Government Readies for Jan. 1 Launch of Revamped Medicare Advantage Program

The federal government is moving slowly but surely towards the launch of a newly enhanced Medicare Advantage (MA) program on January 1, 2006. The revamped and expanded MA program will include regional PPO plans and the new Part D prescription drug coverage benefit.

Many uncertainties remain for plans, providers and consumers, including: How many seniors will sign up? What options will they choose? How healthy will they be? How will employers respond to Part D incentives?

Both the costs and the number of people involved are huge. The latest cost estimates for the new program over the next 10 years are $500-600 billion. According to the Kaiser Family Foundation, at the beginning of 2005, there were some 42 million people in Medicare, but only 4.8 million (12%) were in managed care plans. The numbers are expected to increase significantly in 2006, when large-scale marketing hits consumers and they start to sign-up for the new Part D benefit. In addition, some 7 million “dual eligibles” (those covered by both Medicare and Medicaid) will be automatically enrolled into MA managed care plans with Part D coverage on Jan.1, 2006.

Despite some uncertainties, the response of health plans has been enthusiastic. Managed Care magazine reported in April that there were 141 applications for Medicare Advantage plans, including 51 by insurers that didn’t have such programs in the prior year. The magazine, reporting on CMS statistics, said that pending final approval of applications, the number of managed Medicare plans in 2006 could reach 326, the largest number of such plans since 1999. According to the Kaiser Family Foundation, in early 2005, there were 179 existing Medicare Advantage HMO plans.

One of the key strategic decisions facing health plans that participate in the newly expanded MA program is the scope and design of the Part D or Prescription Drug Plan (PDP). As many analysts have noted, despite substantial federal subsidies for the PDP, a high drug utilizer is almost always a high utilizer of health care services.

According to a report in Medicare Advantage News, “In this Brave New World of senior care, plans taking the long view will balance adverse selection with product diversification, convergence of disease and pharmacy management and a drug benefit that will be attractive to healthy seniors.”

In designing and marketing their newly enhanced MA programs, health plans must also be concerned about the role employers will take. For example, the Des Moines Register recently reported that a Principal Financial Group newsletter warned company retirees that if they chose the government’s Part D coverage it would mean losing their current supplemental coverage from Principal, which includes coverage for other services, such as dental and vision care.

In addition, plans need to pay close attention to government regulations and oversight of Part D coverage. In a directive issued in mid June, the CMS stated that insurers must cover ''all or substantially all'' of the drugs in six classes that are often prescribed for Medicare beneficiaries.

Evergreen Re offers in-depth expertise to help health plan executives with Medicare Advantage benefit design and risk management. We have a range of risk management techniques including customized reinsurance and medical expense benchmarking to identify opportunities to optimize a plan’s medical cost structure.