Medicare Advantage: The overlooked cornerstone of healthcare reform June 8, 2013 Grace-Marie Turner Galen Institute Medicare: Still basically the 1965 model A social insurance program to help pay for hospital and physician visits, diagnostic tests, medical equipment, and many other medical goods and services, paid on a fee-for-service basis. A prescription drug benefit was added 40 years later (decades after private plans integrated drug and medical coverage). Galen Institute www.galen.org 1
Who gets Medicare? Medicare will spend $600 billion this year on health benefits It covers 50 million people 41 million senior citizens age 65 and over 9 million disabled people People with a physical or mental condition that makes it impossible for them to work People with End Stage Renal Disease receiving dialysis A & B: Medicare s Original Parts Part A helps pay for hospital, home health, hospice care and other institutional care for the aged and disabled Part B is an allegedly voluntary program that helps pay for physician, outpatient hospital, home health, and other services Galen Institute www.galen.org 2
C and D: Medicare s newer parts Part C is an alternative to traditional Medicare. Beneficiaries can enroll in private Medicare Advantage plans that contract with Medicare to provide medical, hospital and sometimes drug coverage to those who choose these plans Part D is a voluntary yprogram that provides subsidized access to prescription drug coverage for all beneficiaries and subsidies for premiums and cost-sharing for low-income people Part D: Such a deal! The Congressional Budget Office said that spending for the prescription drug benefit declined by nearly 40% compared to initial estimates of its 10-year cost It is saving seniors money as well. The average It is saving seniors money as well. The average monthly drug premium is about $30, far below the $53 forecast originally. Galen Institute www.galen.org 3
Average Health Insurance and Prescription Drug Spending As a Share of Total Household Spending by Medicare Households, 2002-2009 Health Insurance Spending Prescription Drug Spending SOURCE: Kaiser Family Foundation analysis of the Bureau of Labor Statistics Consumer Expenditure Survey Interview and Expense Files, 2002-2009, Health Care on a Budget, The Financial Burden of Health Spending by Medicare Households, An Updated Analysis of Health Care Spending as a Share of Total Household Spending, June 2011. Part D: A model for Medicare reform Seniors would get an annual subsidy to purchase a Medicare-approved health plan. The plan would allow seniors to pick the health plan that meets their needs. The older they are, the bigger the payment they would get. Sicker people would get more. Galen Institute www.galen.org 4
Why changing to Medicare is essential and inevitable Federal spending as a % GDP Galen Institute www.galen.org 5
Medicare as a Share of the Federal Budget, 1980-2020 Federal spending (in billions) Medicare spending (in billions) $4,932 $3,456 $1,789 $591 $34 $1,253 $107 $216 $520 $889 1980 1990 2000 2010 2020 Medicare as a share of the federal budget 5.8% 8.5% 12.1% 15.1% 18.0% SOURCE: Historical spending for 1980 2010 from Congressional Budget Office (CBO) Budget and Economic Outlook: Historical Budget Data (January 2011); projected spending for 2020 from CBO Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022 (August 2012). I paid for my Medicare! Consider this A couple retiring today with both spouses earning an average wage throughout their careers would have paid $109,000 in total Medicare payroll taxes during their lifetimes. Yet the expected spending by Medicare on the couple will be $343,000. Galen Institute www.galen.org 6
Historical and Projected Number of Medicare Beneficiaries and Number of Workers Per Beneficiary Number of Beneficiaries (in millions) Number of Workers Per Beneficiary SOURCE: 2010 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. Back to Part C: Back to Part C: Medicare Advantage Galen Institute www.galen.org 7
Medicare Advantage Beneficiaries can enroll in a private plan, such as a health maintenance organization or preferred provider organization. Plans receive payments from the government to provide all Medicare-covered benefits, often including drug benefits, vision and dental services. More than a quarter of all people in Medicare have voluntarily enrolled in Medicare Advantage plans. Premiums and cost sharing Medicare Advantage enrollees generally pay the monthly Part B premium and possibly an additional premium directly to their plan. Premiums vary by plan type and are lower for HMOs ($30 per month) than for PPOs ($64 per month). Medicare Advantage plans are required to limit beneficiaries total out-of-pocket spending each year (the maximum is $6,700 in 2013). Costsharing requirements vary widely across plans. Galen Institute www.galen.org 8
Medicare Benefit Payments By Type of Service, 2012 Outpatient Prescription Drugs 11% 26% Hospital Inpatient Services Part A Part B Part A and B Part C Medicare Advantage 22% 6% Skilled Nursing Facilities Part D Other Services* 13% Home Health 4% 6% 14% Hospital Outpatient Services Physician Payments Total Benefit Payments = $556 billion NOTE: Does not sum to 100% due to rounding. Excludes administrative expenses and is net of recoveries. *Includes hospice, durable medical equipment, Part B drugs, outpatient dialysis, ambulance, lab services, and other services. SOURCE: Congressional Budget Office, Medicare Baseline, March 2012. Galen Institute www.galen.org 9
Distribution of Enrollment in Medicare Advantage Plans, by Plan Type, 2011 Other 3% PFFS plans 5% Regional PPOs 9% Local PPOs 18% Traditional Fee-forservice Medicare 75% Medicare Advantage 25% HMOs 65% Total Medicare Advantage Enrollment, 2011 = 11.9 Million SOURCE: MPR / KFF analysis of the Centers for Medicare and Medicaid Services (CMS) Medicare Advantage enrollment files, 2011. Distribution of Medicare Advantage Plans by Plan Type, 2007-2011 NOTE: Other includes cost and demonstration plans. Excludes SNPs, employer-sponsored (i.e., group) plans, demonstrations, HCPPs, PACE plans, and plans for special populations (e.g., Mennonites). HMOs include Point of Service (POS) plans. SOURCE: MPR/KFF analysis of CMS s Landscape Files for 2007-2011. Galen Institute www.galen.org 10
Supplemental Coverage Among Medicare Beneficiaries, by Income, 2008 All beneficiaries 41.8 million $10,000 or less $10,001-20,000 $20,001-30,000 $30,001-40,000 $40,001 or more 5.9 million 8.9 million 6.8 million 6.4 million 7.7 million NOTES: Numbers may not sum due to rounding. SOURCE: Kaiser Family Foundation analysis of the CMS Medicare Current Beneficiary Survey Access to Care File, 2008. Major Medicare policy initiatives Current Initiatives ACO Program Medicare Shared Savings Program Pioneer ACOs (CMMI) Advance Payment ACOs (CMMI) Hospital Value Based Purchasing & Readmissions Penalties Medicare Advantage Five-Star Bonus Program Comprehensive Primary Care Initiative (CMMI) Partnership for Patients (CMMI) Upcoming Initiatives Bundled Payment Initiatives (CMMI) Physician Value Modifier Galen Institute www.galen.org 11
Political dangers ahead The ACA targets Medicare Advantage for a disproportionate share of Medicare cuts. UnitedHealth is cutting back on its Medicare Advantage participation UnitedHealth Group CEO Stephen Hemsley: Medicare Advantage rates are still far too low and that the company may shrink its business of managing care for seniors. We did not expect the fastest growing, most popular and most effective Medicare benefit option serving America s seniors to be underfunded to this extent in 2014, Hemsley said on a conference call with investment analysts. UnitedHealth s Medicare Advantage business, he added, will likely experience market exits as well as in market membership contraction as we reshape Medicare networks and benefits to respond to the continuing underfunding of this program. But it is the model for reform Policy experts and many politicians from the right and center-left see Medicare Advantage as the platform for reform in the future It is not in political favor now, but growing budget problems will force Congress to act on Medicare spending, and MA is the likely cornerstone Galen Institute www.galen.org 12
Some realities: www.galen.org What we know for sure CHOICE: Americans value innovation, diversity and choice to accommodate 300 million people VALUE IN HEALTH SPENDING: Break down payment silos to realize the promise of personalized medicine and achieve overall cost saving FOCUS ON THE PATIENT: Doctors and patients, not government, should make health care decisions Galen Institute www.galen.org 13
Source: Frank Hill, The High Cost Impact of More Regulation and Admin/Executive Staff on Health Care Inflation, Telemachus, July 22, 2012, http://www.telemachusleaps.com/2012/07/the-high-cost-impact-of-more-regulation.html. A market-based solution Defined contributions for health coverage A system that puts doctors and patients in charge of medical decisions Slowing spending while preserving choice and quality Restructuring financing for a 21 st century health sector Medicare Medicaid Private Insurance Galen Institute www.galen.org 14
Grace-Marie Turner Galen Institute 703-299-8900 gracemarie@galen.org twitter.com/galeninstitute facebook.com/galeninstitute Subscribe to our free email alerts at www.galen.org/subscribe Galen Institute www.galen.org 15