The Future of General Health and Medicare Insurance Programs SEAC Annual Meeting November 15, 2012 Greg Winkler, FSA, MAAA GregW@Wakely.com, 727-507-9858 x7473 2 History of Medicare (pre ACA) Social Security Act of 1965 Medicare created by Title XVIII Part A provides hospital insurance (HI). Part B provides supplementary medical insurance (SMI). Medicaid - created by Title XIX federal matching funds for the states to finance health care. Balanced Budget Act of 1997 Medicare Part C (Medicare+Choice) then later called Medicare Advantage allows enrollees to receive Medicare benefits through private plans. Medicare Modernization Act of 2003 Changed Medicare Advantage revenue calculation Medicare Part D (pharmacy benefit) stand alone or with Med Adv Encouraged employers to provide retiree Rx benefits (EGWP, RDS, etc.) 1
3 Medicare Financing Part A Payroll tax of 2.9% (HI Trust Fund) additional.9% on high incomes in 2013 (ACA funding) Part B (SMI Trust Fund) general revenue enrollee premium $99.90 in 2012 Higher premium for income greater than $85,000 Part C portion of HI and SMI trust funds Part D general revenue enrollee premium (complicated formula) 4 Medicare Supplement Fills in the Medicare gaps of deductibles, coinsurance, etc. (~30%) Also called Medigap First policies issued by Bankers Life in 1971 Must be enrolled in Parts A and B to purchase Exclusive of Medicare Advantage Benefits standardized in 1992 Other benefit changes January 1, 2006 No marketing of plans with pharmacy benefits June 1, 2010 Changes to existing plans New Plans M and N (consumer driven flavor) 2
Medicare Spending as a Percent of Gross Domestic Product, 2000-2030 5 NOTES: HI is Hospital Insurance. SMI is Supplementary Medical Insurance. Numbers may not sum to total due to rounding. SOURCE: The Kaiser Family Foundation, Kaiser Fast Facts. http://facts.kff.org/chart.aspx?ch=2589 Data Source: 2011 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. 6 ACA Medicare Impact ( to Gov t spending) Mandates free preventive services Reduces payments to non-physician providers Creation of Independent Payment Advisory Board (IPAB) Medicare Advantage benchmark calculation changes intended to reduce to FFS long-term (phased in by 2017) Closes Part D doughnut hole by 2020 Retiree Drug Subsidy no longer tax free (accounting charges) Minimum Med Adv MLR beginning 2014 85% Awaiting details likely similar to commercial 3 Years below minimum = no new sales 5 Years below minimum = contract not renewed Estimated Financial Impact to Medicare benefits? 3
Change in Projected Medicare Spending, 2010-2019, Between March 2009 and March 2011 Medicare Baseline Spending (in $ billions) $1,000 $900 $800 $700 $600 $500 March 2009 $516 $520 $565 $574 $563 $560 Average annual growth rate, 2010-2019: Baseline Medicare Spending: 6.8 percent Spending after health reform: 5.6 percent $629 $600 $690 $632 $718 $662 $780 $717 $812 $747 $846 $779 March 2011 $400 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 NOTE: Estimates do not include possible changes to the Sustainable Growth Rate formula to prevent reduction in fees. SOURCE: The Kaiser Family Foundation, Kaiser Fast Facts. http://facts.kff.org/chart.aspx?ch=2593 Data Source: Medicare Baseline Spending before reform from CBO, March 2009 Baseline: MEDICARE; after reform from CBO, March 2011Baseline: MEDICARE. $935 $848 7 8 Google $716 Results Romney's right: Obamacare cuts Medicare by $716 billion. Here's how. Tiny Explainer: What's Up With the $716 Billion in Medicare Cuts? Mitt Romney says Obama 'robbed' Medicare of $716 billion. True... Romney's $716B Medicare cut attack is dubious - CBS News Fact-Checking the Obama Campaign's Defense of its $716 Billion... How Obamacare's $716 Billion in Cuts Will Drive Doctors Out of... Understanding $716 billion - Health Stew - Boston.com PolitiFact Paul Ryan said President Obama funneled $716 billion... PolitiFact Mitt Romney said Barack Obama robs Medicare of more... Romney hits Obama for cutting $716 billion from Medicare to pay for... Romney says he'll put 'the $716 billion back' in Medicare 4
9 ACA Balancing Act Source: http://www.forbes.com/sites/aroy/2012/08/16/fact-checking-the-obama-campaigns-defense-of-its- 716-billion-cut-to-medicare/ 10 What s in the $716B? $415B Payment Reduction $260 Hospital $39 SNF $17 Hospice $66 Home Health $33 Other $156B Medicare Advantage Reduction $56B Reduction in DSH Payments ($31B in Medicare and $25B in Medicaid) $114B Other Provisions Source: CBO Letter to Congress, July, 24, 2012 5
11 Payment Reduction Impact Long-term viability concerns - some providers may not continue to see Medicare patients or service will suffer The annual price updates for most categories of nonphysician health services will be adjusted downward each year... The best available evidence indicates that most health care providers cannot improve their productivity to this degree or even approach such a level as a result of the labor-intensive nature of these services. -2010 Trustees Report Facilities operating at a loss: 15% (2019), 25% (2030), 40% (2050) -2012 Trustees Report 12 Medicare Advantage Reduction Impact Changes to Benchmark and Rebate Calculations MA Payment = Bid+(Benchmark-Bid)*Rebate % Benchmark (BM) Calculation Change Transition from pre-aca to FFS over 2, 4, or 6 years County Quartiles (95%,100%,107.5%,115% of FFS) Quality Bonus Payment (QBP) based on Star Rating Pre-ACA BM*(1-Weight) + FFS BM*(AP+QBP)*Weight Quality Bonus Demonstration (2012-2014) Expanded thresholds and Increased Bonus % Changed Formula Pre-ACA BM*(1+QBP)*(1-Weight) + FFS BM*(AP+QBP)*Weight 6
13 Quality Bonus Demonstration (2012-2014) Quality Bonus % Quality Bonus % 5 Star ACA Demo 4 Star ACA Demo 2012 1.5% 5.0% 2012 1.5% 4.0% 2013 3.0% 5.0% 2013 3.0% 4.0% 2014 5.0% 5.0% 2014 5.0% 5.0% 2015 5.0% n/a 2015 5.0% n/a Quality Bonus % Quality Bonus % 3.5 Star ACA Demo 3 Star ACA Demo 2012 0.0% 3.5% 2012 0.0% 3.0% 2013 0.0% 3.5% 2013 0.0% 3.0% 2014 0.0% 3.5% 2014 0.0% 3.0% 2015 0.0% n/a 2015 0.0% n/a Source: CMS Rate Announcement, April 4, 2011 14 Medicare Advantage Benchmark (Nationwide Average) $950.00 $900.00 $850.00 $800.00 Pre-ACA 5-Star 4-Star 3.5-Star 3-Star <3-Star FFS $750.00 $700.00 2012 2013 2014 2015 2016 2017 Source: WakelyConsulting Group, Inc. Model 7
15 Medicare Advantage Enrollment Impact -Medicare market share reduction (24% to 13%) -2012-2014 understated due to demonstration Source: CBO Projections, March 2011, http://www.ahipcoverage.com/2011/03/22/the-impact-of-the-aca-on-medicare-advantage/ 4.0 Star Plan (2013 to 2014) 16 8
17 4.0 Star Plan (2014 to 2015) 18 3.5 Star Plan (2013 to 2014) 9
19 3.5 Star Plan (2014 to 2015) 20 Conclusions Reduction in Medicare Advantage enrollment Large reduction in 2015 Increase in Medicare Supplement enrollment More barriers for Med Adv entrants (QBP,MLR) Employers more EGWPs, less RDS Continued struggles with Medicare financing Medicare eligibility age? What will IPAB do? Defined contribution model? Reduction in Growth rate? Cost-sharing increases? 10
21 References Slide 9 - http://www.forbes.com/sites/aroy/2012/08/16/fa ct-checking-the-obama-campaigns-defense-of-its- 716-billion-cut-to-medicare/ Slide 10 CBO Letter to Congress, July 24, 2012 Slide 13 CMS Rate Announcement, April 4, 2011 Slide 14 Wakely Consulting Group, Inc. Model Slide 15 CBO projection March 2011 http://www.ahipcoverage.com/2011/03/22/theimpact-of-the-aca-on-medicare-advantage/ 22 Abbreviations ACA Affordable Care Act AP Applicable Percentage DSH Disproportionate Share Hospital EGWP Employer Group Waiver Plan FFS Fee for Service HI Hospital Insurance MA Medicare Advantage MLR Minimum Loss Ratio RDS Retiree Drug Subsidy SMI Supplementary Medical Insurance 11