Managed Care Digest Series®

Looking Forward

Private Health Plan Part of Medicare Enrollment Nears 20%

That Medicare Advantage (MA) plans are required to give beneficiaries additional benefits or rebates on their premiums if the plans’ Medicare benefits are less than the amount of their payment from the government has contributed to their growing popularity: Nearly 20% of Medicare beneficiaries are now MA plan enrollees. The cost differential is particularly large in private fee-for-service (PFFS) plans, whose enrollment more than doubled.

More HMOs Permit Patient RX Choice

A growing share of plans that serve government beneficiaries are allowing their members the choice between brand name and generic drugs when filling a prescription. The share of Medicare HMOs that permitted such a choice rose to more than 87% in 2007 from 79% in 2006, while the share of Medicaid HMOs with such a policy grew to just under 93% from 83%. Although there is evidence to suggest that members and HMOs alike save money when a prescription is filled with generic rather than brand drugs, a generics-only policy is not without its complexities. A recent case study published in Health Affairs examined a Medicare HMO that switched to generics-only coverage. The plan did cut pharmacy costs, yet its members had higher overall out-of-pocket pharmacy payments, lower rates of adherence, and higher rates of hospitalizations. Ultimately, the HMO had higher medical costs that all but erased the savings on the pharmacy side. Strategies for reducing pharmacy costs often involve striking the proper balance between open and restrictive pharmacy policies.

HMOs Boost Physicians Per Medicare Members Average

The boost in the number of physicians per Medicare HMO member in recent years is, in part, the result of an evolving system increasingly responsive to the demand for customer choice. HMOs initially used primary care physicians (PCPs) as gatekeepers who controlled access to medical specialists and other resources. This system eventually came under criticism for delaying treatment and limiting patient choice. In the end, owing to the considerable bureaucratic maintenance required, the gatekeeper model created as many problems as it resolved. More recently, many HMOs have loosened physician restrictions, allowing patients open access to specialists. Meanwhile, recent legislation has contributed to an increase in Medicare HMO enrollment. Once skeptical (if not downright suspicious) of managed care, some physicians are now more willing to participate in HMO panels. New rates and prompt payments have made Medicare HMOs a more attractive option. The growth of HMO physician networks has outpaced even the substantial gains in Medicare HMO enrollment. Between 2002 (11.9) and 2007 (18.6), the number of PCPs per 1,000 Medicare HMO members increased by more than half. Similarly, the number of specialists per 1,000 Medicare HMO members has risen for six straight years, to 39.4 in 2007 from 20.8 in 2001. Moreover, the data suggest that members are taking advantage of the boost in physicians, as Medicare HMO members have averaged more physician encounters in each of the three years from 2005 (7.8) to 2007 (8.9). We can expect this trend to continue as the system strives for a balance that benefits all.

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Auto-Enrollment Into Part D Affect Dual-Eligible Coverage

On January 1, 2006, responsibility for the prescription drug coverage of more than 6 million individuals dually eligible for Medicare and Medicaid benefits shifted from individual states to the federal government. Switching drug coverage for these dual-eligibles to privately administered Medicare Part D prescription drug plans (PDPs) addressed many fundamental issues in the Medicaid system, including the confusing diversity of benefits packages, low reimbursement rates, and vulnerability to billing fraud. Yet, although this shift simplified many of the complexities of the old state-funded Medicaid system, the auto-enrollment process also created significant challenges. The auto-assignment of dual-eligibles into Medicare Part D plans was useful in that it simplified beneficiary enrollment in participating PDPs, reduced administrative work, and ensured that there were no gaps in coverage during the transition. But, in the early stages of the transition, it also created a number of problems. For example, many dual-eligibles were initially unable to fill prescriptions because their eligibility could not be verified. Other problems included beneficiaries’ inability to obtain non-formulary drugs and discrepancies over premiums and deductibles. In 2008, 17 companies sponsored PDPs in all 50 states, up considerably from just 10 companies in 2006. As the number of organizations offering prescription drug benefits grows, the variations in coverage among these PDPs will likely increase. With approximately 200,000 dual-eligibles auto-enrolled into PDPs every six months, coverage of this newest group of Medicare beneficiaries will continue to be under close scrutiny.

Provider Access/Extra Payment Fuel PFFS Enrollment Growth

Medicare Advantage (MA) plans were instituted to compete with traditional fee-for-service (FFS) Medicare by offering reduced costs and added benefits to potential enrollees. Private fee-for-service (PFFS) plans, by comparison, were created to offer Medicare beneficiaries health care options beyond the common network restrictions and utilization controls. The expectation was that Medicare beneficiaries would be more than willing to pay the additional cost of these private health plans in exchange for increased access to the providers of their choice. However, Medicare, not the beneficiaries enrolled in PFFS plans, has been covering the differences in cost. The Center for Medicare Advocacy, for its part, has argued that PFFS plans are significantly overpaid, receiving average payments 19% greater than what Medicare would pay a PFFS enrollee covered under the traditional Medicare platform. These added Medicare payments and fewer network restrictions have been the catalyst for massive enrollment growth in private health plans: By February 2007, PFFS plans enrolled about 1.3 million beneficiaries, up from roughly 200,000 in December of 2005. In spite of their popularity, some studies have shown that PFFS members often have difficulty finding doctors who will treat them. Moreover, these plans are not required to either undergo a CMS review of rates and premiums or to provide prescription drug coverage for its members. Even though PFFS plans may provide greater provider access and expanded payments, it is important to ensure that they retain the protections provided by traditional Medicare.

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US.NMH.10.01.016 Last Update: August 2010