What’s really happening to Medicare Advantage

From today’s Wall Street Journal, as reported by Avery Johnson,

For 2011, the Kaiser Family Foundation said there will be a 13% decline in the number of Medicare Advantage plans.

The pullback is largely due to a 2008 law that required the plans to have networks of preferred doctors, with the idea that managed care could be less costly and aggressive marketing could be curbed. Some providers of traditional fee-for-service policies decided to close the plans rather than invest in networks.

I wrote about this before and the details may help readers understand what’s going on. I’ll just borrow my own writing from several prior posts. If you’ve read those, the following will look familiar.

There is a new requirement imposed on private fee for service (PFFS) plans in 2011 that is responsible for the pull-outs.  Such plans are paid like other Medicare Advantage (MA) plans but, until now, were not required to establish networks, manage care, report on quality, offer drugs, among many other exemptions. They are essentially enhanced fee-for-service (original Medicare) products or subsidized Medigap. For all this, they are paid well above FFS cost. They have been the fastest growing type of plan, responsible for most of the recent increase in cost of the MA program.

PFFS plans are about to die or mutate into something unlike a PFFS plan. But it’s not because of changes in MA payment rates included in the ACA. It’s due to an earlier law. On July 15, 2008, Congress overrode a veto of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA). In 2011 MIPPA will rescind the PFFS provider network exemption in areas with at least two local network plans (HMOs or PPOs). That means that just about anywhere HMOs and PPOs exist, PFFS plans as we now know them cannot.

In a 2009 paper with Steve Pizer and Roger Feldman, I estimated that the MIPPA  provisions would cause half the PFFS plans to exit the market.

Who decided to craft a subsidized Medigap-like product in the form of PFFS, and when? The push began in 1997 by the National Right to Life Committee, which was concerned that Medicare HMOs would ration care. Then, in the final hours of the 109th Congress, outgoing Speaker Dennis Hastert slipped a provision into a 2006 tax and trade bill that favored PFFS plans over others. The provision permitted beneficiaries to preferentially switch coverage into PFFS plans long after the open enrollment period expired. Hastert’s efforts were applauded by Aon, whose subsidiary Sterling Life was the first carrier to market PFFS plans. Subsequently, PFFS plan enrollment took off.

Though a few special interest groups strongly supported the growth of PFFS plans, there was no deliberative debate about whether they make sense and deserve the degree of taxpayer largess and relative freedom from MA requirements they enjoy.

That doesn’t mean its departure isn’t disruptive to beneficiaries. It is. But one should’t blame the ACA and the current Congress for it. Blame MIPPA and the prior one. Or thank them. They’re saving taxpayers a lot of money, $47.5 billion over 2009-2018 according to Peter Orszag. I wish we could save a lot of money and cut a lot of waste out of the health system without inconveniencing people, but we can’t. Sorry.

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