Health Care Reform – Shaping the Landscape of Medicare Advantage
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Transcript Health Care Reform – Shaping the Landscape of Medicare Advantage
Mid-Atlantic Actuarial Club
Eric Mattelson, FSA
October 7th, 2010
1
Background on Medicare Advantage (MA)
Brief History
Differences From Traditional Medicare
Overview of the annual MA bidding process
Healthcare Reconciliation Bill
Outline key provisions that relate to MA –
purpose/motivation of each one
Implications to MA beneficiaries & plan sponsors
Outlook for MA going forward – what must plans do
to survive?
2
Education History
Amherst College – 2006
FSA – 2008
Work History
Aon Consulting (Baltimore) 2006-2008
Bravo Health (Baltimore) 2008-Current
Disclaimer
These are my personal opinions/interpretations
Please do not ask me to tape any NFL games – I do
not have express written consent…
3
Began in 1997 as Part of Balanced Budget Act
Known at the time as Medicare + Choice
Medicare Modernization Act of 2003
Improved plan reimbursement – led to more attractive
benefit plans
Added prescription drug coverage as an option starting
1/1/2006
Plans now known as Medicare Advantage (MA)
Plans offering drug coverage known as Medicare
Advantage & Part D (MA-PD) plans
H.R. 4872 – Health Care & Education Affordability
Reconciliation Act – 3/30/2010
4
Alternative to Traditional/Fee-for-Service
(FFS) Medicare
Run through private insurance companies
Paid capitated rates by the government to provide
healthcare services to Medicare beneficiaries
Plan sponsor is responsible for paying claims and
administering benefits
Centers for Medicare & Medicaid Services
(CMS) maintains oversight of MA plans
5
Plan Sponsor reimbursement
Monthly Membership Reports (MMR) – eligibility
Model Output Reports (MOR) – risk adjustment factors
Plan Payment Reports (PPR) – payment summary files
Annual Bid Process
Review of each plan’s bids to ensure compliance
Issues guidance & regulations
Determines benchmark rates, coding factors, any other
changes to payment rates
Not a true “bid” (unlike Part D) – more like a projection
High level administration of MA program
6
MA plans must cover everything that FFS does
MA plans have option to cover additional
benefits
Part D drugs
Routine Transportation
Dental
Routine Vision Exams & Eyewear
Routine Hearing Exams & Hearing Aids
Over the Counter drug benefit
Fitness/Gym Membership
Etc.
Benefits can change from year to year
7
FFS – Coinsurance (usually 20%) – member
pays %
MA – Combination of coinsurance and fixed
copayments
Generally must be at least actuarially equivalent to
FFS – often MA offers lower cost sharing than FFS
Some benefit categories (Inpatient Hospital, Skilled
Nursing, Mental Health, Dialysis, etc.) have more
specific cost sharing thresholds
Copays are generally preferable to beneficiary as
costs are more predictable
8
Maximum out of pocket limit (MOOP) – caps the
amount a member can potentially pay in a year
FFS – no MOOP – can be very expensive when
combined with coinsurance
MA – Mandatory MOOP established starting in
2011 - $6,700
Prior to 2011, MOOPs were voluntary
Plans can set the limit to less than $6,700
Cost sharing subsidy eligible dual members
(Medicare/Medicaid) are exempt from this mandatory
MOOP requirement since they do not actually pay their
cost sharing
9
Premiums
FFS – members pay standard Part B premium
($110.50 per month in 2010)
If members want D coverage they must get a
standalone drug plan for an additional premium
MA – standard Part B premium + additional
premium that varies by plan (some plans are $0)
This can include Part D, in some plans at no extra cost
MA premiums for a given plan can vary year to year
Networks
FFS – members can go to any provider who accepts
Medicare
MA – member may have provider network
restrictions and authorization/referral requirements
10
HMO – members have network of providers,
cannot voluntarily go out of network
POS – Members have network of providers,
can go out of network (OON) for selected
services – OON cost sharing may be higher
PPO – Members have network of providers,
can go OON for any service offered innetwork, OON cost sharing may be higher
11
Special Needs Plans (SNPs) are designed to
target a specific portion of the population
Dual SNPs are for low income members who are
both Medicare & Medicaid Eligible
Chronic SNPs are for members with specific disease
conditions (i.e. Diabetes)
Institutional SNPs are for members who live in
institutions
These plans offer benefits/cost sharing/drug
formularies specifically tailored to the target
populations – FFS is one-size-fits-all
12
MA Plans are required to submit annual bids
for each benefit plan to CMS
Projection of membership by county (Revenue)
Projection of medical cost
Projection of administrative expense & margin
Description of all benefits, cost sharing, plan
premium
Bids must be submitted by June of the preceding
year
13
Benchmark (PMPM)
Set by CMS for each county – updated annually
Per Member Per Month (PMPM) amount
Maximum amount that CMS will pay a plan sponsor for a
member in that county
Bid Rate (PMPM)
Projected cost calculated by the plan sponsor for
Medicare-covered services
Plan Risk Score
Average risk factor for projected members in the plan
Both the benchmark & bid rate are multiplied by the
plan’s projected risk score
14
Savings (PMPM)
Difference between Benchmark and Bid Rate
Rebates (PMPM)
Savings * Rebate % = Rebate PMPM –> difference goes
back to government
Current Rebate % through 2011 is 75%
Rebate dollars can be used for many things
Reduce cost sharing for Medicare covered services
Offer supplemental benefits (dental, vision, etc.)
Buy down the cost of Part D benefits (for MA-PD plans)
Cannot be kept by the plan sponsor as profit
Plan Revenue = Risk adjusted bid rate + rebates
15
Use the following numbers as an example:
Risk Score = 1.0
Benchmark = $1,000
Bid = $800
Savings = $200
Rebates = $150
Part D premium buy down = $50
Buy down of Medicare-Covered benefits = $75
Supplemental benefits = $25
MA-PD Plan Premium = $0
Projected Revenue = $800 + $150 = $950
16
CMS Maintains projections of FFS costs by county
Current MA benchmarks are not explicitly
adjusted for Medicare FFS costs
Relationship between benchmarks and FFS costs
varies considerably by county
11% of MA enrollees have benchmarks at or below FFS
costs
78% of MA enrollees between 100% & 125% of FFS
11% of MA enrollees above 125% of FFS
Current Membership weighted FFS ratio for 2010 is
110.4%
Based on CMS MA membership data as of August 2010
http://www.cms.gov/MCRAdvPartDEnrolData/MMAESCC/list.asp#TopOfPage
17
Health Care Reform (HCR) bill will explicitly set
county benchmarks as a % of FFS costs
Counties will be ranked by FFS costs and divided up
into quartiles
Each quartile would have a target % of FFS costs that
the benchmark would be set at
New benchmarks begin phasing in as of 2012
Duration of new benchmark phase-in varies based on
the total benchmark PMPM dollar reduction
<$60 –> 2 years
$60< X < $100 –> 4 years
>$100 –> 6 years
Motivation – cost savings
18
FFS Cost
Quartile
Target
Benchmark %
of FFS
Current
Benchmark %
of FFS
% of Aug 2010
MA Enrollees
1
95%
105%
45%
2
100%
109%
23%
3
107.5%
115%
15%
4
115%
135%
17%
Total
101.4%
110.4%
100%
19
Quartiles are not membership weighted – skewed
towards the top quartile
Larger counties (urban) naturally have higher FFS costs
Creates inherent winners & losers as some counties may
actually see benchmarks remain flat while others will be
dramatically reduced
Could create member disruption as relative viability of
markets could shift dramatically
There is a provision that prevents new benchmarks from
exceeding previous benchmark rates
Holds MA plans “accountable” for how well FFS providers
naturally manage costs (no control over this!)
On average, counties will see a 8% reduction in
benchmarks phased in over an average of 3.7
years
20
Assuming that we have a plan with an
“average” mix of counties
New Benchmark = $1,000 * (101.4%/110.4%)
= $918.48
Bid = $800
Savings = $118.48
Rebates = $88.86
Part D premium buy down = $30 (50)
Buy down of Medicare-Covered benefits = $44 (75)
Supplemental benefits = $15 (25)
21
CMS currently gives every MA plan a star
quality rating
Prospective members can see plan overall ratings
Range from 1 to 5 stars overall rating
Overall rating is based on average scores across all
individual measures
No impact to payment methodology as of 2011
HCR bill will make certain payment factors
dependent on plans’ star ratings starting in
2012
22
What factors influence star ratings?
Part C has 36 ratings grouped into 5 domains
Staying healthy – seeing PCP, getting HEDIS tests
Health Plan Responsiveness & Care – ease of getting
care, overall rating of health care quality
Managing long term chronic conditions
Member complaints & disenrollment rates
Health plan’s customer service – time on hold,
accuracy of information, non-English language support
Similar factors go into the Part D plan ratings
Some measures based on absolute thresholds,
some based on plan’s relative scores
23
Plans that have 4 star or above overall rating
get a quality bonus
5% increase in target FFS percentage (95% counties
become 100% counties)
Unclear if overall score will be based on scores for
C&D or C only
Phases in from 2012-2014 (1.5%, 3%, 5%)
Plans can also qualify if they make “meaningful
improvements” to their overall quality
Plans can gain or lose these bonuses year over year
– could create significant benefit changes/member
disruption
Motivation – to align a plan’s revenue with the
quality of the healthcare delivered
24
Through 2011 all plans get to keep 75% of
savings as rebate dollars
Starting in 2012, rebate % will be dependent on
star ratings
4.5 or more stars – 70%
3.5 to 4 stars – 65%
3 or fewer stars – 50%
Phased in from 2012-2014
All plans will experience reduction in rebates
which could vary by year creating disruption
Motivation – cost savings
25
Original
Bid
After
Provision 1
After
Provision
1& 2 –
<3.5 Stars
After
Provision
1& 2 – 3.5
Stars
After
Provision
1& 2 – 4
Stars
After
Provision
1& 2 – > 4
Stars
Benchmark
$1,000
$918.48
$918.48
$918.48
$964.40
$964.40
Bid
$800
$800
$800
$800
$800
$800
Savings
$200
$118.48
$118.48
$118.48
$164.40
$164.40
Rebate
$150
$88.86
$59.24
$77.01
$106.86
$115.08
41%
61%
48%
29%
23%
$888.86
$859.24
$877.01
$906.86
$915.08
6%
10%
8%
5%
4%
Rebate
Reduction %
Plan
Revenue
Plan
Revenue
Reduction %
$950
26
Loss of rebate dollars will result in either
reduced benefits or increased MA premiums
These provisions make getting the 4 star
rating paramount – almost impossible to
maintain benefits without that bonus
These numbers assume that MA plan cost
trend = FFS cost trend
Benchmark trends with FFS cost
Bid rate trends with MA plan cost
27
Coding factor explicitly reduces MA risk
scores – direct reduction in MA payments
Factor for 2010/2011 was 3.41%
HCR mandates factor of at least 4.71% by 2014
HCR mandates factor of at least 5.71% by 2019
This means that risk scores will decline by at least
2.3% by 2019
Benchmark & Bid are risk adjusted, but this will
decrease plan sponsor margin and reduce rebates
slightly
Motivation – cost savings
28
Establishes a minimum loss ratio (LR) for MA
plans at 85% starting in 2014
Plans that have LR below 85% must pay back to CMS
the difference between current LR and 85%
If LR is below 85% for 3 consecutive years – MA plan
cannot enroll new members
If LR is below 85% for 5 consecutive years – plan
contract will be terminated
This LR will be enforced at the entity level, not the
plan sponsor level
This also applies to Part D plans
Motivation – cost savings?
29
Creates a very narrow financial window for
plan sponsors
Loss ratios are not that stable/predictable
Bids must be filed over a year in advance – bid LR
may not equal actual LR
Potentially severe sanctions – no allowance/buffer –
84.5% LR treated same as 75% LR
Cannot have cross regional/entity subsidization
unless under same legal organization
Calculated including 5% quality bonus – gaining or
losing that bonus could determine whether LR is in
acceptable range
30
Creates possible adverse incentives
Assume admin ratio is 10% - at 85% LR profit is 5%
Plan Sponsors will still follow profit maximization
strategy
What if a plan does a really good job at managing
cost and actual loss ratio is 80%
A plan can reduce quality improvement programs
(which uses admin dollars) – maybe lose the quality
bonus
New admin ratio is 8% and LR is now 85% - profit is
7%
The plan is better off financially by doing a less
comprehensive job of managing the health of their
members
31
Current legislation incentivizes plan sponsors
to manage costs as efficiently as possible
Lower costs = more bid rebate dollars, better
benefits, & better competitive position
Lower costs also = higher profit margins
Loss ratio floor distorts these incentives
Profit maximization <> cost minimization
Plans may try to bid more strategically – may cut
benefits further to maintain what little margin is
still attainable
32
Current 2010 Part D benefit design:
Beneficiary
Beneficiary
Beneficiary
Beneficiary
pays
pays
pays
pays
100% up to $310 deductible
25% up to ICL ($2,830)
100% through donut hole ($6,440)
5% above catastrophic threshold
Proposal to reduce the cost sharing on
generic drugs in the donut hold
Phase in at 7% coinsurance reduction per year
starting in 2011 down to 25% in 2020
Motivation – to reduce beneficiary cost sharing
liability & incentivize generic utilization
33
Positive for member
Reduces beneficiary liability
Increases incentives for increased generic
utilization
Increases the cost of offering Part D
Sponsors may choose to remove Part D rather than
increase premiums or reduce MA benefits
Stand alone PDPs may increase premiums or restrict
drug formularies – hurts beneficiaries on Original
Medicare as well
Unclear whether this will affect provider behavior –
may still prescribe brand drugs
34
Quick Recap of provisions
Set MA benchmarks based on FFS target %
Rebate % and quality bonus based on star rating
Increased MA coding factor – reduce risk scores
Minimum loss ratio floor at 85%
Phase down of coinsurance % for generic drugs in
donut hole
35
Changes to benefit offerings
Many of the ancillary benefits that attract members
to MA will be reduced or removed
Cost sharing will trend upwards towards FFS
equivalent levels
Member premiums will increase
Some plans/regions will be hit harder than others
Urban areas generally have lower FFS targets – will see
the greatest reduction in benchmarks
Urban areas may have more sophisticated providers –
may manage their FFS costs better already
Plans with sicker populations may not be able to
maintain products designed for those members (SNPs)
36
Changes to competitive balance
Only plans who can manage costs well can survive
Will force many plan sponsors out of business
Good for overall efficiency/cost savings of MA
Bad for the members – reduces options
Even successful plans may have to pare down plan
offerings – Chronic SNPs may disappear
Some regions may become unviable for MA – will
cause member disruption
MA-PD plans may not be able to afford the
PD component unless it is funded through
member premiums
37
It will be difficult going forward but there are
things a MA plan can do to improve its
prognosis:
Attain & Maintain 4 star quality rating
5% benchmark bonus could be the difference
Relies on good relationships with providers for
HEDIS scores, delivery of care ratings, & managing
chronic conditions rating
Solid customer service & member retention
Offer the most consistent benefits that the plan can
afford to minimize year over year fluctuations
38
Strong provider relationships
Helps maintain high star ratings
Manage the health of the members – improves
member satisfaction & reduces healthcare costs
Ensure members are accurately coded so that risk
scores reflect the member’s health status – chronic
conditions must be coded every year to maintain
risk scores
Benefit design – providers are a window into the
member’s needs – can use this information to help
make decisions during bid process
39
Membership growth & retention
Larger membership base = economies of scale ->
lower admin cost %
More stable population – easier to bid & predict
costs & loss ratios to meet the LR floor
requirements
Stable year over year performance means fewer
benefit changes are required
If margins are reduced, the plan sponsor must
make it up through volume to pay for fixed admin
costs
40
As plan sponsors exit the marketplace, the
biggest competition will be FFS Medicare
Key benefits (ancillary benefits, MOOP, Part D) must
be maintained to differentiate MA from FFS
Branding/marketing will be essential
Highlight the benefits of HMO – ease of claim
payments, strong relationship with PCP, etc.
Member communications & customer service key to
maintaining member satisfaction
41
MA was designed with a purpose
Improve efficiency of healthcare delivery through
managed care
Offer a valuable alternative to Medicare FFS
To provide options that address the needs of a
disparate Medicare population
Provide members with additional benefits including
drug coverage in one integrated package
Improve the beneficiary’s health status through
strong relationships with PCPs
Allow the Medicare program to reap the benefits of
capitalism without compromising the quality of care
(natural competition promotes efficiency)
42
HCR has presented the most significant
changes to MA since 2003
It is possible to survive and still achieve the
goals that MA was designed for but it won’t
be easy…
Actuaries will be essential
Bid Development
Financial Projections
Modeling the impact of future changes
43
Thank you for your time
44