[Background Material and Data on Programs within the Jurisdiction of the Committee on Ways and Means (Green Book)]
[Appendices]
[Appendix E. Medicare+Choice]
[From the U.S. Government Printing Office, www.gpo.gov]
APPENDIX E - MEDICARE+CHOICE
CONTENTS
Introduction
Overview of the Medicare+Choice Program
Current Status of the Medicare+Choice Program
Trends in Medicare+Choice Plan/Contract Availability and Enrollment
Availability of Medicare Managed Care Plans/Contract
Medicare Managed Care Terminations
Enrollment Trends for Medicare Managed Care
Enrollment Patterns in Urban and Rural Locations
Regional and Geographic Variations in Enrollment
Contracts by Plan Model
Rules for Enrollment in Medicare+Choice Plans
Medicare+Choice Payments to Plans
Blended Rates
Minimum Payment (Floor) Rate
Minimum Percentage Increase
Exclusion of Payments for Graduate Medical Education
Budget Neutrality
National Growth Percentage
Bonus Payments
Risk Adjustment
Risk Adjustment Method in Place for 2003
New Risk Adjustment Method in Place for 2004
Adjusted Community Rates
Additional or Supplemental Benefits
Coverage for Prescription Drugs
Medicare+Choice Premiums
Beneficiary Protections
Beneficiary Financial Liability
Quality Standards
Information and Disclosure Requirements
Grievances and Appeals
Access to Services
Current Program Standards and Contract Requirements
Minimum Enrollment Standards
State Preemption
Organizational and Financial Requirements
Provider Protections and Requirements
Protections Against Fraud
Sanctions and Terminations of Contracts
Medicare+Choice Options
Private Fee-for-Service Plans
Preferred Provider Organization Demonstration
Reasonable Cost Contracts
Program for All Inclusive Care of the Elderly (PACE)
Social Health Maintenance Organization Demonstration
Medical Savings Account Demonstration
Medicare Competitive Pricing Demonstration
INTRODUCTION
Medicare has a long-standing history of offering its
beneficiaries an alternative to the traditional fee-for-service
program, in which a payment is made for each individual Medicare-
covered service provided to a beneficiary. Beginning in the 1970s,
private health plans were allowed to contract with Medicare on a
cost-reimbursement basis. In 1982, Medicare's risk contract program
was created, allowing private entities, mostly health maintenance
organizations (HMOs), to contract with Medicare. In exchange for a
preset monthly per capita payment from Medicare, private health plans
agreed to furnish all Medicare-covered items and services to each
enrollee. By 1997, 15 years after the start of the risk contract
program, Medicare managed care covered more than 5 million people
or about 14 percent of beneficiaries.
In 1997, Congress passed the Balanced Budget Act of 1997
(BBA, P.L. 105-33), replacing the risk contract program with the
Medicare+Choice (M+C) program. The M+C program established new rules
for beneficiary and plan participation, along with a new payment
methodology. The M+C program was designed to expand the availability
of health plans in markets where access to managed care plans was
limited or nonexistent, and to offer new types of health plans in
all areas. The M+C program has not been successful at expanding
coverage, and the initial moderate growth through 1999, which
increased M+C enrollment to about 17 percent of beneficiaries,
has since taken a downward turn. In March 2003 about 12 percent
of the Medicare population (4.7 million enrollees) remained in
the M+C program, compared to the 14 percent of the Medicare
population who were enrolled in Medicare managed care prior to
the enactment of BBA.
The 106th Congress enacted legislation in order to address
some issues arising from the BBA changes. The Balanced Budget
Refinement Act of 1999 (BBRA, P.L. 106-113) as well as the
Medicare, Medicaid, and SCHIP Benefits Improvement and Protection
Act of 2000 (BIPA P.L. 106-554) amended the M+C program in an
effort to increase reimbursement and to make it easier for
Medicare beneficiaries and plans to participate in the program.
The 107th Congress passed The Public Health Security and
Bioterrorism Preparedness and Response Act (P.L. 107-188) which
included a few temporary changes to deadlines in the Medicare+
Choice program. Additionally, the 107th Congress considered, but
was not able to reach agreement on major legislative changes to
the Medicare+Choice program. The House passed H.R. 4954 on
June 28, 2002, a bill that would have increased M+C payments in
2003 and 2004 and then in 2005 would have created a new Medicare+
Choice competition program and a demonstration program. Two bills
were introduced in the Senate that also would have made major
changes to the M+C program. S. 3018 (introduced by the Senators
Baucus and Grassley et al.) contained provisions similar to H.R.
4954 to increase M+C payments 2003 and 2004. S. 2729 (introduced
by Senator Grassley et al. - the tripartisan bill) would have
based payments in M+C on competitive bids by plans. Neither bill
was passed by the Senate. The 108th Congress is considering similar
options to revise the M+C program.
This appendix describes the current status of the M+C
program, as amended, along with the rules and standards under which
the program operates. Data for 1998 and preceding years covers the
Medicare risk contract program and beginning in 1999, data covers
the M+C program.
OVERVIEW OF THE MEDICARE+CHOICE PROGRAM
In order to increase enrollment in Medicare managed care, and
to allow beneficiaries access to similar options available in the
non-Medicare market for meeting their health care needs, the M+C
program was created to offer a diverse assortment of managed care
plans. M+C options include not only coordinated care plans, but also
private fee-for-service plans, and, on a demonstration basis, a
combination of a medical savings account (MSA) plan and contributions
to an M+C MSA. Coordinated care plans are plans that provide a full
range of services in exchange for a per capita payment, the most
typical of which is the HMO. An HMO is a type of managed care plan
primarily owned and operated by insurers that acts as both the
insurer and the provider of health care services to an enrolled
population. The BBA also allows for contracts with provider-
sponsored organizations (PSOs), which are coordinated care plans
owned and operated by providers, as well as preferred provider
organizations (PPOs), which are groups of doctors and hospitals that
contract with an insurer to offer their services on a fee-for-service
basis at negotiated rates that are lower than those charged to non-
enrollees. Unlike other managed care plans, PPOs do not
traditionally have primary-care gatekeepers, who oversee health
care services.
Alternatively, a beneficiary may select a private fee-for-
service (PFFS) plan that covers enrollees through a private indemnity
health insurance policy for which the Centers for Medicare and
Medicaid Services (CMS) makes per capita payments to the insurer for
each enrollee. The insurer then reimburses hospitals, doctors, and
other providers at a rate determined by the plan on a fee-for-service
basis without placing the providers at any additional financial risk.
It also does not vary rates based on utilization. Enrollees may see
any Medicare-approved provider who agrees to furnish services under
the plan's terms and conditions of payment.
Finally, the demonstration MSA plans reimburse enrollees for
their expenses for Medicare-covered services after a specified high
deductible is met. The difference between the premium for the high-
deductible plan and the applicable M+C per capita payment would be
placed into an account for the beneficiary to use to meet medical
expenses below the deductible.
However, to date no Medicare beneficiary has enrolled in an
MSA. Three PPOs serve 2,241 beneficiaries through the M+C program.
PPOs are more widely available through a demonstration program, with
56,677 enrollees as of March 2003. On July 1, 2000, a private fee-
for-service (PFFS) plan, Sterling Life Insurance Company, became
available to Medicare beneficiaries. Beginning January 2003, a
second PFFS plan, Humana, Inc. also become available to Medicare
beneficiaries. As of March 2003 there were 20,761 enrollees in
the two PFFS plans throughout the country./1/ Additionally, there are
another 1,748 enrollees in a PFFS demonstration program.
In addition to expanding options for Medicare managed care
coverage, the BBA also substantially restructured the system for
setting Medicare payment rates to private plans. Under the M+C
program, the per capita rate for a payment area is set at the highest
of three amounts. The new payment structure is designed to reduce
the variation in payments across the country by increasing payments
in areas with traditionally low payments and slowing the rate of
growth in areas with higher payments. Although variations in
payments have been somewhat reduced, substantial payment
differentials remain nationwide.
Initially, M+C payments also were adjusted for demographic
risk factors, such as age, gender, and coverage by Medicaid, to
account for variations in health care costs. The BBA required the
Secretary of Health and Human Services (HHS) to develop a method
for risk adjusting payments to include health status, in order to
account for a larger share of the variation in costs. The interim
method established by the Secretary adjusted for health status based
on diagnoses for prior year inpatient hospitalizations. Although
phase-in of these health-based risk adjusters began in January 2000,
the BBRA slowed down the Secretary's planned phase-in schedule.
Further refinements included in BIPA extended the current risk-
adjustment methodology through 2003 and then, beginning in 2004, a
new methodology based on disease grouping will be phased-in based
on data from inpatient hospitals and ambulatory settings. This
system will be fully phased in beginning in 2007.
The BBRA and BIPA made several other revisions to the M+C
program, raising M+C payments to plans and providing bonus payments
for certain plans that enter areas where no other plan is in
operation to encourage participation in rural areas. The BBRA moved
the deadline for plans to submit their adjusted community rate (ACR)
proposals from May 1 to July 1 of each year, and allowed plans to
segment their service areas along county lines, in order to better
match revenues to costs. Additional changes in BIPA permit M+C plans
to offer reduced Medicare Part B premiums beginning in 2003 and
revised payments for End Stage Renal Disease (ESRD) M+C enrollees.
CURRENT STATUS OF THE MEDICARE+CHOICE PROGRAM
Achieving the goals of the M+C program has been difficult, in
part because the goal to control Medicare spending may have dampened
interest by managed care entities in developing new markets, adding
plan options, and maintaining their current markets. This cautious
behavior partially may be a reaction to a slowdown in the rate of
increase for Medicare managed care payments, the initial slowdown in
spending for Medicare traditional fee-for-service payments following
the passage of the BBA, and the uncertainty about the future of the
payments or organization of the M+C program.
Further, beneficiaries in rural areas still have limited
access to managed care plans and enrollment growth has slowed or
declined across all geographic areas. Beneficiaries also have been
offered less generous benefit packages and fewer options for zero or
low monthly M+C premiums. Obstacles relating to data collection and
quality improvement requirements may make it more difficult for some
plans to meet these requirements, further discouraging participation
in the Medicare program. M+C plans increasingly have noted that in
addition to concerns about payment amounts, the regulatory
requirements are burdensome and make it difficult for them to
participate in the program.
As plans withdraw from the M+C program, some enrolled
beneficiaries are forced to choose new M+C plans, while others are
left without any access to Medicare managed care. They are forced
to return to Medicare's fee-for-service program. Even among those
who still have an option to choose another plan, some beneficiaries
have selected Medicare's fee-for-service program because they are
concerned that additional plan withdrawals could be disruptive to
their health care coverage.
In 2003, M+C plans are available to about 59 percent of the
more than (40 million) Medicare beneficiaries, and in March 2003
about 12 percent of all beneficiaries chose to enroll in one of the
146 (includes two PFFS plan) available M+C plans. The rapid growth
rate of Medicare managed care enrollment in the 1990s leveled off
and although enrollment initially increased moderately with the
implementation of the M+C program, by March 2003 enrollment was
two percentage points below pre-BBA enrollment. The Congressional
Budget Office (CBO) projects that M+C enrollment will decline
moderately through 2008, when it will reach about 9 percent of the
Medicare population and then slowly decline to about 8 percent by
2013. CBO estimates that in 2003 Medicare will spend $35.9 billion
for all Medicare group plans, (including M+C and other private
Medicare arrangements, such as demonstrations). By 2013 the
projected spending for Medicare group plans will increase to
$46.9 billion.
Enrollment is widely segmented across the country, however,
with the majority of enrollees in just four states: California,
New York, Florida, and Pennsylvania. Not surprisingly, Medicare
beneficiaries in urban areas have greater access to plans. While
92 percent of beneficiaries in center cities have access to at
least one plan, only 6 percent have access in the most rural areas.
TRENDS IN MEDICARE+CHOICE PLAN/CONTRACT AVAILABILITY AND ENROLLMENT
AVAILABILITY OF MEDICARE MANAGED CARE PLANS/CONTRACT
The M+C program began operation on January 1, 1999,/2/ as
authorized by the BBA. By March 2003, there were 146 M+C contracts
with CMS under the M+C program./3/ Over time, the number of M+C
contracts has fluctuated. From 1987 to the early 1990s many risk
plans terminated existing contracts, decreasing the number of
available plans from 161 in 1987 to 93 in 1991. The trend shifted
as the number of Medicare risk plans began increasing in 1992, more
than tripling from 110 in 1993 to 346 in 1998. With the
implementation of the M+C program in 1999, the downward cycle of
availability began once again, as several M+C organizations withdrew
from the Medicare program (or reduced the size of their service
area). As shown in ChartE-1, these reductions have resulted in fewer
providers of Medicare managed care under the M+C program than
previously existed, dropping from a high of 346 plans in 1998 to
(267 contracts) in 2000 and then to 146 as of March 2003.
MEDICARE MANAGED CARE TERMINATIONS
Since the implementation of the M+C program, a substantial
number of managed care organizations either have terminated
contracts or reduced their service area, as shown in Table E-1.
The contract terminations and service area reductions in January
1999 affected about 407,000 (6.5 percent) of the more than 6 million
Medicare beneficiaries enrolled in managed care, leaving 51,000
(less than 1 percent) of all M+C enrollees without any access to
M+C plans. About half of the beneficiaries who had access to other
M+C plans chose a new plan, while the other half chose Medicare
fee-for-service. In total, 372 counties were affected by the
withdrawals or service area reductions and 72 counties lost access
to Medicare managed care. In January 2000, additional contract
terminations and service area reductions affected 327,000 (5 percent)
of M+C enrollees in 329 counties, some of whom also had been affected
the previous year. This cycle of contract changes left 79,000
(1.3 percent) of all managed care enrollees in 105 counties without
access to any other M+C plan.
Prior to the passage of BIPA, CMS released information about
contract terminations, effective January 2001. Those figures were
expected to affect about 934,000 M+C enrollees, leaving almost
159,000 of these enrollees with no access to Medicare managed care.
After the passage of BIPA, M+C organizations were given an
opportunity to reconsider their earlier decision and as a result
four M+C organizations decided to return to the program. In total
these organizations had provided serviced to approximately 13,000
beneficiaries in 2000, covering 11 counties. In five counties,
there were no other M+C plans offered. Despite the changes made
to contract terminations after BIPA, this series of contract
terminations affected more beneficiaries than the combined total
for the previous 2 years. Nationwide, just two managed-care
companies, AETNA and CIGNA, accounted for about half of the total
number of beneficiaries affected by these withdrawals.
TABLE E-1--MEDICARE+CHOICE CONTRACT TERMINATIONS AND SERVICE AREA
REDUCTIONS
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
For contract renewals effective on January 1, 2002, 36 plans
reduced their service area and 22 did not renew their contract.
This round of withdrawals affected more than 536,000 M+C enrollees,
leaving about 38,000 without access to any M+C plan. For an
additional 52,000 individuals, their only M+C option was the Sterling
private-fee-for-service plan and they had no access to any other
type of M+C plan, such as an HMO. For contract renewals effective
CHART E-1--NUMBER OF MANAGED CARE PLANS/CONTRACTS PARTICIPATING
IN MEDICARE, 1987-2003
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
January 2003, nine plans terminated their contracts, and 24 reduced
their service area, affecting 215,000 enrollees and leaving 29,000
with no M+C options. For 3,000 enrollees, their only option was a
PFFS plan and for another 3,000 their only option was the PPO
demonstration program. Plans withdrawing from the M+C program affect
not only current M+C enrollees, but also affect both current Medicare
fee-for-service beneficiaries and newly eligible Medicare
beneficiaries who might choose to enroll in an available managed care
plan.
ENROLLMENT TRENDS FOR MEDICARE MANAGED CARE
While the number of plans/contracts participating in Medicare
managed care has fluctuated over time, the percent of beneficiaries
enrolled in Medicare managed care continued to increase until 1999.
As shown in Chart E-2, in 1990 only about 3 percent of Medicare
beneficiaries were enrolled in the managed care program, but by 1998
this figure had increased significantly to 16 percent of Medicare
beneficiaries, covering just over 6 million enrollees. Since the
implementation of the M+C program, enrollment growth increased
through 1999, but today has declined below the 1998 level; reaching
almost 17 percent of beneficiaries in December 1999 (6.3 million
enrollees), declining slightly to 16 percent (6.2 million enrollees)
by December 2000, and to about 12 percent (5.6 million enrollees) by
March 2003. CBO projects that enrollment in M+C plans will reach
about 9 percent of all beneficiaries by 2008 covering about 3.9
million enrollees. CBO projects that by 2013 M+C will have the same
number of enrollees, 3.9 million; however, because of the growth in
the overall Medicare population, the percentage of enrollees in M+C
actually will decline to about 8 percent of all Medicare
beneficiaries.
Enrollment in any individual plan is open only to those
beneficiaries living in a specific service area. Plans define a
service area as a set of counties and county parts, identified at
the zip code level./4/ As a result, not all Medicare beneficiaries
have access to an M+C plan. As of 2003, Medicare managed care
was available in only 17 percent of counties (Table E-2). However,
while 83 percent of counties did not offer M+C plans in 2003, most
Medicare beneficiaries had access to an M+C plan. This occurred
because the population and plans are not distributed equally across
counties, but rather they are concentrated in the more urban
counties. In January 2003, only 41 percent of all Medicare
beneficiaries lived in an area that had no access to an M+C plan
(Table E-3). Among the 59 percent of beneficiaries with access to
the M+C program, 40 percent had a choice of at least two plans;
30 percent had a choice of two to four plans and another 10 percent
had five or more plans available to them. By comparison, in December
1999, not only did more beneficiaries have access to an M+C plan, but
they also had more choices.
TABLE E-2 --COUNTIES WITH AND WITHOUT MEDICARE MANAGED CARE PLANS,
SELECTED YEARS 1997-2003
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
TABLE E-3--PERCENT DISTRIBUTION OF MEDICARE BENEFICIARIES BY
MANAGED CARE PLANS (AVAILABLE IN THEIR AREA, 1995-2003)
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
CHART E-2--PERCENT OF BENEFICIARIES ENROLLED IN MEDICARE MANAGED CARE
PLANS, ACTUAL AND PROJECTED, SELECTED YEARS 1990-2013
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
ENROLLMENT PATTERNS IN URBAN AND RURAL LOCATIONS
CHART E-3--PERCENT OF MEDICARE BENEFICIARIES AND
MEDICARE+CHOICE ENROLLEES IN URBAN AND RURAL
LOCATIONS, 2003
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Patterns of M+C enrollment are not uniform across urban and
rural locales, as shown in Chart E-3. The geographic areas are
defined as follows:
1. Central urban - central counties of metropolitan areas of at
least 1 million population;
2. Other urban - either fringe counties of metropolitan areas of at
least 1 million population or counties of metropolitan areas up to
1 million population;
3. Urban/rural fringe - urban population of at least 2,500 adjacent
to a metropolitan area;
4. Other rural- includes urban population of at least 2,500, not
adjacent to a metropolitan area, and rural areas (defined as places
with a population of less than 2,500).
Most M+C enrollees reside in central urban areas; about
69 percent of the M+C population as of 2003. However, a smaller
proportion, only 39 percent of all Medicare beneficiaries reside in
the central urban areas. In all geographic areas, except central
urban areas, the percentage of M+C enrollees is less than the
percentage of Medicare beneficiaries. Thus, a larger proportion
of the Medicare population in the city chooses to enroll in managed
care than in all other geographic areas. This occurs because of a
combination of interrelated factors, such as availability of M+C
plans and plan benefits.
As shown in Chart E-4, access to M+C plans is much greater
in urban areas than in rural areas. Only about 8 percent of
beneficiaries in central urban areas lack access to M+C plans. Among
the 92 percent of Medicare beneficiaries with access to such plans,
40 percent have a choice of at least five different plans and another
40 percent have a choice of two to four plans. By contrast, Medicare
beneficiaries living in rural areas rarely have even a single plan
available to them, leaving most of these beneficiaries (about
94 percent) with no access to plans. Among the beneficiaries in
these areas who have access to Medicare managed care, about 2 percent
have a choice of two to four plans and 4 percent have access to only
one plan.
REGIONAL AND GEOGRAPHIC VARIATIONS IN ENROLLMENT
In addition to rural and urban variations, enrollment
patterns also vary on a regional basis. M+C enrollment is much
higher in western and southwestern states, as shown in Chart E-5.
Approximately 30 percent of the beneficiaries in Arizona, 33 percent
of the beneficiaries in California, and 28 percent of the
beneficiaries in Oregon are in M+C plans. The highest levels of
enrollment in the eastern states are in Rhode Island (34 percent),
Florida (19 percent), Pennsylvania (23 percent) and Massachusetts
(18 percent). In contrast, 22 states have no (or marginal) plan
enrollment, and an additional 13 states have between 2 percent and
10 percent of their Medicare beneficiaries enrolled in an M+C plan,
which is lower than the U.S. average enrollment of 12 percent of
beneficiaries.
M+C enrollees are far more concentrated geographically than
Medicare beneficiaries as a whole. In fact, four states account for
over half of all M+C enrollment: California, Florida, Pennsylvania,
and New York. These four states account for 59 percent of all M+C
enrollees, but they are home to only 30 percent of all Medicare
beneficiaries. Table E-4 compares the percent of M+C enrollment to
the percent of the total Medicare population for each of these four
states.
CHART E-4--PERCENT IN VARIATION IN NUMBER OF MEDICARE+CHOICE PLANS
AVAILABLE TO MEDICARE BENEFICIARIES IN URBAN AND RURAL LOCATIONS,
JANUARY 2003
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
CHART E-5--PERCENT OF MEDICARE BENEFICIARIES ENROLLED IN
MEDICARE+CHOICE, BY STATE, MARCH 2003
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
TABLE E-4 --SHARES OF MEDICARE+CHOICE ENROLLMENT AND
MEDICARE POPULATION RESIDING IN FOUR STATES, MARCH 2003
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
CONTRACTS BY PLAN MODEL
In addition to regional and geographic variation, M+C plans
also vary by contract model and plan ownership. M+C contract models
include independent practice associations (IPAs), group models, and
staff models. Plan ownership can either be for profit or nonprofit.
Table E-5 displays the distribution of M+C plans by plan contract
model and type of ownership.
The majority of M+C contracts are for IPAs models. An IPA
is a managed care organization that contracts with physicians in
solo practice or with associations of physicians that, in turn,
contract with their member physicians to provide health care
services. Many physicians in IPAs have a significant number of
patients who are not IPA enrollees. Group model managed care
organizations contract with one or more group practices of
physicians to provide health care services, and each group
primarily treats the plan's members. Staff model managed care
organizations employ health providers, such as physicians and
nurses, directly. The providers are employees of the plan and
deal exclusively with their enrollees. The great majority
of M+C contracts are with for-profit organizations. As of March
2003, 66 percent of contractors were with for-profit entities.
TABLE E-5--MEDICARE+CHOICE CONTRACTS BY PLAN MODEL, 2003
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
RULES FOR ENROLLMENT IN MEDICARE+CHOICE PLANS
Medicare beneficiaries are eligible to enroll in any M+C
plan that serves their area, with the following restrictions: 1)
beneficiaries must be entitled to benefits under Part A of Medicare
and enrolled in Part B of Medicare, and 2) beneficiaries who qualify
for Medicare solely on the basis of end state renal disease (ESRD)
may not enroll in an M+C plan. Two exceptions apply to individuals
with ESRD: 1) a beneficiary enrolled in an M+C plan who later
develops ESRD may continue to remain enrolled in that plan; and 2)
if a plan terminates its contract or reduces its service area (for
an enrollee this is referred to as an involuntary termination),
ESRD enrollees may enroll in another M+C plan. The second
exception is retroactive for an involuntary termination
occurring on or after December 31, 1998.
In general, M+C organizations are required to enroll eligible
individuals during election periods, and they cannot deny enrollment
on the basis of health status-related factors. These factors include
health status, medical condition (including both physical and mental
illnesses), claims experience, receipt of health care, medical
history, genetic information, evidence of insurability (including
conditions arising out of acts of domestic violence) and disability.
However, an organization may deny enrollment if it has reached the
limits of its capacity. Organizations may terminate an enrollee's
election only for failure to pay premiums on a timely basis,
disruptive behavior, or because the plan ends for all M+C enrollees.
The Secretary is authorized to collect a user fee from each
M+C organization for use in carrying out enrollment information
dissemination activities for the program as well as the health
insurance and counseling assistance program. The fee is based on
the ratio of the organization's number of Medicare enrollees to the
total number of Medicare beneficiaries.
Through 2004,/5/ individuals are able to make and change
election to an M+C plan on an ongoing basis. Beginning in 2005,
elections and changes to elections will be available on a more
limited basis./6/ Individuals will be able to make or change
elections each November, during the annual coordinated election
period. In addition, current Medicare beneficiaries also may
change their election at any time during the first 6 months of
2005 (or first 3 months of any subsequent year). Although
individuals are limited to only one change during this 6 (or 3)
month period, this limit does not apply either to changes made
during the annual coordinated election period in November or to
special enrollment periods. Special enrollment periods are
provided for limited situations such as an enrollee who changes
place of residence. For newly eligible aged beneficiaries, their
6 (or 3) month period for making elections or changes to election
begins once the individual is eligible for an M+C plan. Special
election periods also apply to newly eligible aged (not disabled)
Medicare beneficiaries. BIPA required that beginning in June 2001
requests to enroll or disenroll in an M+C plan are effective on the
first day of the next calendar month. (Prior to the passage of BIPA,
requests to enroll or disenroll in an M+C plan made after the 10th
of the month were not effective until the first day of the second
subsequent calendar month.)
Furthermore, beneficiaries enrolled in an M+C plan that
terminates its contract with Medicare are guaranteed access to
certain Medicare supplemental insurance policies (i.e., "Medigap"
policies) within either 63 days from the date: 1) they receive notice
from their M+C organization that their plan is leaving the program;
or 2) coverage is terminated. A plan leaving a portion of its
service area may offer enrollees the option of continuing enrollment
in the plan, only if there is no other M+C plan offered in the
affected area at that time. However, the plan may require the
enrollee to obtain all basic (except for emergency or urgently
needed care) services exclusively at the facilities designated by the
organization within the plan's service area.
A further protection made available with the passage of BIPA
extended the period for Medigap enrollment for M+C enrollees
affected by termination of coverage during their "trial period."
(The trial period allows individuals to try out Medicare managed
care for 12 months, while guaranteeing them access to a Medigap plan
if they chose to return to Medicare fee-for-service). For individuals
enrolled in an M+C plan during their initial 12-month trial period,
their trial period begins again if they re-enrolled in another M+C
plan because of an involuntary termination. During this new trial
period, they retain their rights to enroll in a Medigap policy;
however the total time for a trial period cannot exceed 2 years from
the time they first enrolled in an M+C plan.
MEDICARE+CHOICE PAYMENTS TO PLANS
The Balanced Budget Act substantially restructured the
system for setting the rates by which Medicare pays plans, beginning
in 1998./7/ In general, Medicare makes monthly payments in advance to
participating health plans for each enrolled beneficiary in a
payment area (typically a county). The Secretary of HHS is required
to determine annually, and announce by the second Monday in May for
2003 and 2004 (and then not later than March 1 for subsequent years)
in the year before the calendar year affected, the annual M+C per
capita rate for each payment area, and the risk and other factors to
be used in adjusting such rates. Payments to M+C organizations are
made from the Medicare Trust Funds in proportion to the relative
weights that benefits under Parts A and B represent of the actuarial
value of Medicare benefits (approximately 56 percent: and 44 percent,
respectively).
The major factors for determining Medicare's annual M+C per
capita rates are summarized in Table E-6. The annual M+C per capita
rate for a payment area (for a contract for a calendar year) is set
at the highest of one of three amounts calculated for each county:
- A rate calculated as a blend of an area-specific (local) rate and
a national rate,
- A minimum payment (or floor) rate, or
- A rate reflecting a minimum increase from the previous year's
rate. Each part of the system is described in more detail below./8/
For a more detailed analysis of M+C payments, see CRS Report RL30587,
Medicare+Choice Payments.
BLENDED RATES
The blended per capita rate was intended to shift county
rates gradually away from solely local (generally county) rates,
which reflect the wide variations in fee-for-service costs, toward a
national average rate. Blending was designed to reduce payments in
counties where the adjusted average per capita costs (AAPCCs)
historically were higher than the national average rate, and to
increase payments in counties where AAPCCs were lower. The blended
rate is defined as the weighted sum of:
- A percentage of the annual area-specific M+C per capita rate for
the year for the payment area, and
- A percentage of the input-price adjusted annual national M+C per
capita rate for the year.
The component of the blend determined by the area-specific
(local) rate is based on the 1997 AAPCC for the payment area with
two adjustments. First, the area-specific rate is reduced to remove
an amount corresponding to graduate medical education (GME)/9/
payments. Second, rates are updated each year by a national growth
percentage (described below).
The component of the blend determined by the national rate
is the weighted average of all local area-specific rates. This
component of the blend is adjusted to reflect differences in certain
input prices, such as labor costs, by a formula stated in the law.
The BBA allows the Secretary to change the method for making input-
price adjustments in the future.
Under current law, the percentage in the blend assigned to
the area-specific rate was reduced in increments over 6 years from
90 percent in 1998 to 50 percent in 2003, while the corresponding
percentage for the national component was increased from 10 percent
to 50 percent. In 2003 and beyond, the blended rate is based on
50 percent of the area-specific rate and 50 percent of the national,
input-price adjusted rate. Each year, the blended rates may be
raised or lowered to achieve budget neutrality (explained below).
MINIMUM PAYMENT (FLOOR) RATE
Each county also is subject to a floor rate, designed to
raise payments in certain counties more quickly than would occur
through the blend alone. Initially, the BBA provided for a floor
rate that would apply to all counties within the United States; for
2000 this minimum rate was $402 per month. A separate minimum also
was established for areas outside (i.e., territories) the United
States. Beginning March 2001,/10/ BIPA established multiple floor
rates, based on population and location. For 2001, the floor was
$525 for aged enrollees within the 50 states and the District of
Columbia residing in a Metropolitan Statistical Area (MSA) with a
population of more than 250,000. For all other areas within the
50 states and the District of Columbia, the floor was $475. For
any area outside the 50 states and the District of Columbia, the
$525 and $475 floor amounts also were applied, except that the
2001 floor could not exceed 120 percent of the 2000 floor amount.
As required by law, these payment amounts are increased annually
by a measure of growth in program spending (see discussion of
national growth percentage, below). In 2002, the floor was $553
for the larger MSAs and $500 for the smaller MSAs. The 2003
floors are lower than the 2002 floors; $548 for the larger MSAs
and $495 for the smaller MSAs./11/ In 2003, M+C payments in only
6 counties are based on the floor payments, because these counties
were able to change their designation from a low floor county
payment area to a high floor county payment area./12/ The 2003
payment to M+C organizations in these counties is based on the
floor payment of $548. For 2004, the floor amounts will be
$592 for larger MSAs and $536 for smaller MSAs.
MINIMUM PERCENTAGE INCREASE
The minimum increase rule protects counties that would
otherwise receive only a small (if any) increase. In 1998, the
minimum rate for any payment area was 102 percent of its 1997 AAPCC.
For 1999 and 2000, the increase was 102 percent of the annual M+C
per capita rate for the previous year. BIPA applied a 3 percent
minimum update for 2001, beginning in March for subsequent years,
the minimum increase returned to an annual January update of an
additional 2 percent over the previous year's amount. The minimum
percentage increase is the only positive update for 2003 M+C
payments./13/
EXCLUSION OF PAYMENTS FOR GRADUATE MEDICAL EDUCATION
Payments for Graduate Medical Education (GME) are excluded
or "carved out" of the payments to M+C plans, phased-in over 5 years.
Specifically, in determining the local rate prior to determining the
blended rate, amounts attributable to payments for GME costs were
deducted from the 1997 payment amount. The percent of GME payments
excluded began at 20 percent in 1998, rising in equal amounts.
Beginning in 2002, GME payments were set to be fully deducted each
year. However, the GME "carve out" will not occur in a year in
which no payment is based on the blended rate, because this carve
out applies only to the blended rate and not to either the minimum
percentage increase or the floor rate. Payments for disproportionate
share hospitals (DSH)/14/ are not carved out.
BUDGET NEUTRALITY
Once the preliminary rate is determined for each county, a
budget neutrality adjustment is required by law to determine final
payment rates. This adjustment is made so that estimated total M+C
payments in a given year will be equal to the total payments that
would be made if payments were based solely on area-specific rates.
A budget neutrality adjustment may be applied only to the blended
rates because rates cannot be reduced below the floor or minimum
increase amounts. As a result of this limitation, it is not always
possible to achieve budget neutrality. The law makes no provision
for achieving budget neutrality after all county rates are assigned
either the floor or minimum increase. When this situation occurred
for the 1998, 1999, 2001, 2002, and 2003 rates, the Centers for
Medicare and Medicaid Services (CMS) chose to waive the budget-
neutrality rule rather than the floor or minimum rate rules. While
the cost of waiving budget neutrality was not significant in 1998
and 1999 (less than $100,000 each year), the estimated cost was
about $1 billion in 2001, $900 million in 2002, $2.9 billion in
2003, and $1.1 billion in 2004.
NATIONAL GROWTH PERCENTAGE
The national per capita M+C growth percentage is defined
as the projected per capita increase in total Medicare expenditures
minus a specific reduction set in law. Because this increase is
tied to total Medicare expenditures, it maintains a link between
Medicare fee-for-service and managed care spending. In 1998, the
reduction was 0.8 percentage points, from 1999 through 2001 it was
0.5 percentage points, and in 2002 the BBRA set the reduction at
0.3 percentage points. There is no reduction after 2002. Starting
with the 1999 M+C payments, adjustments also were made for errors
in the previous years' spending projection.
The national growth percentage for 2001, after the
reduction and adjustments, was -1.3 percent. However because BIPA
set the floor rates in 2001, the national growth percentage was not
used to calculate the floor rate in 2001. It was used only to
calculate the blend rate for 2001.
For 2002, the estimated national growth percentage increase
over the pre-BIPA payment amount (used for January and February 2001)
was 8.3 percent./15/ This figure was based on a 5.6 percent projected
per capita increase in total Medicare expenditures, a 0.3 percentage
point reduction, a minus 0.3 percent adjustment for errors in the
previous years' projection of spending (1998-2001), and an increase
of 3.2 percent to account for the impact of BIPA. The increase used
to calculate the floor payment for 2002 was 5.3 percent, reflecting
only the projected per capita increase in total Medicare expenditures
of 5.6 percent and the 0.3 percentage point reduction. There was no
adjustment for prior years' errors, as the floor amounts were reset
by the amounts established in BIPA.
For 2003, the projected national growth percentage increase
is actually a decrease of 2.9 percent. This decrease reflects a
0.9 percent increase in per capita costs and a negative 3.8 percent
adjustment for prior years' errors. The -2.9 percent factor is used
to update the 2002 blend rate. The 2003 update for the floor is -1
percent, reflecting the same 0.9 percent increase in per capita
costs, but only a 1.9 percent decrease for prior year error in 2002
estimates./16/ Because both of these updates are negative, the
minimum percentage increase is the only positive update for 2003,
yielding the highest M+C payment for most counties.
The projected national growth percentage increase in 2004 is
9.5 percent. This increase reflects a 3.7 percent increase in per
capita costs and a positive 5.6 percent adjustment for prior years'
errors. The 9.5 percent factor is used to update the 2003 blend
rate. The 2004 update for the floor is 8.2 percent, reflecting the
same 3.7 percent increase in per capita costs, but only a 4.3 percent
increase for prior year error in 2003 estimates.
BONUS PAYMENTS
BBRA established a bonus payment to encourage new M+C plans
to enter counties that otherwise would not have a participating plan.
The first plan to enter a previously unserved county (or an area
where all organizations announced their withdrawal from the area as
of October 13, 1999) would receive a 5 percent added payment during
their first year and a 3 percent added payment during their second
year. BIPA further extended these bonus payments for M+C plans to
include areas for which notification had been provided, as of October
3, 2000, that no plans would be available January 1, 2001. For 2003,
6 M+C contracts qualified for these bonus payments for some of the
counties located in the following States; Maryland, Missouri, New
York, Virginia, and Puerto Rico, as well as for some counties in
States served by the Sterling Private Fee-for-Service Plan./17/
RISK ADJUSTMENT
M+C payments are risk adjusted to control for variations in
the cost of providing health care among Medicare beneficiaries. For
example, if sicker and older patients all sign up for one M+C plan,
risk adjustment is designed to compensate the plan for its increased
health expenses. By 2004, three different risk adjustment methods
will have been used to adjust Medicare+Choice payment rates:
- Demographic method (through 1999);
- Principal Inpatient Diagnostic Cost Group (PIP-DCG), which uses
hospital inpatient and demographic data (2000-2003); and
- CMS Hierarchical Condition Category Risk Adjustment Model
(CMS-HCC), which uses ambulatory, inpatient; and demographic
data (beginning in 2004).
The former Medicare risk contract program adjusted the AAPCCs
for demographic risk factors, and when the M+C program was
implemented, it also used only these demographic risk adjusters until
2000. Demographic risk adjusters include adjustments for age, gender,
working status, Medicaid coverage, whether the beneficiary originally
qualified for Medicare on the basis of disability, and institutional
(nursing home) status.
Each aged Medicare beneficiary can be categorized according
to these demographic factors, as shown in Table E-7. Separate
demographic adjustments are made for Part A and Part B of the
Medicare program (Part A adjustments apply to about 56 percent of
the payment and Part B adjustments apply to the remaining 44
percent). The payment to the M+C plan for an individual is adjusted
by the relevant factors. For example, the Part A share of the
payment to an M+C plan for a male beneficiary, aged 75-79 who was
not working, not in an institution and not on Medicaid would be
increased by 5 percent (multiplied by 1.05 as shown in the table).
The Part B share of the payment for that same beneficiary would be
multiplied by a factor of 1.10. For an individual of the same age
who was institutionalized, the payment would be multiplied by 2.25
for the Part A share and 1.95 for the Part B share.
These demographic risk adjusters account for only a very
limited portion of the variation in health care costs. As a result,
the BBA required the Secretary of HHS to develop a new risk
adjustment mechanism that also would consider variations in health
status. Beginning in January 2000, the Centers for Medicare and
Medicaid Services (CMS) implemented this new risk adjustment
mechanism built on 15 principal inpatient diagnostic cost groups
(PIP-DCGs) in order to predict incremental costs above the
average./18/ Table E-8 displays the 15 PIP-DCGs including the
various diagnoses in each category. Per capita payments to plans
are adjusted based on inpatient data using the PIP-DCG adjuster,
for those enrollees with an inpatient stay during the previous
year. Additionally, adjustments are made for demographic factors
(see Table E-9), so that this new system accounts for both
demographic and health-status variations.
The BBRA slowed down the implementation of the Secretary's
proposed phase-in schedule of this new system through 2002, and
BIPA made further revisions to the risk adjustment system. (Plans
were concerned because this new risk adjustment methodology reduces
aggregate M+C payments; slowing down its implementation lessens the
reduction.) Through 2003, 10 percent of payments will include
introduction of risk adjustment using the PIP-DCG method and
90 percent will be based solely on the older demographic method.
One further change required by BIPA, although temporary,
fully implemented risk adjustment based on inpatient hospital
diagnoses for an individual who had a qualifying congestive heart
failure inpatient diagnosis between July 1, 1999 and June 30, 2000,
if that individual was enrolled in a coordinated care plan offered
on January 1, 2001. This applied for only 1 year, beginning on
January 1, 2001. This payment amount was excluded from the
determination of the budget neutrality factor./19/
RISK ADJUSTMENT METHOD IN PLACE FOR 2003
The following illustration examines calculations of risk
factors in 2003, based on two scenarios: 1) the demographically-
based risk adjustment system in place prior to 2000, and 2) the
actual system in place for 2003, which uses a combination of 10
percent of the current health-status-based system and 90 percent
of the old demographic-based system. Comparing these two scenarios
provides an evaluation of the impact of the different risk
adjustment methodologies on M+C payments.
Three beneficiaries are considered; each is male, aged 75.
The illustration assumes that none of these beneficiaries is
disabled, institutionalized, covered by Medicaid, or working. Because
the system is prospective, hospitalization in the prior year, 2002,
would determine the health-status adjustment factor used in 2003.
The first beneficiary was not hospitalized in 2002. The second
was hospitalized in 2002, with a diagnosis of kidney infection
(PIP-DCG code 10), while the third was hospitalized with a diagnosis
of lung cancer (PIP-DCG code 16).
As shown in the scenarios below, monthly payments to plans
for beneficiaries with no prior year hospitalization will be lower
using the current risk adjustment methodology, compared with payments
using the old demographically-based methodology. Through 2003, only
10 percent of the payments will be based on the new methodology,
with the bulk of the payment, 90 percent, based on the old
demographic-only adjusters. Payments for beneficiaries with no prior
year hospitalization will decline even more, as a larger percentage
of the payment is based on the more comprehensive risk adjusters.
Alternatively, for any enrollee with a prior year hospitalization,
payments under the new system will be higher than payments under the
old demographic-only based system. In 2004, the new risk adjustment
methodology will begin to be phased in, taking into account data from
both inpatient and ambulatory settings.
TABLE E-6--MAJOR FACTORS FOR DETERMINING MEDICARE PAYMENTS TO
MEDICARE+CHOICE PLANS
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
TABLE E-7--MEDICARE DEMOGRAPHIC-ONLY RISK ADJUSTMENT FACTORS FOR AGED
BENEFICIARIES, 2003
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
TABLE E-8--DIAGNOSES INCLUDED IN EACH PIP-DCG
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
TABLE E-9--MEDICARE DEMOGRAPHIC AND HEALTH-STATUS BASED RISK
ADJUSTMENT FACTORS, FOR AGED BENEFICIARIES WITH ONE OR MORE
YEARS OF EXPERIENCE, 2003
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Scenario 1: Demographically-Based Risk Adjustment (old system)
Under the old risk adjustment system in place prior to 2000, a plan's
payment was adjusted to reflect the gender and age of the enrollee.
The same adjustments were assigned to all male beneficiaries ages 75
to 79, who were not disabled, institutionalized, covered by Medicaid,
or working, regardless of health status. As shown in Table E-7
separate demographic adjustments are made for Part A and Part B of
the Medicare program, as follows:
- Part A coverage increased by 5 percent (i.e., 1.05 percent of the
payment), and
- Part B coverage increased by 10 percent (i.e., 1.10 percent of
the payment).
The adjustment for Part A applies to about 56 percent of the payment
and the adjustment for Part B applies to the remaining 44 percent,
resulting in a weighted adjustment of about 1.072 to each county
payment, regardless of health status.
As shown below, using the demographically based method,
payments to plans for these three beneficiaries will vary only across
counties and not within counties, from a low of $547 per month per
beneficiary in Arthur, NE to a high of $935 per month per beneficiary
in Richmond, NY (the county with the highest Medicare+Choice rate
nationwide in 2003).
Calculation of Monthly Payment Rate Under Scenario 1
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Scenario 2: Phased-in Health Status Based Risk Adjustment
(using a combination of 10 percent of the new system and 90 percent
of the old system)
Scenario 2 represents the expected payment for 2003 when risk
adjustment is based on 10 percent of the health-status method and
90 percent of the old demographic method. The factors used to
calculate the adjustment under this methodology are found in Table
E-9. For each beneficiary, there is a single adjustment for
demographics (no split between Parts A and B of Medicare). The base
adjustment for a 75 year old male who is not disabled, not a Medicaid
beneficiary, and was not hospitalized during the previous year is
0.907. Adjustments for prior year hospitalizations are added to the
base adjustment. However, only 10 percent of the payment for each of
the three beneficiaries would be based the following applicable
adjustment:
- 0.907 for no prior year hospitalization;
- 0.907+1.170=2.077 for kidney infection (PIP-DCG 10); and
- 0.907+2.438=3.345 for lung cancer (PIP-DCG 16).
The remaining 90 percent of the payment is risk adjusted using the
old methodology (i.e., 90 percent of the 1.072 adjustment for
demographics, found in Scenario 1).
As shown below, payments to plans for these three
beneficiaries range from a low of $539 for a beneficiary in Arthur,
NE with no prior year hospitalization to a high of $1,134 in
Richmond, NY for a beneficiary with a prior year hospitalization
for lung cancer.
Calculation of Monthly Payment Rates Under Scenario 2
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
NEW RISK ADJUSTMENT METHOD IN PLACE FOR 2004
As required by BIPA, beginning in 2004, a new risk adjustment
method will be used to account for more of the variation in health
care expenditures than is accounted for using prior methods. The new
model, the CMS Hierarchical Condition Category Risk Adjustment Model
(CMS-HCC), incorporates data from both inpatient hospital and
ambulatory settings, as well as demographic factors./20/ The CMS-HCC
model categorizes approximately 3,300 International Classification
of Disease (ICD-9) codes into approximately 800 disease clusters,
and further aggregates those into 64 disease categories. The CMS-HCC
also includes several condition-interactions/21/ and demographic
factors, such as age, sex, Medicaid eligibility, and original
disability status. Table E-10 displays a list of disease groups,
interactions, and demographic factors included in the CMS-HCC model.
TABLE E-10--MEDICAL CONDITIONS, MEDICAL CONDITION INTERACTIONS, AND
DEMOGRAPHIC FACTORS INCLUDED IN THE CMS HIERARCHIAL CONDITION
CATEGORY RISK ADJUSTMENT MODEL FOR 2004
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
The payment for an aged beneficiary under the CMS-HCC model
is calculated by summing all of the relevant condition adjustment
factors for the prior year with the demographic adjustment factors
and multiplying that sum by the average payment rate for the
beneficiary's county of residence. Any event which occurs during
the year would be incorporated into the risk adjusted payment for
the following year. Unlike the PIP-DCG method, which allows only
one inpatient diagnosis to modify the payment rate, in general, the
CMS-HCC model takes into account multiple diagnoses./22/ For example, if
in the previous year, a beneficiary has been diagnosed with
congestive heart failure, a hip fracture, and cancer, all of these
conditions would be factored into the risk adjustment for the
beneficiary's 2004 payment. The new risk adjustment will be phased
in at a rate of 30 percent in 2004, 50 percent in 2005, 75 percent
in 2006, and 100 percent beginning in 2007. The portion of the
payment not weighted by the CMS-HCC will be weighted by the
demographic-only method.
ADJUSTED COMMUNITY RATES
M+C plans are required to include all Medicare-covered
services. In some circumstances, plans also may be required to
offer additional benefits or reduced cost sharing to their
beneficiaries. The basic benefit package includes all of the
Medicare-covered benefits (except hospice services) as well as
the additional benefits, as determined by a formula which is set
in law. The adjusted community rate (ACR) mechanism is the process
through which health plans determine the minimum amount of additional
benefits they are required to provide to Medicare enrollees and the
cost sharing they are permitted to charge for those benefits. This
system was in place for the risk contract program and continued with
only a few changes under the M+C program.
In general, no later than July 1 of each year, each M+C
organization is required to submit to the Secretary of HHS, for each
of its M+C plans, specific information about premiums, cost sharing,
and additional benefits (if any). However, as specified below, this
deadline has been and will continue to be shifted through 2004.
Because BIPA was enacted after the July deadline, there was a special
timeline devised for 2001. Plans that previously provided notice
of their intention to terminate contracts or reduce their service
area for 2001 had until January 18, 2001 to rescind their notice and
submit ACR information. Further, any M+C organization that would
receive higher capitation payments as a result of BIPA was required
to submit revised ACR information by January 18, 2001. Plans could
only reduce premiums, reduce cost sharing, enhance benefits, utilize
stabilization funds, or stabilize or enhance beneficiary access to
providers (as long as this did not result in increased beneficiary
premiums, increased cost-sharing, or reduced benefits). Any
regulations that limited stabilization fund amounts were waived,
with respect to ACR submissions.
For 2002, an M+C organization's deadline for notifying CMS
of its intention to renew its contract as well as a final ACR
submission was extended to September 17, 2001. M+C organizations
only had to submit a one-page summary on July 2, 2001 and this was
not binding on the organization. CMS announced this extension in
order to give organizations more time to gather data for forecasting
costs. As part of the Public Health Security and Bioterrorism
Preparedness and Response Act (P.L. 107-188) Congress legislated the
deadline change for 2002, and further, set the deadline for 2003 and
2004 at no later than the second Monday in September. Under current
law, the deadline will return to July 1st of each year, beginning in
2005.
Under Medicare's rules, a plan may not earn a higher return
from its Medicare business than it does in the commercial market.
The Secretary reviews this information and approves or disapproves
the premiums, cost-sharing amounts, and benefits. The Secretary does
not have the authority to review the premiums for either MSA plans
or private fee-for-service plans. Beginning May 1, 2001 ACR
submissions are reviewed by the CMS Chief Actuary.
Beneficiaries share in any projected cost savings between
Medicare's per capita payment to a plan and what it would cost the
plan to provide Medicare benefits to its commercial enrollees. To
accomplish this, plans must provide either reduced cost sharing or
additional benefits to their Medicare enrollees that are valued at
the difference between the projected cost of providing Medicare-
covered services and the expected revenue for Medicare
enrollees./23/ Additionally, beginning in 2003, plans also may
reduce the Medicare Part B premium./24/ Plans can choose which
additional benefits to offer; however, the total cost of these
benefits must at least equal the "savings" from Medicare-covered
services./25/ Plans may also place the additional funds in a
stabilization fund or return funds to the Treasury.
ADDITIONAL OR SUPPLEMENTAL BENEFITS
Nearly all plans offer some benefits to enrollees beyond
those in traditional Medicare (Chart E-6). For example, in 2002,
about 87 percent of M+C enrollees were offered vision care as
part of their lowest premium package, 100 percent were offered
routine physicals, and about 72 percent were offered some coverage
of prescription (outpatient) drugs. Hearing care was offered to
slightly more than half of all enrollees. Other services offered
included preventive dental care, podiatry, and chiropractic services.
While plans may offer even more services, those shown in Chart E-6
are the most frequently offered benefits. Chart E-6 shows that the
percent of enrollees offered these benefits has declined for all
services, except routine physicals between 1999 and 2002. However,
this figure does not show how the generosity of benefits or the
level of cost sharing may have declined over the time period.
TABLE E-11--M+C ENROLLEES WITH DRUG COVERAGE IN
A BASIC PLAN, 1999-2003
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
COVERAGE FOR PRESCRIPTION DRUGS
One of the advantages of Medicare managed care, over
traditional fee-for-service Medicare, is that most plans include some
outpatient prescription drug coverage. However, according to CMS data,
currently fewer enrollees have M+C prescription drug coverage and
among those with coverage, the drug benefit has become less generous
over time. As shown in Table E-11, about 84 percent of enrollees had
prescription drug coverage through a basic plan in 1999, declining to
about 69 percent by 2003. Plans are simultaneously decreasing the
amount of covered drug spending while also increasing out-of-pocket
costs. As shown in Table E-12, very few plans had no limits
(1.4 percent) on drug benefits in 2003 and an increasing number of
plans set annual benefit limits at $500 or less (10.6 percent of
plans in 1999 compared to 53.4 percent of plans in 2003).
As shown in Table E-13, almost all plans required some level
of copayment for prescription drug coverage in 2003 and the copayment
amount has increased over time. About 92 percent of beneficiaries
were offered plans with copayments of $10 or less (including no
copayments) for generic drugs in 1999, compared to 77 percent in
20030. For brand name drugs, the percentage of enrollees with
increased required copayment amounts over time has been even greater.
In 1999, 14 percent of enrollees paid more than a $20 copay for
brand name drugs, compared to over 73 percent in 2003.
TABLE E-12--PERCENT OF ENROLLEES WITH AN ANNUAL DRUG
CAP IN BASIC M+C PLANS, WEIGHTED BY ENROLLMENT, 1999-2003
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
TABLE E-13--PERCENT OF M+C ENROLLEES BY PRESCRIPTION
DRUG CO-PAYMENTS, WEIGHTED BY ENROLLMENT, 1999-2003
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
MEDICARE+CHOICE PREMIUMS
In addition to the Part B premium, plans are permitted to
charge enrollees additional out-of-pocket fees, such as premiums and
coinsurance, depending on which plan the individual elects. However,
organizations may decide to offer zero-premium plans. If Medicare's
per capita payment to a plan exceeds its costs (a "savings" in the
terms of the ACR), the plan may choose to add only enough benefits to
match the savings, requiring no additional premium under the ACR
rules. Another rationale for waiving premiums is to stay competitive
in local markets. In this latter case, the plan may not be at risk
of taking a loss on its Medicare business because profits and overhead
based on commercial rates are included in its allowed costs under the
ACR calculation.
CHART E-6--PERCENT OF M+C ENROLLEES OFFERED BENEFITS
BEYOND TRADITIONAL MEDICARE COVERED SERVICES, IN THE
LOWEST PREMIUM PACKAGE AVAILABLE 1999 AND 2002
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Between 1999 and 2003, the percentage of beneficiaries
nationally with access to a zero premium plan has declined. As shown
in Table E-14, the availability of these plans nationally dropped in
half, from over 60 percent to just under 30 percent. Although, the
data for urban and rural areas were available only through 2001, the
trend seems to indicate that the impact on rural areas was even
greater, especially since these individuals had fewer opportunities
for enrolling in the M+C program and fewer choices among plans.
TABLE E-14--PERCENT OF MEDICARE BENEFICIARIES WITH ACCESS TO A
ZERO-PREMIUM M+C PLAN, BY AREA, 1999-2003
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Table E-15 shows the distribution of M+C enrollees by the
monthly premium amount. Between 2000 and 2003, the percent of
enrollees in zero premium plans declined significantly, so that the
majority of Medicare enrollees were no longer enrolled in zero
premium plans. At the same time, the percent of enrollees paying
over $50 in monthly premiums increased from 7 percent to 35 percent.
In 2003, 0.2 percent of all M+C beneficiaries (or 9,129 individuals)
were enrolled in plans that reduced their monthly Part B premium,
while 4.2 percent of all beneficiaries had access to such a plan.
For comparison, a recent study (see http://caregivers-usa.org/news
/weiss--medigap.html) found that average Medigap premiums ranged
widely, with the national average Medigap premium rate in 2003 for
a 65-year-old female for all plans being $1,412, or nearly $120 per
month.
BENEFICIARY PROTECTIONS
The M+C program includes requirements designed to limit
beneficiaries' financial liability and to assure beneficiaries of
certain rights and remedies. Beneficiary protections or rights
include established beneficiary liability standards, quality
standards, information and disclosure requirements, a grievance
and appeals process, and access to services.
BENEFICIARY FINANCIAL LIABILITY
Enrollees in M+C coordinated care plans are likely to
experience the least amount of out-of-pocket costs (compared to
other M+C options). Cost sharing per enrollee (including premiums)
for covered services cannot be more than the actuarial value of the
deductibles, coinsurance, and copayments under traditional Medicare
(Table E-16). However, while the total of cost sharing is limited,
the plan may set different amounts for specific services, such as a
lower (or higher) deductible for hospital inpatient services or
skilled nursing care services. Enrollees in an M+C coordinated care
plan cannot be charged additional balanced billing amounts by any
providers./26/
The rules for private fee-for-service (PFFS) plans and PPO
demonstration plans are different (Table E-16). Generally, contract
providers will be allowed to bill enrollees in private fee-for-
service plans up to 15 percent above the fee schedule the plan
uses./27/ In contrast to traditional Medicare, this privilege
extends to all categories of providers, including hospitals. For
the PPO demonstration project, the terms of each individual
demonstration proposal specify if, and to what extent, providers
may balance bill.
QUALITY STANDARDS
M+C plans must have a quality assurance program focused on
outcomes for services it provides to enrollees. M+C regulations
established guidelines for organizations to examine the continuity
and coordination of care. These quality standards focus on items
such as high volume, high risk, acute care and chronic care services.
The program must provide the Secretary with information to monitor
and evaluate the plan's quality. Only certain M+C plans (not PFFS,
PPOs, and PPO demonstration plans if so specified in their proposal)
have to comply with other quality assurance requirements, such as
providing for internal peer review, establishing written protocols
for utilization review, and establishing mechanisms to detect under
and overutilization.
Additionally, most Medicare+Choice organizations are subject
to external review for both the quality of their service and their
response to written complaints about poor quality of care. M+C plans
may use Peer Review Organizations (PROs), which also are used for
these functions in traditional fee-for-service Medicare. Private
fee-for-service plans and PPO Demonstration Plans (if specified in
their proposal) that do not have utilization review programs are
exempt from this requirement.
The Secretary is required to ensure that the external review
activities do not duplicate the review activities conducted as part
of the accreditation process. The Secretary may waive the external
review requirements (except in the case of complaints about quality)
for organizations with an excellent record of quality and compliance
with other Medicare+Choice requirements. Plans may be
TABLE E-15--DISTRIBUTION OF M+C ENROLLEES, BY BASIC PREMIUM LEVELS,
2000-2003
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
deemed to have met all these requirements if they are accredited by
an organization approved by the Secretary, according to statutory
requirements.
INFORMATION AND DISCLOSURE REQUIREMENTS
The M+C program requires the Secretary to provide for
activities to disseminate certain information to Medicare
beneficiaries so that they may make informed choices about their
Medicare coverage. This information includes notice of an open
season, a list of plans and plan options, a general description
of the benefits covered under traditional Medicare, a description of
grievance and appeals procedures, and comparative plan information
(such as benefits, premiums, service area, and quality and
performance indicators).
When an M+C organization terminates its contract with CMS,
it must provide and pay for advance written notice to each of its
enrollees, along with a description of alternatives for obtaining
benefits.
Further, M+C organizations must disclose to each enrollee (at
time or enrollment and at least annually) information on their
service area, benefits, the number, mix, and distribution of
providers, out-of-area coverage, emergency coverage, supplemental
benefits, prior authorization rules, plan grievance and appeals
procedures, and the quality assurance program. Other information is
available upon request, such as information on procedures used by the
organization to control utilization of services and expenditures.
GRIEVANCES AND APPEALS
An M+C organization must have procedures for hearing and
resolving grievances between the organization and enrollees. It also
must maintain a process for determining whether an individual
enrolled within the plan is entitled to receive a health service and
the amount (if any) that the individual must pay for the service.
These determinations must be made on a timely basis, appropriate to
the urgency of the situation. A denial of coverage explanation must
state the reasons for the denial, in understandable language, and
also must provide information about the reconsideration and appeal
processes.
An enrollee may request a reconsideration of a determination.
The reconsideration must occur within a time period specified by the
Secretary, but (except where an expedited process is appropriate) no
longer than 60 days after receipt of the request. A reconsideration
of a denial of coverage based on lack of medical necessity must be
made by a physician with appropriate expertise who was not involved
in the initial determination.
An enrollee in an M+C plan or a physician may request an
expedited determination or reconsideration. M+C organizations must
expedite a physician's request for a determination or
reconsideration, if the physician indicates that the normal time
frame could seriously jeopardize the life or health of the enrollee
or the enrollee's ability to regain maximum function.
ACCESS TO SERVICES
Each plan must make benefits available and accessible to its
enrollees within the service area with reasonable promptness, and
must ensure continuity in providing benefits. This care must be
available, when necessary, 24-hours 7 days per week.
Coverage of emergency services for emergency medical conditions is
subject to the prudent layperson standard. This definition states
that an emergency medical condition is one manifesting itself by
acute symptoms of sufficient severity (including severe pain) that a
prudent layperson, who possesses an average knowledge of health and
medicine, could reasonably expect the absence of immediate medical
attention to result in: 1) placing the health of the individual in
serious jeopardy (and in case of a pregnant woman, her health or that
of her unborn child); 2) serious impairment to bodily functions; or
3) serious dysfunction of any bodily organ or part. M+C organizations
are financially responsible for emergency and urgently needed
services. There is no prior authorization requirement for these
services and no requirement that services must be obtained within
the M+C organization. Further, the physician treating the enrollee
must decide when the enrollee may be considered stabilized for
transfer or discharge. That decision is binding on the M+C
organization.
CURRENT PROGRAM STANDARDS AND CONTRACT REQUIREMENTS
MINIMUM ENROLLMENT STANDARDS
Contracts between M+C organizations and CMS are made for at
least 1 year and are automatically renewable, unless either party
gives notice to terminate the contract. Organizations must have at
least 5,000 individuals (or 1,500 in the case of a PSO) who are
receiving health benefits through the organization or at least
1,500 individuals (or 500 in the case of a PSO) who are receiving
health benefits if the organization primarily serves individuals
residing outside of urbanized areas. These minimum requirements may
be waived during the first 3 years of the contract, if the
organization can demonstrate to CMS that it can administer and
manage an M+C contract and also manage the level or risk required
under the contract.
STATE PREEMPTION
Federal standards for M+C plans preempt any inconsistent
state law or regulation with respect to: 1) benefit requirements -
including cost-sharing requirements or summaries and schedules of
benefits; 2) requirements relating to inclusion or treatment by
providers; 3) coverage determinations - including related appeals
and grievance processes; and 4) marketing materials. No premium,
tax, fee, or other similar assessment may be imposed on a plan by
any State.
ORGANIZATIONAL AND FINANCIAL REQUIREMENTS
In general, an M+C organization must be organized and
licensed under State law as a risk-bearing entity eligible to offer
health insurance or health benefits coverage in each State in which
it offers an M+C plan. A Medicare+Choice organization must assume
full risk for Medicare benefits on a prospective basis. However,
this doesn't preclude an organization from obtaining insurance or
making other arrangements to cover certain costs, such as medically
necessary services provided by non-network providers and part of the
costs exceeding its income. The organization also may make
arrangements with providers to assume some or all of the financial
risk for covered benefits they provide; however, PFFS organizations
cannot put providers at risk.
PROVIDER PROTECTIONS AND REQUIREMENTS
Each M+C organization (other than a PFFS) must establish
physician participation procedures that provide: 1) notice of the
participation rules; 2) written notice of adverse participation
decisions; and 3) a process for appealing adverse decisions. The
organization must consult with contracting physicians regarding the
organization's medical policy, quality, and medical management
procedures.
Although plans may include providers only to the extent
necessary to meet the needs of their enrollees, they cannot
discriminate with respect to providers who are acting within the
scope of their license or certification under applicable state law,
solely on the basis of such license or certification. Restricting
communications between providers and their patients (a gag clause)
is prohibited. The use of physician financial incentive plans,
(compensation arrangements between organizations and individual or
groups of physicians that may reduce or limit services) is also
limited.
PROTECTIONS AGAINST FRAUD
M+C organizations also must comply with disclosure and
notification requirements. They must report financial information
to the Secretary covering ownership, transactions between the
organization and parties in interest, and evidence that they are
fiscally sound.
The Secretary must conduct annual audits of the financial
records of at least one-third of the M+C organizations (including
data relating to utilization, costs, and computation of the adjusted
community rate). In addition, the Secretary has the right to examine
the quality, appropriateness, timeliness of services, ability to bear
risk of a plan, as well as the organization's facilities, if
TABLE E-16--BENEFICIARY COST SHARING AND PROVIDER REIMBURSEMENT
UNDER MEDICARE+CHOICE PLANS FOR BASIC BENEFIT PACKAGE
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
there is reasonable evidence of need for such inspection. M+C
organizations must notify the Secretary of loans and other special
financial arrangements made with subcontractors, affiliates, and
related parties.
SANCTIONS AND TERMINATIONS OF CONTRACTS
In certain circumstances, such as a plan that fails to carry
out its contract, the Secretary may impose civil monetary penalties,
temporary suspension of enrollment or even termination of a contract.
The Secretary is authorized to carry out specific remedies in the
event that an M+C organization: 1) fails substantially to provide
medically necessary items and services required to be provided, if
the failure adversely affects the individual; 2) imposes premiums in
excess of those allowed; 3) acts to expel or refuses to reenroll an
individual in violation of stated requirements; 4) engages in any
practice that would have the effect of denying or discouraging
enrollment (except as permitted by law) of eligible individuals
whose medical condition or history indicates a need for substantial
future medical services; 5) misrepresents or falsifies information
to the Secretary or others; 6) fails to comply with rules regarding
physician participation; 7) employs or contracts with any individual
or entity that has been excluded from participation in Medicare; or
8) terminates its contract other than at an appropriate time after
providing appropriate notice.
MEDICARE+CHOICE OPTIONS
In addition to the coordinated care plans typically
associated with managed care, the M+C program offers a variety of
optional arrangements, either through a standard program arrangement
or on a demonstration basis.
PRIVATE FEE-FOR-SERVICE PLANS
Private fee-for-service (PFFS) plans are one of the new types
of private plans available to Medicare beneficiaries as a result of
the Balanced Budget Act of 1997./28/ A PFFS plan has three defining
characteristics that distinguish it from other Medicare+Choice
options: 1) it allows any provider to participate who is both
lawfully authorized to serve Medicare beneficiaries and who accepts
the plan's terms of payment; 2) it pays providers at a rate
determined on a fee-for-service basis without placing providers at
financial risk; and 3) it does not vary payment rates based on how
often a particular service is provided.
PFFS plans, like traditional Medicare, allow providers to
deliver medical care without joining a network. Providers are paid
on a fee-for-service basis so they do not accept financial risk or
reduced payments and, they do no face incentives to either limit
services or limit referrals to specialists. Providers under PFFS
plans may bill enrollees up to 15 percent more than the plan's
allowable rate, while providers in other types of M+C plans may not
"balance bill."/29/ Moreover, PFFS plans have fewer restrictions on
balance billing than traditional fee-for-service Medicare. Unlike
Medicare providers; however, PFFS providers can lose reimbursements
if the PFFS plan becomes insolvent.
Beneficiaries choosing a PFFS plan can choose any provider
who is willing to provide services and who accepts the PFFS plan's
terms of payment. The beneficiary must inform the provider of his
or her enrollment in the PFFS plan. The PFFS plan may offer
additional benefits beyond those covered under traditional Medicare,
but also may charge an additional premium for these services. If
providers choose not to accept a PFFS plan, beneficiary choice
would be limited, much as it would be under a network.
Currently, Sterling Life Insurance Company and Humana Inc.
offer the only Medicare PFFS plans./30/ They operate in 27
States,/31/
over half of all United States counties, and are available to about
37 percent of all Medicare beneficiaries. Sterling and Humana
primarily serve rural counties that previously did not have a M+C
option. Possible reasons for serving those areas are: 1) on average,
Medicare+Choice rates are higher than the average cost of traditional
Medicare in those counties; 2) an organization receives a bonus
(5 percent the first year and 3 percent the second year/32/) for
serving counties not served by any other Medicare+Choice plan; 3)
PFFS does not require a network of providers, which is difficult to
assemble in rural areas; and 4) for Sterling, its parent company has
specialized in serving rural areas. Both organizations pay providers
the same rate they would receive from traditional Medicare, and
prohibit balance billing.
Sterling provides very few additional benefits beyond the
required Medicare benefit package. It provides worldwide emergency
hospital care, but does not provide coverage for outpatient
prescription drugs, eye exams, hearing aids, or glasses. For 2003,
Sterling enrollees must pay between $88 and $108 in monthly premiums
depending on where they live, in addition to the standard Medicare
Part B premium of $58.70. Humana provides a limited drug benefit
under one of its plans, but few additional benefits. Humana enrollees
pay $19 in monthly premiums, except for those in DuPage, Illinois who
pay $89 per month, in addition to the Part B premium. Humana
enrollees have an out-of-pocket limit of $5,000. PFFS enrollees might
experience lower (or higher) cost sharing under either Sterling and
Humana than under fee-for-service Medicare, depending on the exact
quantity and mix of services that they use.
As of March 2003, approximately 21,000 of the over 14 million
Medicare beneficiaries who had access to a PFFS plan chose to enroll
in one. Though most of the 27 States served by a PFFS plan have
received some enrollment, the highest proportion of enrollees live
in Louisiana (16 percent), Texas (15 percent), Washington (13
percent), Illinois (9 percent), and Pennsylvania (8 percent). About
two-thirds of PFFS enrollees did not have a choice of another
Medicare+Choice plan.
As PFFS plans have been available only since July 2000, it
will take some more time to determine: 1) their ability and desire
to remain in the M+C program; 2) the impact of these kinds of plans
on beneficiary and provider satisfaction; and 3) the relative cost of
PFFS plans compared to other M+C options as well as fee-for-service.
PREFERRED PROVIDER ORGANIZATION DEMONSTRATION
On April 15, 2002, CMS announced a 3-year Preferred Provider
Organization (PPO) demonstration project within the M+C program. A
PPO is a type of managed care plan arrangement under which insurers
contract with doctors and hospitals who agree to provide their
services on a fee-for-service basis at negotiated rates which are
lower than those charged to non-enrollees. PPOs are not a new option
for the M+C program as they have been able to serve beneficiaries
since the passage of BBA. However, in 2003, only three PPOs
participate in the M+C program. The PPO demonstration differs from
standard PPOs in that it is designed to test whether or not changes
in payment rates, risk sharing, and administrative requirements will
encourage greater plan participation./33/ First, while PPO plans
outside of the demonstration are paid under the regular M+C payment
system, plans in the PPO demonstration are paid the largest of either
the M+C payment rate, or 99 percent of per capita fee-for-service in
the county (excluding all graduate medical education expenditures).
Second, non-demonstration PPO plans are at full financial risk for
higher-than-expected medical costs accrued by their enrollees. Plans
in the PPO demonstration have the option of sharing financial risk
with CMS, according to a risk-sharing agreements which may vary from
plan to plan. A risk-sharing agreement defines a target medical loss
ratio, or the percent of revenue devoted to providing medical
services. Plans are at financial risk if their actual medical loss
ratio is 2 percentage points above or below the target. Beyond
2 percentage points, CMS and the plan share the risk according to
their agreement, though CMS is never at risk for more than 80 percent
of the amount beyond 2 percentage points from the target. The risk-
sharing agreements are symmetrical, so if the actual medical loss
ratio is less than 2 percentage points from the target, CMS shares
in the excess profit, and if it is more than 2 percentage points
from the target, CMS shares in the additional costs. The third
difference between a PPO within and outside of the demonstration
pertains to quality assurance requirements. PPOs outside of the
demonstration must comply with the same quality assurance
requirements as health maintenance organizations (HMOs). PPOs in the
demonstration, however, may comply with the "less prescriptive
quality requirements" required of private fee-for-service plans./34/
The higher payment rate, the risk sharing agreements, and the
decreased quality assurance requirements may encourage greater plan
participation, though to what extent it will encourage participation
is uncertain.
PPOs participating in the demonstration must offer
beneficiaries the standard Medicare fee-for-service benefits, and
they may offer additional benefits such as prescription drugs. CMS
expects the monthly premium and cost sharing of the demonstration
plans to be higher than those of M+C HMOs, but less than the
premiums of Medicare supplemental insurance policies. Beneficiaries
enrolled in a PPO may seek care from any provider, though they have
a financial incentive to use doctors and hospitals in the PPO's
network. For some beneficiaries, the additional benefits (if offered)
and greater provider choice may be worth the higher cost sharing
required under the demonstration plans.
In 2003, PPO demonstration plans are offered by 17
organizations in 23 States, with an enrollment of 56,667 as of
March 2003 - the first 3 months of the program. Approximately 11
million beneficiaries in 243 counties have access to one of the
demonstrations, of which about 2.2 million already are enrolled in a
Medicare+Choice plan. The organizations offering the PPO
demonstrations have chosen to offer them primarily in areas that
already are being served by M+C organizations, possibly to capitalize
on their existing provider networks, or because of favorable market
conditions. Only 4 percent of beneficiaries in the PPO demonstration
service area do not have another M+C option.
For 80 percent of counties served by a PPO demonstration in
2003, the M+C payment rate is higher than 99 percent of fee-for-
service expenditures in the county, thus plan payment rates will be
based on the M+C rate./35/ PPO demonstration plans serving the
remaining 20 percent of counties will be paid the 99 percent of FFS
rate, which is higher than the M+C rate.
REASONABLE COST CONTRACTS
The BBA included provisions to phase out the reasonable cost
contracts. Cost-based contracts are paid on the basis of the
reasonable cost actually incurred to provide Medicare covered
services to enrollees. Reasonable cost contract plans are paid a
monthly interim per capita rate for each Medicare enrollee. Total
monthly payments are determined by multiplying the interim per
capita rate by the number of the enrollees, plus or minus adjustments
made by CMS. Further adjustments may be made at the end of the
contract period to reconcile interim payments with reimbursement
amounts payable for services furnished to Medicare enrollees
during that period. Since the passage of BBA, the contracts have
been extended and currently, the Secretary cannot extend or renew
a reasonable cost reimbursement contract for any period beyond
December 31, 2004. As of March 2003, there were over 334,000
Medicare enrollees in cost contract plans.
A Health Care Prepayment Plan (HCPP) is another type of
managed care arrangement created prior to the BBA. HCPPs cover only
Part B services of Medicare. HCPPs are a specific type of cost-based
plan which is either 1) sponsored by a union or an employer, or 2)
does not provide or arrange for the provision of any inpatient
hospital services. HCPPs are responsible for the organization,
financing, and delivery of covered Part B services on a prepayment
basis./36/ In March 2003, 15 HCPPs provided Part B services to
101,728 enrollees.
PROGRAM FOR ALL INCLUSIVE CARE OF THE ELDERLY (PACE)
The Program of All-Inclusive Care for the Elderly (PACE) was
created as a demonstration project in Omnibus Budget Reconciliation
Act (OBRA) of 1986. The Secretary was required to grant waivers of
certain Medicare and Medicaid requirements to community-based
organizations to provide health and long-term care services on a
capitated basis to frail elderly persons at risk of being
institutionalized. BBA made PACE a permanent part of Medicare and
a State option for the Medicaid program.
The PACE model was developed to address the needs of long-
term care clients, providers, and payers. PACE providers receive
monthly Medicare and Medicaid capitation payments for each eligible
enrollee. The Medicare portion of the provider payment is based on
the M+C capitation rate with a frailty adjuster. PACE providers
assume full financial risk for participants' care, without limits
on amount, duration, or scope of services. As of March 2003, there
were about 2,000 Medicare enrollees in PACE plans.
SOCIAL HEALTH MAINTENANCE ORGANIZATION DEMONSTRATION
The Deficit Reduction Act of 1984 established a 3-year Social
Health Maintenance Organizations (SHMO) demonstration to provide
prepaid, capitated payments for integrated health and long-term care
services. Payments are based on adjustments to the M+C capitation
rate. The demonstration has been extended several times.
MEDICAL SAVINGS ACCOUNT DEMONSTRATION
The Balanced Budget Act authorized a demonstration to test
the feasibility of medical savings accounts for the Medicare program.
The M+C option combined a health insurance plan with a large
deductible and an M+C MSA. Contributions to an M+C MSA would be made
annually from the enrollee's capitation rate after the plan's
insurance premium had been paid. These contributions as well as
account earnings would be exempt from taxes. Withdrawals used to pay
unreimbursed enrollee medical expenses (that are deductible under the
Internal Revenue Code) would not be taxed. New enrollments would be
allowed after 2002 or after the number of enrollees reached 390,000.
However, no private plans established an M+C MSA for Medicare
beneficiaries before the deadline.
MEDICARE COMPETITIVE PRICING DEMONSTRATION
Under its demonstration authority, CMS attempted to initiate
a project to determine if negotiated rates could increase the
efficiency and economy of providing Medicare services through
coordinated care plans. CMS's initial plan called for the
application of competitive bidding as a method for establishing
payments for risk contract HMOs in either the Baltimore or the
Denver area. Through a combination of court and legislative
decisions, these demonstrations have been terminated.
The Balanced Budget Act of 1997 required the Secretary of HHS
to establish a demonstration project under which payments to M+C
organizations in certain areas are determined in accordance with a
competitive pricing methodology.
The Secretary was required to designate, in accordance with
recommendations of the newly created Competitive Pricing Advisory
Committee (CPAC) up to seven Medicare payment areas in which the
project would be conducted. The Secretary was to (in accordance
with recommendations of the CPAC) establish the benefit design
among plans, structure the method for selecting plans, establish
methods for setting the price to be paid to plans, and provide for
the collection and dissemination of plan information. The first
two sites chosen were Phoenix, Arizona, and Kansas City,
Kansas/Kansas City, Missouri. However, both the BBRA and the
Consolidated Appropriations Act of 2000 altered the terms of this
demonstration. The Appropriation Act disallowed any funding of
the demonstration for 2000 in Arizona and parts of Kansas and
Missouri. The BBRA delayed implementation of the project until
January 1, 2002 or, if later, 6 months after CPAC submits reports
on: 1) incorporating original fee-for-service Medicare into the
demonstration; 2) quality activities required by participating
plans; 3) the viability of expanding the demonstration project
to a rural site; and 4) the nature of the benefit structure
required from plans that participate in the demonstration. The
Secretary also is required (subject to CPAC recommendations) to allow
plans that make bids below the established government contribution
rate to offer beneficiaries Part B premium rebates.
CPAC submitted its report to Congress in January 2001. In its
report, CPAC highlighted several lessons learned from the competitive
bidding demonstrations. Though the demonstrations never were
implemented, CPAC noted that the preliminary stages were completed
expeditiously and without administrative difficulties. The latest
round of demonstrations showed how benefits could be standardized
under competitive bidding, particularly a prescription drug benefit.
Area Advisory Committees (AAC) for each area helped to develop a
standardized benefit which reflected local market characteristics
and the views of the various stakeholders. However, according to
CPAC, the proposed demonstration project underestimated the
importance of educating and communicating with health plans, health
care providers, and other stakeholders. Further, because the
demonstrations never were implemented, they did not provide
information about whether competitive bidding would result in more
efficient Medicare+Choice payments./37/
1 For a more detailed analysis of PFFS plans see CRS Report RL31122,
Medicare+Choice: Private Fee-for-Service Plans, by Paulette Morgan
and Madeleine Smith.
2 Although most of the components of the M+C program were effective
in 1999, the M+C payment structure was implemented in 1998.
3 The BBA changed the designation of "plans", beginning in 1999. The
old definition of "plans" is now referred to as "contracts" and each
contract may include several different "plans". In Mar. 2003 there
were about 442 plans available through 146 M+C contracts. For
example, the M+C organization may offer one plan providing only the
basic Medicare-covered benefits and other plans that also include
optional supplemental benefits.
4 M+C organizations can vary premiums, benefits, and cost-sharing
across individuals enrolled in a plan, so long as these are uniform
within segments of a service area. A segment is defined as one or
more counties within the plan's service area.
5 Prior to the passage of the Public Health Security and Bioterrorism
Preparedness and Response Act (P.L. 107-188), individuals were able to
make and change elections on an ongoing basis only through 2002.
6 Institutionalized beneficiaries will continue to have access to
ongoing open enrollment for purposes of enrolling in an M+C plan or
changing from one M+C plan to another.
7 Prior to enactment of the BBA, payments for care of Medicare
beneficiaries in risk health maintenance organizations (HMOs) were
based on the adjusted average per capita costs (AAPCC). The AAPCC
represented a monthly payment to cover the cost of treatment in a
Medicare risk HMO. It was calculated according to a complex formula
based on the cost of providing Medicare benefits to beneficiaries in
the fee-for-service portion of the Medicare program. The per capita
payment was set at 95 percent of the AAPCC, and was adjusted for
certain demographic characteristics of HMO enrollees. Payments based
on the AAPCC varied widely across the country. In addition, county
payments fluctuated year to year.
8 A state may request a geographic adjustment to a payment area to
establish a single statewide M+C area, a metropolitan based system,
or the consolidation into a single area of noncontiguous counties.
For disabled and ESRD beneficiaries, payment rates are set using a
similar method as that for aged beneficiaries, except that ESRD rates
are calculated on a statewide basis. Beginning in January 2002,
BIPA required that the Secretary increase the M+C payment rates for
enrollees with ESRD to reflect the demonstration rate (including the
risk-adjustment methodology) of social health maintenance
organizations' (SHMO) ESRD capitation demonstrations. The revised
rates increased the base rate by 3 percent and also included
adjustments for age and sex factors. Beginning January 2005, CMS
plans to incorporate M+C enrollees with ESRD into the new risk
adjustment model (using a ESRD specific version of the model) in an
effort to further align payments with the method used in the ESRD
SHMO demonstration.
9 Medicare pays for both the direct and indirect costs of GME.
Direct payments include payment for expenses such as salaries of
residents, interns, and faculty. The indirect adjustment accounts for
factors not directly related to education which may increase the
costs in teaching hospitals, such as more severely ill patients and
increased testing.
10 Generally, increases in M+C payments are effective on January 1
of each year. However, the changes resulting from BIPA were
effective on March 1, 2001. As a result, M+C plans were paid at a
pre-BIPA rate for January and February of 2001, and then beginning in
March the new rates went into effect. In future years, increases are
effective on January 1.
11 See discussion of national growth percentage for an explanation
of how the adjustment for prior year's errors actually lowers the
floor payments in 2003.
12 M+C payments for five of these counties were set at the lower
floor rate in 2002, while payments for the sixth county were set at
the minimum update rate in 2002. Regardless of their actual 2002
payment amount, the high floor amount yields the highest M+C payment
for each of these six counties in 2003.
13 If the Secretary determines that a change in the Medicare covered
benefits would result in a significant increase in cost to M+C plans,
the Secretary is required to adjust appropriately the M+C payments to
reflect this greater cost. In 2004, an adjustment of 0.2 percent
will be added to M+C payments to account for changes in Medicare
coverage. The 0.2 percent adjustment will result in a 2.2 percent
increase above the 2003 payment for counties receiving the minimum
percentage increase payment in 2004.
14 DSH payments are a payment adjustment for the higher costs that
hospitals incur as a result of serving a large number of low income
patients.
15 Because BIPA increased M+C payments beginning in March 2001, CMS
calculated a revised national growth percentage of 4.9 percent for
2002 to be applied to these new BIPA payment levels. The difference
between the revised national growth percentage increase and the
original increase is the 3.2 percent increase for BIPA adjustments.
It was not necessary to include this 3.2 percent adjustment in the
revised increase, as it was already reflected in the Mar. 1, 2001
payment levels.16 Because BIPA reset the floor payments in 2001,
adjustments will only be made for prior year errors occurring in
2002 and beyond.
17 Sterling qualified for a bonus in some of the counties located
in Alaska, Arizona, Iowa, Illinois, Montana, Oklahoma, Pennsylvania,
South Carolina and Washington State. (For a more detailed discussion
of Medicare private fee-for-service plans, See CRS Report, RL31122,
Medicare+Choice Private Fee-for-Service Plans, by Paulette Morgan
and Madeleine Smith.)
18 In a March 1999 report to Congress, CMS calculated that the
PIP-DCG model offered a substantial improvement in explaining
variations in health spending over the demographic risk adjustment
model. The demographic adjuster model was estimated to explain about
1 percent of the variation in health spending among individuals,
while the PIP-DCG model was estimated to explain about 6 percent of
individual variation. According to CMS, the new CMS-HCC model
described below is estimated to explain approximately 9.8 percent of
the variation in health care spending among individuals.
19 This payment adjustment is different from CMS's initiative for
the "Extra Payment in Recognition of the Costs of Successful
Outpatient Congestive Heart Failure Care."
20 On May 25, 2001 CMS announced that M+C organizations would not
be required to submit hospital outpatient or physician encounter
data for dates of service prior to July 1, 2002. Data collection
requirements and procedures were revised to reduce administrative
burden, and data collection began in July 2002. Data collected
between July 1, 2002 and June 30, 2003 will be used to calculate
risk adjustment factors for CY2004 M+C payments.
21 Separate adjustment factors are listed for certain combinations
of conditions, such as diabetes and congestive heart failure,
because the cost of treating a beneficiary with the combination is
greater than could be accounted for by the sum of the two separate
risk adjustment factors.
22 If a beneficiary's illness progresses within a disease process,
such as diabetes with increasing severity, only the most costly
diagnosis made for the beneficiary will be applied to the payment
rate.
23 Alternatively, under the ACR process, plans also may charge a
premium if they demonstrate higher "costs", rather than "savings"
for providing the basic benefit package. For the basic benefit
package and any required additional services in an M+C plan, the
beneficiary premium and actuarial value of the deductibles,
coinsurance, and copayments on average to enrolled individuals may
not exceed the actuarial value of the deductibles, coinsurance, and
copayments that would be applicable on average to individuals
entitled to Part A and enrolled under Part B if they were not in an
M+C plan.
24 All M+C enrollees (as well as FFS Medicare beneficiaries enrolled
in Part B) are required to pay the Medicare Part B monthly premium.
The monthly premium was set at $45.50 for 2000, $50 for 2001, $54 for
2002 and $58.70 for 2003. Beginning in 2003, an M+C organization may
elect to reduce its M+C payment up to 125 percent of the annual
Part B premium. However, only 80 percent of this amount can be used
to reduce an enrollee's actual Part B premium. This has the effect
of returning up to 100 percent of the beneficiary's Part B premium.
The reduction applies uniformly to each enrollee in the plan. Plans
must include information about Part B premium reductions as part of
the required information that is provided to enrollees for comparing
plan options.
25 Plans may also offer extra benefits beyond the "additional"
benefits required to spend the "savings" calculated in the ACR
process. These extra benefits are referred to as "supplemental"
benefits. Plans are permitted to charge Medicare enrollees the
expected cost of these supplemental benefits, plus the national
average amount of beneficiary cost sharing for Medicare-covered
services. Plans can collect these payments through a combination of
cost sharing and premiums, but the sum of the premiums and the
actuarial value of the deductibles, coinsurance and copayments for
such benefits may not exceed the adjusted community rate for these
benefits. Plans may choose to waive part or all of this allowable
premium for all enrollees.
26 Coordinated care plans must pay a noncontracting provider at
least the same amount they would have received if the enrollee was in
traditional Medicare, including allowed balance billing amounts.
A "contract provider" is a provider who enters into an explicit
agreement with a plan establishing payment amounts for services
rendered to the plan's enrollees. A non-contracting provider also
may provide services, but does not have an explicit agreement with
the plan.
27 The two PFFS plans currently offered in the M+C program do not
allow providers to balance bill.
28 For a more detailed analysis of PFFS plans, see CRS Report
RL31122, Medicare+Choice: Private Fee-for-Service Plans, by
Paulette Morgan and Madeleine Smith.
29 Both of the PFFS plans currently available to beneficiaries
(Sterling and Humana) do not allow providers to balance bill
enrollees.
30 Beneficiaries in Sterling's service area were able to enroll as of
July 2000. Beneficiaries in Humana's service area were able to enroll
as of January 2003. In addition to the two standard PFFS plans, there
is also a PFFS demonstration plan available in 2003, with 1,748
enrollees as of March 2003.
31 A PFFS plan is available to beneficiaries in all or part of the
following States: Alaska, Arizona, Arkansas (part), Delaware, Idaho,
Illinois, Iowa, Kentucky, Louisiana (part), Minnesota, Montana (part),
Nebraska, Nevada, New Mexico, North Dakota (part), Ohio (part),
Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota (part),
Tennessee (part), Texas (part), Utah, Washington, West Virginia (part),
and Wisconsin.
32 While bonus payments may have been an incentive for PFFS plans in
previous years, these bonus payments will no longer be available to
plans beginning in 2004.
33 42 U.S.C. 1395b-1(a)(1)(A) grants the Secretary of Health and
Human Services the authority to conduct demonstration projects to
determine if changes in methods of payment would increase the
efficiency and economy of health services.
34 Solicitation for Proposals for Medicare Preferred Provider
Organization (PPO) Demonstrations in the Medicare+Choice program
[CMS-4042-N].
35 Information on FFS expenditures per county can be found at
[http://www.cms.hhs.gov/healthplans/research/ppodemo.asp], last
accessed March 31, 2003.
36 42 C.F.R. 417.800.
37 For more information about Competitive Bidding, please see CRS
Report RL31434 Medicare+Choice: Using Competitive Bidding to
Determine Payments, by Christopher J. Sroka.