? The Affordable Care Act and the Medicare Access and CHIP Reauthorization Act (MACRA) introduced value-based reimbursement reforms into original Medicare. These may make the program a more efficient payer, but they do not necessarily improve benefits for Medicare beneficiaries. Medicare Supplement Insurance (Medigap) continues to be purchased by roughly 13 million Medicare beneficiaries. It plugs gaps and simplifies original Medicare’s idiosyncratic coverage, but it is too expensive for lower-income beneficiaries. In addition, state and federal laws prevent Medigap from keeping up with Medicare Advantage.
A 2017 report by the National Association of Insurance Commissioners demonstrates that only a handful of states permit Medigap carriers to offer any “innovative” benefits. And the modest flexibilities permitted — such as eye exams — pale in comparison to the richness and diversity of Medicare Advantage benefits.
In subtle and unsubtle ways, the Trump administration has seeded the ground for massive gains in Medicare Advantage enrollment. These include loosened restrictions on marketing Medicare Advantage plans, new consumer tools that accentuate the advantages of these plans, greater use of telehealth than permitted in original Medicare, the elimination of “meaningful difference” tests that limit the number of Medicare Advantage plans in a given market, and extra time for plan sponsors to secure a provider network. Meanwhile, the administration has finalized a regulation that may substantially lessen the number of accountable care organizations participating in original Medicare — the original Medicare reform with the greatest potential to align providers in reimbursement systems outside of Medicare Advantage.
Congress has also quietly added tools to Medicare Advantage that aren’t available in original Medicare. A little-noticed MACRA provision will remove two of the most popular Medigap plans from the market in 2020, further weakening its value proposition versus Medicare Advantage. This is not an accident: Many conservatives have long disliked original Medicare’s centralized pay schedules and the perverse incentives of fee-for-service medical care. And many liberals are willing to strengthen Medicare Advantage if that’s the only way to offer more generous health care coverage to seniors.
Intentionally or not, Congress and various administrations have created two Medicare programs: the original fee-for-service program with rules and coverage that the private market largely abandoned decades ago, and a managed care program that has just benefited from another set of favorable legislative and regulatory tweaks. Maybe it is unfair that policy makers are favoring Medicare Advantage. But if this is the only way to deliver modern and more generous health benefits to Medicare beneficiaries, then a thumb on the scale is better than denying beneficiaries access to 21st-century benefits.
It’s no wonder that Medicare beneficiaries are voluntarily leaving original Medicare — voluntarily.
Michael Adelberg is a principal at Faegre Baker Daniels Consulting. Kristin Rodriguez is the chief knowledge officer for the Health Plan Alliance.
What do you think will happen if or when Medicare Advantage plans have a really high percentage of beneficiaries? Do you think original Medicare will be eliminated? Will the benefits of Medicare Advantage plans be reduced? I don’t trust insurance companies so I have stayed with original Medicare. I can see by the difference in benefits that we are being steered into advantage plans. I’m concerned. Thanks in advance for your reply.
I feel that I am an educated consumer yet after reading this article I still don’t see the way Medicare advantage plan saves money by offering more services for a lower premium. Can you be more specific?
Medicare Advantage and stand-alone prescription drug plans (PDP) don’t necesarily save subscribers or taxpayers money. They allow private insurance companies to market & sell (along with independent sales agents) plans in geographical areas that they select with flexibility in offering some benefits that are not included in traditional Medicare such as gym membership, dental cleanings etc. However, these plans decide what medications and providers they include and they generally target healthy subscribers with low/no cost premiums and other low cost benefit gimmicks. However if you are vulnerable to being hospitalized, need specialist doctors, need diagnostic scans, surgery, chemo therapy, infusions or take insulin, or drugs for cancer, MS, heart or inflammatory diseases and many other conditions, your cost will be quite high…year after year. And something that insurance companies and brokers that sell MA plans don’t advertise is they are a government contractor and are paid about $11,000 a year to serve patients and can receive additional payments based on how they report the patients’ medical condition. They also don’t advertise that private MA & PDPs cost taxpayers $billions a year in taxpayer subsidies that are added to the national debt.
Because the advantage plans are Managed health care. Medicare uses them to keep costs down by forcing folks yo use net work docs and
limit testing and so forth.
What is the cheapest Part D you can get from a reputable company?
Rick P., you mention you have a Part D plan that doesn’t cover one of your wife’s medication. A few suggestions (if you have not already tried), go to Medicare.gov “plan finder” and do a search with your wife’s meds of all the Part D plans that are available in your area and you will see if there are any plans that cover the med that your wife needs and at what cost. If yes, you can enroll in another plan if it meet her needs until 12/7. If you strike out, I would suggest that she talk to her prescribing MD, share the issue and ask if there is another good alternative drug, if not, has the MD had any positive experience with any of the available D plans in approving an ‘exception” to their formulary for the med that he is prescribing. You will need a letter from the MD to request the approval of the exception. Finally, a number of pharma co. offer discounts on their expensive brand name drugs if the patient doesn’t have coverage. A starting place is searching on the drug co. website or do a general google seach.
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