Corporate Research Group’s Weblog

I really had to look hard to find hope for Medicare health plans in the March 17 Congressional testimony of Medicare Payment Advisory Commission chairman Glenn Hackbarth.  I found a glimmer.

But first, the big picture.  Hackbarth’s testimony summarizes MedPac’s March 2009 report to Congress on the Medicare Advantage (MA) program.  The report reiterates that the MA program on average costs more to deliver the same benefits as traditional Medicare.  That’s not news.  Nor is it a good thing, considering the whole point of having private health plans in Medicare is that they’re supposed to be more efficient than a government-run program.

On average, MA plans cost 2% more just to provide the same benefits as traditional Medicare.  But MA plans are actually paid 14% more (this is the 14% subsidy Obama wants to end), with the extra funds supposed to go for additional benefits.  Unfortunately, part of the extra money simply goes to providing traditional Medicare benefits.  

Said another way, MA plans on average receive $103 per member per month more than traditional Medicare would spend on the same member.  Only $79 PMPM goes to enhanced benefits.  So every additional dollar in MA plan benefits costs taxpayers $1.30.

I’m not up to the glimmer of hope part yet, so hang in there.

Of the four types of MA plans (HMO, Local PPO, Regional PPO, and Private Fee-For-Service), the least efficient is PFFS.  PFFS plans receive $114 PMPM in additional payments, but deliver a paltry $35 in additional benefits.  That means every additional dollar in PFFS plan benefits costs taxpayers $3.26. 

MA plans have always tried to justify the additional payments by arguing they provide additional benefits.  They do, but not enough to justify the cost. 

“Overwhelmingly these benefits are not financed out of plan efficiency, but rather by the Medicare program and other beneficiaries, and at a high cost,” Hackbarth said.

This is a long way of saying that on average there is no economic justification for Medicare PFFS plans.  The same is true on average for Medicare PPOs.

Now for the glimmer of hope.  Hackbarth’s numbers show that MA HMOs actually do deliver efficiencies and on average are capable of providing the same benefits as traditional Medicare for 98% of the cost. 

MA HMOs receive $99 PMPM in additional payments, but deliver $102 in additional benefits.  In other words, every additional dollar in HMO plan benefits costs taxpayers $0.97.   That’s three cents on the dollar in additional benefits through efficiencies or $3 PMPM.  It’s not much to hang your hat on, but it’s something.

Of the 10 million MA enrollees, about 6.6 million are in an HMO.  Only 2.3 million are in a private fee-for-service plan, while 1 million are in a local or regional PPO. 

Unfortunately, PFFS has been a growth product.  That will change assuming the subsidies are eliminated.  And I expect there will be a fair number of health plan exits from markets and product lines. 

As for Medicare HMOs, the question is whether they will still be able to attract members by offering $3 in additional benefits per member per month, as opposed to $79 in additional benefits largely funded by taxpayers.

This entry was posted on Friday, March 20th, 2009 at 11:49 am and is filed under Medicare and Medicaid. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.