Date: March 9th, 2016
Medicare Advantage plans, also called “MA Plans” or “Part C,” are private insurance plans regulated by the Centers for Medicare and Medicaid Services (CMS), covering Part A (hospital insurance) and B (outpatient services) of traditional Medicare.
MA Plans differ from traditional Medicare in two important ways. Foremost, MA Plan payments are fixed, while traditional Medicare is fee-for-service (FFS). These fixed payments incentivize physicians to focus on more preventative and early-stage services because it is cheaper to keep patients healthy and provide treatment before diseases progress. This differs from the FFS model, which compensates physicians for each medical service provided to patients, incentivizing physicians to maximize the quantity and cost of services delivered. Furthermore, MA Plans are designed to cover more innovative medical services such as home care. They also put an emphasis on early chronic disease care, disease management plans, and care coordination for multiple chronic conditions.
Since the payments for Medicare Advantage are fixed, CMS adjusts payment amounts annually to reflect the expected cost of care for the following year. The soundness of the MA Plans is contingent upon patients receiving early and accurate diagnosis from their physicians. If projections are inaccurate, MA Plans may not have the resources necessary to provide patients with all of the medical services they require in a year. Older adults living with multiple chronic conditions are particularly inclined to switch out of MA Plans if annual adjustments do not account for all of their needs.
In February, CMS released a document detailing changes to the way MA will determine the payment amounts for FY2017. However, CMS did not release information assessing the consequences of these proposed changes, making it difficult for the health care community to understand their potential impact. Consequently, America’s Health Insurance Plans (AHIP) commissioned a study through the actuarial firm Oliver Wyman, which concluded the proposed changes for duel eligible and disabled MA Plan beneficiaries will result in a 2.1 percent cut for the program. These types of cuts are likely to result in a “high degree disruption in the MA market.”
It would be unfortunate if the proposed changes reduced the innovation and effectiveness of this popular program. Nearly one third of Medicare eligible beneficiaries on a MA Plan and 91 percent of MA beneficiaries are satisfied with the program. By design, the structure of MA should be incentivizing early intervention to reduce disease progression and coordinated care. Major disruption to the MA Plan market is a surefire way to prolong the costly FFS model and weaken value-based models of care.
If you are concerned about the rising cost of health care in the United States, we encourage you to join the Better Medicare Alliance. You can also follow the Alliance for Aging Research on Facebook and Twitter for additional news on this issue.