Medicare
offers health coverage to the elderly through two types of plans: traditional
Medicare, which pays providers a fee for each service they perform, and
Medicare Advantage (MA) plans, in which Medicare makes predetermined monthly
payments to private plans for each beneficiary they enroll, independent of the
volume of services used by each beneficiary. Today, one-third of all Medicare
beneficiaries are enrolled in MA plans.
Ambiguous Early Evidence On Medicare
Advantage
The
role of MA plans in the Medicare program has always been controversial, in part
because early estimates of MA plans’ effects on cost and quality of care were
ambiguous. Analyses of cost differencesperformed
in the 1980s and 1990s found that MA enrollees cost the program more than they
would have had they been enrolled in fee-for-service Medicare (MA enrollees
were healthier than fee-for-service enrollees according to criteria not
included in the risk adjustment methods used at the time). More sophisticated
risk adjustment methods have reduced the effects of “favorable
selection” into MA plans. Early
cost comparison efforts faced another critical limitation: the absence of
individual claims for beneficiary use in MA. Because MA plans were not required
to provide this data, early studies were usually based on indirect comparisons
of service use in MA plans versus fee-for-service Medicare.
New Evidence On Cost And Quality
A
forthcoming study by Vilsa Curto and colleagues uses detailed
claims data for 2010 covering a large share of the MA market and shows that
health care spending per enrollee per month in MA is 9 percent to 30 percent
lower than in fee-for-service Medicare. The study further shows that this
difference in spending vis-à-vis fee-for-service Medicare is due primarily to
lower use of services in MA plans, not lower prices paid to providers for
services.
Reduced
spending on health care services does not necessarily result in lower quality
of care. Joseph P. Newhouse and Thomas G.
McGuire reviewthe literature on quality of care comparisons and
conclude that, “because comparisons of MA’s and [fee-for-service Medicare’s]
quality are still severely limited, we cannot make an overall assessment with
confidence, but most of the few comparisons do favor MA. In other words, the
integration and coordination of care that MA fosters may well pay off in higher-quality
care.”
We now
have evidence that MA plans offer health care services of comparable or better
quality than fee-for-service Medicare, while spending 9 percent to 30 percent
less. There are three reasons to care about these results. First, wasteful
spending on government-sponsored health care programs creates an unnecessary
financial burden for beneficiaries and other taxpayers. Second, it robs other
government programs of needed revenue. Third, unnecessary encounters with the
health care system can place beneficiaries in harm’s
way.
Implications Of New Evidence For
Medicare Payment Policy
In
light of new studies affirming the benefits of MA, how can the payment system
be improved? Currently, MA plans submit bids to cover the cost of care for
their enrollees. Those bids are compared to a government-determined benchmark,
which reflects the cost of caring for similar beneficiaries in fee-for-service
Medicare. If an MA plan’s bid is below the benchmark, the plan receives part of
the difference to fund additional benefits and lower cost sharing. Most MA plan
bids are below the applicable benchmarks, and those plans receive a competitive
advantage from the extra benefits that result. However, as noted by Austin Frakt,
“the benchmark has nothing to do with plan costs.” Curto and colleagues found
that using fee-for-service Medicare costs as the benchmark for MA payments
resulted in $21 billion of overpayments in 2010.
Overpayment
of MA plans could be eliminated by basing government payments on bids submitted
by both fee-for-service Medicare and MA plans to cover the cost of Medicare’s
entitlement benefits. Medicare beneficiaries would be guaranteed access to at
least one health plan in their county for no more than the Part B premium, but
if they chose a more expensive health plan, they would pay the extra cost out
of pocket.
We reviewed 12
examples of Medicare’s attempts to use competitive bidding to price its payment
for particular health services. We concluded that: “All of the
competitive-pricing demonstrations that reached the point of bid
evaluation—even those using bidding models that were watered down under
provider pressure, as many were—demonstrated that they would save substantial
amounts of money.” Moreover, competitive bidding in various forms has been used
successfully for major Medicare benefits, including durable medical equipment
and Part D prescription drugs.
The Medicare Payment Advisory
Commission (MedPAC) has urged that government payments for the
Medicare entitlement benefit reflect a “policy of financial neutrality” for the
MA program that exerts “consistent financial pressure on both the [fee-for
service Medicare] and MA programs.” In addition, MedPAC has expressed concern
that, in some market areas, the MA share of the market has grown large enough
that the remaining beneficiaries in fee-for-service Medicare do not provide a
reliable basis for the benchmark. The obvious way to address both points is to
introduce competitive pricing with fee-for-service Medicare as one of the
bidding health plans in each market area and to use its bid, along with MA
bids, to set the benchmark. Fee-for-service Medicare’s price would be compared
to the prices of MA alternatives, giving beneficiaries a price signal they now
lack in choosing between the two types of plans. In a competitive bidding
system, if fee-for-service Medicare were more expensive in a given area,
beneficiaries would have to pay an additional premium for the extra cost.
Easing Objections To Competitive Pricing
The
main objection to competitive bidding systems is political. MA plans are
accustomed to competing through marketing and services. Competitive bidding
based on the entitlement benefit package forces all health plans to compete on
price. MA plans and many beneficiary advocates have resisted competitive
bidding on price since the inception of the program, and that has translated
into serious political resistance to competitive bidding.
Opponents
of competitive pricing rightly point out that charging “extra” (above the Part
B premium) for fee-for-service Medicare would require a change in the
entitlement legislation. However, the recent evidence on cost and quality of MA
versus fee-for-service Medicare, coupled with the pressure that entitlement
programs put on the federal budget, suggests that the time has come to
seriously consider such a change. Why spend so much on Medicare entitlement
benefits when an equally good alternative is available for less?
Moving
to a full competitive bidding system should respect the reasonable expectations
of beneficiaries about their out-of-pocket costs and terms of coverage in the
short run. There are several ways to ease the transition to a more efficient
system. First, the new system could be introduced over a number of years. The
new benchmark could be a mix of fee-for-service Medicare costs and the bids,
gradually increasing the contribution of the bids over time and allowing
beneficiaries to adjust. Second, the savings from competitive bidding could be
used to enhance what beneficiaries are receiving: for example, to improve the
entitlement benefits or to reduce the Part B premium.
Conclusion
We have
no illusion that these enhancements will make the opposition to competitive
bidding for the entitlement benefit disappear. However, recent evidence
underscores the need to work toward a better system that encourages all health
plans to compete on both price and quality of care, to move benchmarks closer
to the true costs of care for fee-for-service Medicare and MA, and to bring the
incentives for beneficiary choice between fee-for-service Medicare and MA into
better alignment with the cost of those different options.
https://www.healthaffairs.org/do/10.1377/hblog20181207.837174/full/
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