Thursday, September 02, 2021

How will Medicare enhancement change the current public-private Medicare ecosystem?

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Democrats' aspirations to add dental, hearing and vision benefits to Medicare raises questions about the interactions between tradition, fee-for service (FFS) Medicare, Medicare Advantage (MA), and Medigap. These center on MA's growing market share, its funding mechanism, the gaps in FFS Medicare coverage that MA plans partially fill, and the value of Medigap for those who can afford it (or whose employers fund it).

Below, a brief outline (distilled mainly from KFF briefs) of how the three programs (FFS, MA and Medigap) interact/compete at present, followed by questions about how pending legislation may alter the ecosystem.

1. Medicare Advantage costs the federal government more. A KFF analysis found that "payments to Medicare Advantage plans were $321 higher per enrollee than spending by comparable beneficiaries in traditional Medicare in 2019. That led to an estimated $7 billion in additional spending in that year."

2. MA plans offer benefits not available in FFS Medicare, detailed in this KFF overview.  Perhaps the most valuable extra benefit is a yearly cap on out-of-pocket (OOP) costs, which averages $5,091 for in-network services, and, in PPOs, $9,208 for combined in-network and out-of-network services.  Two thirds of MA enrollees pay no premium beyond the standard Part B Medicare premium, and almost all MA plans include a prescription drug plan. Also, the KFF overview reports, "Most enrollees in individual Medicare Advantage plans... are in plans that provide access to eye exams and/or glasses (99%), hearing exams/and or aids (97%), telehealth services (94%), dental care (94%), and a fitness benefit (93%).  (Those are big "and/ors": hearing, dental and vision coverage may be quite limited.) The major tradeoff for enrollees is that MA plans, to widely varying degrees, limit access to providers, and generally require prior authorization for a range of services (also widely varying). While MA plans cap OOP costs, they generally require more OOP spending than Medigap plans.

3. The MA value proposition is uncertain. What's not clear is whether current payment arrangements for MA plans constitute an efficient way to offer these extra benefits. They are paid for largely by rebates from the federal government: MA plans bid against a benchmark per-enrollee cost set by CMS, designed to be comparable to local FFS Medicare costs. That keeps their payment rates to providers close to FFS Medicare rates.  If they bid below the benchmark, they can spend a portion of the difference on additional services. They get increased rebate payments for achieving high (and apparently rather grade-inflated) quality ratings.  Evidence suggests that they further goose revenue by gaming the risk adjustment formula, which compensates plans with sicker than average enrollees.

4. Medigap policies in many senses offer the keys to the U.S. healthcare kingdom. Broadly speaking, Medicare Advantage plans fill an, um, gap for those who can't afford (or think they can't afford) Medigap policies (or whose former employers subsidize MA plans for retirees). Medigap policies effectively unlimited choice of providers, with minimal out-of-pocket costs (unless you use expensive drugs, covered by Part D, which has no annual out-of-pocket cap). But they generally cost at least $70/month (and, for the most generous types, often upwards of $200/month) on top of Medicare Part B and D premiums, and they don't cover hearing/dental/vision. (Plans with a deductible of $2,340, available in some states, can be much cheaper, offering a relatively cheap de facto OOP cap.)  For people who can't readily afford Medigap coverage or don't have it subsidized by an employer, MA can seem like the only game in town. For most MA enrollees, total premium is the current Medicare Part B premium, $148.50/month -- compared to $250-400+ per month for Medicare Parts B and D plus Medigap, and no dental/hearing/vision coverage. 

5. Medicare Advantage enrollment has been growing by leaps and bounds, more than doubling from 2012 to 2021 and now accounting for 42% of all Medicare enrollment. CBO projects that MA share will reach 51% by 2030. That raises a question whether traditional Medicare's role in benchmarking MA payment and setting provider payments rates will eventually be compromised.

My questions:

1. Adding dental/hearing/vision benefits to FFS Medicare will cost a lot. Presumably, the benchmarks that set federal per capita payment rates for MA plans will also rise accordingly. MA dental/hearing/vision benefits are often quite limited. Will they have to be restructured to match the FFS benefit baseline?

2.  Adding Hearing/Dental/Vision coverage to FFS Medicare could slow growth in MA market share.  Maybe not so much, since as far as I can tell Democrats are not talking about an annual out-of-pocket cap on costs. But some. When Democrats write an actual bill, and CBO scores it, will the estimated costs be somewhat offset by an estimated drop or slowdown in MA enrollment?

3. The biggest gap in FFS Medicare is the lack of an annual OOP cap.  Only a bit less than 6 million Medicare enrollees are subject to the lack of OOP cap, however: the rest are in MA, Medigap, or Medicaid (as dual eligibles, who are increasingly enrolled in MA Special Needs Plans).  Adding an OOP cap to FFS Medicare, along with dental/hearing/vision coverage, would alter the MA and Medigap markets. Democrats don't seem to be talking about it. But is there some way to provide an OOP cap just for the relatively small population that's currently subject to it? One especially Byzantine corner of our Byzantine Medicare ecosystem is an array of four Medicare Savings Programs offered to low income enrollees, each with its own income and asset limits. This hodge-podge kludge is insane, and I don't want to be the one to suggest adding to it. It could be streamlined, however, with eligibility simplified and expanded.  Taking into account limited Democratic capacity with a one-vote Senate majority and four-vote House majority: can they find some way to avoid leaving any Medicare enrollees OOP capless?

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  1. Good Observation: "The biggest gap in FFS Medicare is the lack of an annual OOP cap."

    Separately, calling our Medicare system "byzantine" is of course accurate, and of course applies to the whole U.S. health care system.

    As a fine point on the byzantine complexity making a coverage-gap on Medicare a thing just waiting to happen, I note that one can not stop worrying about pre-existing conditions on Medicare.

    In particular because if a person doesn't get and continuously hold a Medigap policy in a small window around the start of reaching Medicare age 65, then at later ages, they can be excluded from Medigap plans at later ages on the grounds of pre-existing conditions. (Ref: )

    (The rule apparently comes from trying to avoiding adverse selection: the rule tries to prevent people from picking up a Medigap plan just when they get sicker. It's analogous to, in pre-ACA days, in community-rated states like NY and NJ, the exclusion of pre-existing-conditions coverage for a period for people without continuous prior coverage.)

    Thus, one has to be careful on Medicare: if a person wants the option of traditional FFS Medicare with a supplemental, they essentially lose it if they don't start Medicare at 65 with the supplemental and hold the supplemental continuously.

    They have to avoid Medicare Advantage (with the exception of a brief allowed trial period--see the ref above).

    Medicare Advantage seems to be different: you can pick up any one of those plans at any time, regardless of pre-existing conditions, and regardless of whether you prior had traditional FFS Medicare, and regardless of whether you purchased a supplemental for that traditional FFS Medicare. (Adverse-selection risk exists from this aspect, but is not addressed by any rule. A little inconsistency there, but a minor for the U.S. health insurance system!) (Ref: .)

    So, it's just a little pre-existing-conditions complexity for the folks 65 and up to have to deal with.

  2. The cost of adding dental, vision, and hearing benefits to Medicare has been estimated at $350 billion over ten years.

    But these ten year estimates are very misleading. I always restate these amounts in annual terms for greater understanding. The annual cost would be about $35 billion a year, which is just 5% of the $750 billion annual Medicare spending.

    In many cases, the dental-vision-hearing coverage in current MA plans is puny. A policyholder might get a $400 discount on a $2500 hearing aid....big deal!