ENHANCING VALUE IN MEDICARE

1. ENHANCING VALUE IN MEDICARE Brian Biles, MD, MPH The George Washington University January 14, 2007

2. Two Approaches to VALUE IN MEDICARE • Traditional fee-for-service Medicare • 83 percent of total Medicare beneficiaries • Use of private plans in Medicare • 17 percent of total Medicare beneficiaries

3. Focus forVALUE IN MEDICARE • Value to Federal government • Value to Medicare elderly and disabled beneficiaries

4. Value to Federal GovernmentPAYMENTS TO MA PLANS • Private MA plans are now paid, in the aggregate, more than average costs in traditional fee-for-service Medicare • Average of 12.4 percent • $922 per enrollee • $6 billion in total annual extra payments

5. Value to Federal GovernmentPAYMENTS TO MA PLANS • Private MA plan payment benchmarks are higher than fee-for-service (FFS) Medicare in every county in the nation • Payment in urban and rural floor counties are set by statute at a projected average of 20 percent and 17 percent more than FFS • Double payment for hospital indirect medical education costs • Extra payments for risk adjustment payments through 2010

6. Extra Payments to MA Plans Above Fee-for-Service Costs Source: George Washington University analysis of CMS Managed Care quarterly State County Plan data file for the quarter ending December 2005, Medicare Managed Care quarterly State County Market Penetration data file for the quarter ending December 2005 and Medicare Advantage 2007 Ratebook; Transcript of Public Meeting, Medicare Payment Advisory Commission (MedPAC), April 21, 2005. Note: Projections for 2007. Figures above include BNRA and FFS normalization. Assumes 4 percent reduction in extra payments to account for MA benchmark-based bidding.

7. Share of Extra Payments to MA Plans Source: George Washington University analysis of CMS Managed Care quarterly State County Plan data file for the quarter ending December 2005, Medicare Managed Care quarterly State County Market Penetration data file for the quarter ending December 2005 and Medicare Advantage 2007 Ratebook; Transcript of Public Meeting, Medicare Payment Advisory Commission (MedPAC), April 21, 2005. Note: Projections for 2007. Figures above include BNRA and FFS normalization. Assumes 4 percent reduction in extra payments to account for MA benchmark-based bidding.

8. Value for Medicare BeneficiariesENROLLMENT IN MA PLANS • Private MA plan enrollment is heavily concentrated • 55 percent of MA enrollment is in just 4 States: California, Pennsylvania, Florida, and New York • Even in those states with the highest share of MA enrollment, less than one third of total beneficiaries in the state are enrolled in MA plans: • California 31% • Pennsylvania 25% • Florida 20% • New York 19%

9. MA Enrollment is Heavily Concentrated Percentage of Medicare Beneficiaries Enrolled in MA Plans, by State Source: CMS Dec 2005 Enrollment data

10. Value for Medicare BeneficiariesMA BENEFITS FOR SENIORS • Private MA plan benefits vary greatly • Out-of-pocket costs for MA enrollees in poor health range from an average of about $600 per year in Miami to nearly $6,000 per year in Providence, St. Louis and San Francisco • Private MA plans may design their own benefit package • Not like Medigap plans that must provide one of a set of defined benefit packages

11. Estimated Out-of-Pocket Costs for MA Enrollees in Poor Health by Plan Note: Figures for 2006. 186 Plans shown.

12. Value to Medicare BeneficiariesMA PLAN COSTS FOR PROVIDING BENEFITS • Private MA plans can have higher costs for providing benefits than FFS Medicare for good reasons: • Administrative costs of 11 percent • Higher payments to providers of up to 20 percent • Less utilization review for quality and intensity of care since managed care backlash at end of 1990s.

13. ENHANCING VALUE IN MEDICARE • Medicare payments to MA private plans average 12.4 percent more than average FFS costs • MA plan enrollment isheavily concentrated by state and city • Out-of-pocket costsvary widely for MA enrollees

14. ENHANCING VALUE IN MEDICARE Brian Biles, MD, MPH The George Washington University January 14, 2007