Despite the fears of consumer advocates and the predictions of many insurance companies, seniors are flocking to Medicare Advantage managed care plans. It shouldn’t be a surprise since premiums for these policies are a fraction of the cost of traditional fee-for-service Medicare.
This shift may be one driver of the recent slowdown in the growth of health care costs and it may open the door to even bigger changes in the way both medical and long-term supports and services are eventually delivered.
According to a new study by the Kaiser Family Foundation and Mathematica Policy Research, nearly 15 million people, or about 29 percent of all Medicare beneficiaries, have enrolled in Medicare Advantage (also known as MA or Medicare Part C plans). That’s a huge increase from the 16 percent who were enrolled in 2007 and the 21 percent in 2010. And it represents a remarkable transformation in Medicare from a fee-for-service system to one where a significant share of beneficiaries gets health care from a managed care system.
About 60 percent of MA plans are Health Maintenance Organizations, or HMOs, that normally pay only for care provided by staff physicians. Most others are preferred provider organizations (PPOs) that require beneficiaries to pay much more for out-of-network providers.
For many years, MA plans were heavily subsidized by the federal government. But starting in 2010, Congress began taking steps to scale back those overpayments. Plans predicted that as the subsidies shrunk, they would dramatically raise costs, slash benefits, and even abandon the market in droves. None of that seems to have happened.
The Kaiser study finds that the insurers will offer more than 2,000 plans in 2014, a decline of just 3 percent from 2013. In a typical city and its close-in suburbs, Medicare beneficiaries will have a choice of 20 plans. In rural areas, they’ll be able to pick among 11 on average.
Kaiser figures average unweighted monthly premiums will actually fall a bit in 2014 from 2013, from $51 to $49. Enrollees who stay with the same plan next year will see their average premium rise from $35 to $39.
But those premiums will still be far below those of fee-for service Medicare. Next year, Medicare Part B monthly premiums will be $104.90 for most people (they will be more for higher-income seniors). But since traditional Medicare does not cover many costs, especially catastrophic hospital expenses, most seniors also purchase Medicare Supplement (Medigap) policies that boost their monthly premiums by an average of an additional $183. These seniors may also pay an extra premium for Medicare Part D drug benefits.
While this comparison doesn’t include deductibles, co-pays and other out-of-pocket costs, based on premiums alone MA plans are an attractive deal—an average monthly fee of about $50 compared to more than $300 for the combination of Part B, Medigap, and drug coverage in traditional Medicare.
What’s happening in Medicare mirrors the shift to managed care elsewhere in the health system. Three-quarters of all moms and kids who receive Medicaid benefits are in managed care, and many states are beginning to shift frail elders and younger people with disabilities into managed care as well.
In the commercial market, many of the plans sold under the Affordable Care Act health exchanges are also built on so-called narrow networks that include only those doctors and hospitals that provide the most cost-effective care. In addition, the ACA created broad incentives for health providers to form new medical delivery systems such as Accountable Care Organizations that also try to better coordinate care.
There is no doubt that these changes are aimed at saving money. But they also have the potential to improve outcomes by doing a better job of organizing care for people with chronic disease. Older versions of Medicare managed care focused on cost savings alone and did little to improve the lives of their enrollees. The current version comes with tough quality measures and penalties for insurers that save money by skimping on care.
Can they pull it off? Can the potential efficiencies of well-integrated care both save money and improve outcomes for enrollees? Honestly, we don’t really know yet. But we are about to find out.