The reasoning on Capitol Hill is simple: Medicare exists to provide health coverage to seniors, so Medicare dollars should be spent on health services. If private insurers can stretch those dollars to cover more services and reduce out-of-pocket costs, great.
But to pay them extra just because, to pad their profits or cover undue administrative costs – that just makes no sense, lawmakers say, especially if it’s at the expense of regular Medicare.
President Barack Obama has been critical of Medicare Advantage plans, which cost the government, on average, an extra 14 percent, since before the election, and already, funding for the plans for 2010 has been cut. With health care reform, most expect even bigger cuts.
And while hyperbole abounds in reform opponents’ predictions, this much is true: If Medicare Advantage is substantially cut, real-life seniors will be affected. They may pay more and get fewer services; some health plans may shut down.
The question is: How big a deal is that?
The majority of seniors – 77.5 percent of Medicare recipients in 2009, according to Kaiser State Health Facts – get their coverage straight from the government. They carry a red-white-and-blue card, and when they’re hospitalized, Medicare pays all but their deductible; for outpatient services, they usually pay 20 percent, and Medicare covers the rest.
Drug coverage is handled separately, through so-called Part D plans, which are privately run. And some seniors get supplemental coverage to reduce their out-of-pocket costs.
With Medicare Advantage, it’s all folded into one plan. Instead of a Medicare card, seniors carry a BlueCHiP or Evercare or Aetna card, and their coverage may look a lot more like an employer-sponsored health plan, with a limited provider network and customized services.
The plans can be easier for seniors to use, and cheaper too. While Medicare estimates that a Rhode Island 68-year-old in “fair” health would spend $4,850 out of pocket this year with regular Medicare, with Advantage plans it estimates costs as low as $3,300 (though some are far higher). Several plans cover prescription drugs and vision care; some even dental care.
Rhode Islanders in particular love Advantage: 33.9 percent of the state’s Medicare beneficiaries have it, the fifth-highest rate in the nation, twice that of Massachusetts. And local seniors like one insurer in particular: Blue Cross & Blue Shield of Rhode Island, which has about 40,000 Advantage subscribers, or two-thirds of the market share.
Blue Cross offers four options, all under the brand BlueCHiP, ranging from free to $183 per month, plus a separate plan for seniors eligible for both Medicare and Medicaid. Enrollment is about 40,000, said Ray Brown, assistant vice president for program management.
For an insurer with more than 600,000 members, that’s not a huge line of business, but according to an analysis by Health Insurance Commissioner Christopher F. Koller’s office, in 2008 it was by far the most profitable for Blue Cross, with an 8.4 percent margin, compared with 0.4 percent for commercial business. (The difference, by the way, was due to far-lower administrative costs, 8.3 percent versus 16.2 percent, with the rest spent on medical costs.)
Brown would not say how much Medicare pays Blue Cross per member, but a national study published late last year showed HMO plans such as BlueCHiP are far cheaper for the government than other types, especially so-called “private fee-for-service” plans, which Blue Cross does not offer, but which make up half the options for Rhode Islanders.
The study, by a consultant and an analyst at the Medicare Payment Advisory Commission, found that insurers’ bids for HMO plans, which cover 70 percent of the market, averaged 99 percent of the projected Medicare spending for their service areas and provided extra benefits valued at $104 per month – precisely what Advantage plans were designed to do.
Blue Cross has made a point of working closely with primary care doctors to coordinate seniors’ care, Brown said, ensuring that they get the services they need in the optimal setting, so they stay healthier and avoid needless hospitalizations.
But that work is costly, Brown said, and while Blue Cross has done “fairly well” with Advantage in recent years, it’s lost money before, and it’s already seeing its profit margin vanish. The prospect of deeper cuts as part of health care reform, Brown said, is worrisome.
The AARP has supported the notion of capping Advantage plan reimbursements at the average cost for Medicare, but Brown said that doesn’t take into account that Advantage plans attract sicker people and those on lower incomes. “With most of this, the devil is in the details,” he said.
Through the Blue Cross & Blue Shield Association, the company is now lobbying to ensure that payments are kept at an “appropriate” level, Brown said. As a nonprofit, Blue Cross already puts the vast majority of its revenue into member services, he said, with “very low” administrative costs and contributions to reserves, so there’s not a lot of room to maneuver.
And even now, with health care reform still brewing, the outlook isn’t good.
“We’re looking at a 4 to 6 percent reduction in reimbursement in 2010,” Brown said. “When you combine that with claim trends … that translates into a pretty significant deficit that most plans are going to be looking at in 2010. And that’s going to translate into much higher premiums and reduced benefits.” •
