UpClose with Dave Kalb, Vice President, Evergreen Re

Health Plans File for Medicare Advantage; MCOs May Have Advantage in Part D Coverage

The Centers for Medicare and Medicare Services (CMS) said it received 141 applications for new local Medicare Advantage (MA) plans by the February 15 deadline. Industry analysts say the health plans are being attracted by the extra funds the Bush Administration has included for the new expanded MA program. According to a recent Modern Healthcare report, under the new program, MA plans will receive between $14 billion and $46 billion in additional payments over the next 10 years.

The concept behind the MA program is that in the long run, managed care health plans can deliver better services to seniors at lower costs than traditional fee-for-service Medicare. Disease management for chronically ill patients, who account for some 50% of all health care spending, is one area of potential savings.

Health plans may have to offer substantial new benefits or employ strong marketing efforts to enroll large numbers of consumers into MA plans; only 12% of the 40 million Medicare beneficiaries are now in managed care plans.

CBO predicts Medicare Advantage enrollees will increase from 4.6 million to 5.4 million, or 12% of eligible beneficiaries in next four years; the Administration estimates 31% of Medicare beneficiaries will enroll in MA plans by 2009.

The latest projections by the Congressional Budget Office and the Bush Administration vary significantly. According to the CBO, the percentage of consumers in MA plans will remain a steady 12% for the next nine years, although the number of enrollees will increase from 4.6 million in 2004 to 6 million in 2014 as the growing number of baby boomers come of Medicare age. The Bush Administration predictions show an increase in MA enrollment increase of 31 percent, which would deliver close to 15.5 million MA enrollees by the year 2014.

The Prescription Drug Program, or Part D, of the new Medicare program, will go into effect for consumers on Jan 1, 2006. However health plans, pharmacy benefit managers (PBMs) and pharmaceutical companies are busy planning strategy now. The CMS has said it will require managed care organizations (MCOs) and PBMs that want to participate in Part D to submit their proposed formularies and approved drug lists by April 18, 2005.

Consumers will be able to obtain their new prescription drug benefit in several ways: through an employer currently offering a benefit, by enrolling in a managed care MA plan or through a separate Prescription Drug Plan (PDP).

Although MA organizations will have to compete with PDPs in offering Part D drug benefits, they may have a key advantage. MA health plans will be the only entities able to use medical cost savings to reduce the Part D premium consumers will have to pay.

For example, an MA health plan could enhance its Part D benefit for consumers by offering to cover part of the $250 standard deductible.

It would be difficult for a PBM offering a PDP to offer a comparable benefit because it would not have a medical side where it could enjoy savings.

The government has structured the Part D benefit to provide a contained risk corridor for PDP benefits. PDPs will have the benefit of both individual and aggregate stop-losses. For example, the government’s reinsurance subsidies will cover 80% of an individual’s costs above the $3,600 out-of-pocket threshold.

In the future, MA plans will shift from payment rates based on adjusted average per capita costs (AAPCC) to a new methodology to cover the cost of services in a particular region. In the future, plans will need to submit actuarially based bids. They will need to prove the bids are sound and that the projected utilization will use up the particular amount of payment.